Arwana Citramulia (ARNA IJ) (Buy) - Robust sales recovery, though margin lags

Robust sales recovery, though margin lags

Maintain Buy with lower TP of IDR820

Capitalizing on anti-dumping duties

Indonesia’s ceramic industry is showing positive developments after the anti-dumping duty announcement (see here), with ceramics imports from China continuing to decline, in line with rising utilization in the domestic ceramic industry. This has improved ARNA’s plant utilization to 100% from its lowest level of 81% in 2023, allowing ARNA to improve volume and ASP, which grew 5% and 8%, respectively, in 9M25. We see potential for lower Chinese ceramics imports as the anti-dumping tariff will likely continue until 2029.

Pricing in higher gas price onwards

Despite securing a regulated gas program incentive capacity of US$6/mmbtu, we estimate that ARNA’s 9M25 gas cost realization is close to US$8/mmbtu. We believe the partial allocation of gas price incentive will likely be the base case in the future. As such, we raise our gas price assumption, pricing in US$8.2 in 2025F (previously US$7), with a gradual increase onwards. Our sensitivity analysis suggests that every US$1/mmbtu change in gas price will likely affect 2026F NPAT/TP by -11%/-10%.

Buyback and shareholder buying signal confidence

ARNA recently announced IDR50bn of buyback (1%/4% of outstanding shares/free float), signalling a short-term support for the current share price. Additionally, one of ARNA’s controlling shareholders (Suprakreasi Eradinamika, unlisted) continues to buy the shares, accumulating 0.3% of outstanding shares. Both in our view signal the owners’ confidence in ARNA’s operational and outlook, while supporting the share price in the near-term.

Maintain Buy with TP cut to IDR820; dividend yield at 7.1%

We maintain our Buy rating with a lower DCF-based TP of IDR820, assuming a WACC of 11% (vs. 12% earlier) as we adjust our FY25-27F revenue/NPAT by an average of +2%/-18%, adjusting for the delayed factory construction and higher gas price. We expect ARNA to achieve higher ASP given the growing contribution of rectified red-body ceramics. Our TP implies 12x FY26F P/E (vs. currently at 8x), at the five-year average, still at discounted P/E multiple vs. peers (13x FY26E; Bloomberg consensus). Additionally, after our earnings cut ARNA offers 7.1% yield in 2026F. Downside risks to our call are: 1) higher-than-expected gas price; 2) changes in import duties regulation; 3) competition from non-Chinese players.

Year-end 31 Dec	FY24		FY25F		FY26F		FY27F
Currency (IDR)	Actual	Old	New	Old	New	Old	New
Revenue (bn)	2,632	2,903	2,955	3,238	3,320	0	3,556
Reported net profit (bn)	426	501	410	580	480	0	527
Normalised net profit (bn)	426	501	410	580	480	0	527
FD normalised EPS	58.03	68.18	55.88	79.05	65.32		71.73
FD norm. EPS growth (%)	-4.3	17.8	-3.7	15.9	16.9		9.8
FD normalised P/E (x)	9.5	–	9.8	–	8.4	–	7.7
EV/EBITDA (x)	5.8	–	5.8	–	5.1	–	4.5
Price/book (x)	2.2	–	2.1	–	1.9	–	1.7
Dividend yield (%)	7.7	–	7.4	–	7.1	–	8.3
ROE (%)	23.2	24.6	21.6	25.7	23.4		23.5
Net debt/equity (%)	net cash	net cash	net cash	net cash	net cash		net cash

Source: Company data, Verdhana estimates

Key data on Arwana Citramulia

Income statement (IDRbn)
Year-end 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Revenue	2,447	2,632	2,955	3,320	3,556
Cost of goods sold	-1,543	-1,728	-2,022	-2,247	-2,387
Gross profit	904	904	933	1,073	1,169
SG&A	-341	-367	-399	-448	-480
Employee share expense	0	0	0	0	0
Operating profit	563	537	534	625	689
EBITDA	676	649	661	764	838
Depreciation	-113	-112	-127	-139	-149
Amortisation	0	0	0	0	0
EBIT	563	537	534	625	689
Net interest expense	-11	-14	-13	-13	-13
Associates & JCEs	0	0	0	0	0
Other income	23	24	10	8	6
Earnings before tax	576	548	530	620	681
Income tax	-127	-118	-117	-136	-150
Net profit after tax	449	430	414	484	531
Minority interests	-4	-4	-3	-4	-4
Other items	0	0	0	0	0
Preferred dividends	0	0	0	0	0
Normalised NPAT	445	426	410	480	527
Extraordinary items	0	0	0	0	0
Reported NPAT	445	426	410	480	527
Dividends	-401	-311	-298	-287	-336
Transfer to reserves	44	115	112	192	191
Valuations and ratios
Reported P/E (x)	9.1	9.5	9.8	8.4	7.7
Normalised P/E (x)	9.1	9.5	9.8	8.4	7.7
FD normalised P/E (x)	9.1	9.5	9.8	8.4	7.7
Dividend yield (%)	9.9	7.7	7.4	7.1	8.3
Price/cashflow (x)	7.5	7.1	9.2	7.6	6.4
Price/book (x)	2.2	2.2	2.1	1.9	1.7
EV/EBITDA (x)	5.5	5.8	5.8	5.1	4.5
EV/EBIT (x)	6.6	7.0	7.2	6.2	5.5
Gross margin (%)	36.9	34.4	31.6	32.3	32.9
EBITDA margin (%)	27.6	24.7	22.4	23.0	23.6
EBIT margin (%)	23.0	20.4	18.1	18.8	19.4
Net margin (%)	18.2	16.2	13.9	14.4	14.8
Effective tax rate (%)	22.0	21.6	22.0	22.0	22.0
Dividend payout (%)	90.1	73.1	72.7	59.9	63.7
ROE (%)	24.6	23.2	21.6	23.4	23.5
ROA (pretax %)	26.1	24.2	22.3	23.4	23.7
Growth (%)
Revenue	-5.4	7.6	12.2	12.4	7.1
EBITDA	-19.4	-3.9	1.8	15.7	9.6
Normalised EPS	-22.7	-4.3	-3.7	16.9	9.8
Normalised FDEPS	-22.7	-4.3	-3.7	16.9	9.8
Source: Company data, Verdhana estimates

