Cheaper but not inferior: valuation re-rating potential
Sritex’s profitability metrics are comparable to some of its far larger regional peers. ROE at 20% is just slightly below the regional average of 21% and its EBITDA margin of 19% is above the regional average. Compared to its domestic peer Pan Brothers, Sritex’s profitability is much uperior. Despite its comparable profitability and having the highest growth outlook, the Sritex stock is significantly cheaper than its regional peers. On FY18E P/E, the current valuation of 5.6x is at a 65% discount to the regional peers’ average of 16.2x.
Given the company’s profitability and growth outlook, we expect the Sritex stock to re-rate and narrow the steep discount to peers. To be conservative, and to reflect a smaller market cap and a relatively high degree of volatility for the stock, we value Sritex by applying a 40% discount to the 16.2x regional peer average for FY18E P/E, for a target multiple of 9.7x and thus a TP of Rp580. Sritex’s ADTV of US$6m (3months average) compares favorably with the US$1m of Pan Brothers.
Note:
SRIL lebih murah dibanding prsh sejenis di regional dan di IDX dengan PE hanya 5.6x SRIL sangat menarik
SRIL BUY TP 580
Citi (CG)
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