Cashflow statement (IDRbn)
Year-end 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
EBITDA	676	649	661	764	838
Change in working capital	-64	89	-101	-92	-42
Other operating cashflow	-72	-169	-122	-143	-161
Cashflow from operations	539	570	439	529	635
Capital expenditure	-173	-202	-200	-300	-200
Free cashflow	366	367	239	229	435
Reduction in investments		0	0	0	0
Net acquisitions	0	0	0	0
Dec in other LT assets		0	0	0	-4
Inc in other LT liabilities		0	0	0	6
Adjustments	-1	-8	0	0	0
CF after investing acts	365	359	239	229	436
Cash dividends	-401	-311	-298	-287	-336
Equity issue	0	0	0	0
Debt issue	61	-4	0	0	0
Convertible debt issue	0	0	0	0
Others	-22	-92	1	1	0
CF from financial acts	-363	-408	-297	-286	-336
Net cashflow	2	-49	-59	-57	101
Beginning cash	438	441	392	333	276
Ending cash	441	392	333	276	377
Ending net debt	-330	-285	-227	-170	-270
Balance sheet (IDRbn)
As at 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Cash & equivalents	441	392	333	276	377
Marketable securities	0	0	0	0	0
Accounts receivable	856	921	1,033	1,162	1,244
Inventories	255	166	222	231	253
Other current assets	23	27	31	35	37
Total current assets	1,574	1,506	1,619	1,703	1,911
LT investments	0	0	0	0	0
Fixed assets	1,007	1,106	1,179	1,340	1,391
Goodwill	0	0	0	0	0
Other intangible assets	0	0	0	0	0
Other LT assets	40	49	55	62	66
Total assets	2,620	2,661	2,853	3,105	3,368
Short-term debt	111	107	107	107	107
Accounts payable	306	325	360	369	409
Other current liabilities	235	287	322	362	388
Total current liabilities	652	718	789	838	903
Long-term debt	0	0	0	0
Convertible debt	0	0	0	0
Other LT liabilities	113	66	74	83	89
Total liabilities	765	784	863	921	992
Minority interest	32	34	35	36	37
Preferred stock	0	0	0	0	0
Common stock	98	98	98	98	98
Retained earnings	1,776	1,892	2,004	2,196	2,387
Proposed dividends	0	0	0	0	0
Other equity and reserves	-50	-146	-146	-146	-146
Total shareholders' equity	1,824	1,844	1,956	2,148	2,339
Total equity & liabilities	2,620	2,661	2,853	3,105	3,368
Liquidity (x)
Current ratio	2.41	2.10	2.05	2.03	2.12
Interest cover	51.9	39.1	39.6	46.4	51.1
Leverage
Net debt/EBITDA (x)	net cash	net cash	net cash	net cash	net cash
Net debt/equity (%)	net cash	net cash	net cash	net cash	net cash
Per share
Reported EPS (IDR)	60.66	58.03	55.88	65.32	71.73
Norm EPS (IDR)	60.66	58.03	55.88	65.32	71.73
FD norm EPS (IDR)	60.66	58.03	55.88	65.32	71.73
BVPS (IDR)	248.40	251.14	266.41	292.61	318.62
DPS (IDR)	54.65	42.39	40.62	39.12	45.73
Activity (days)
Days receivable	118.9	123.5	120.7	120.6	123.5
Days inventory	60.7	44.5	35.0	36.7	37.0
Days payable	73.3	66.8	61.8	59.2	59.5
Cash cycle	106.3	101.3	93.9	98.2	101.0
Source: Company data, Verdhana estimates

Company profilePT Arwana Citramulia Tbk (Arwana) is a public company listed on the main board of the Indonesian Stock Exchange (IDX) traded under the "ARNA" stock code. ARNA is dedicated to producing cost-competitive ceramic tiles to serve the low- and middle-end market segments nationwide. ARNA products are sold under the ‘Arwana’ brand, a brand name that signifies quality and affordability. In 2011, a new product line with better quality was introduced to capture the upper-middle market segment, marketed under the brand name ‘UNO’.

Valuation MethodologyWe maintain our Buy rating with a DCF-based TP of IDR820, assuming a WACC of 11% (previously 12%). Our TP implies 12x FY26F PE vs. currently at 8x, at 5Y average, still at discounted PE multiple compared to peers (13x FY26F). Additionally, post earnings cut, ARNA offers 7.1% yield in 2026.

Risks that may impede the achievement of the target priceDownside risks to our call are 1) higher-than-expected gas price; 2) changes in import duties regulation; 3) competition from non-Chinese players.

ESGArwana is an eco-conscious company that has been awarded the Green Industry Award by Indonesia’s Ministry of Industry for seven consecutive years (from 2011 to 2017). Arwana is also the first company in Indonesia to obtain ISO 14001 certification for its environmental management system. The company’s factories are specifically built and its operations prioritize sustainability as it is committed to creating value for its stakeholders.