Sri Rejeki Isman

Stock Quote Sritex - SRIL:

Business Summary

Sritex manufactures yarn, greige, fabrics and apparel that are sold to textile producers and retailers in 55 countries across the globe (and thus form a natural hedge in times of currency volatility). Buyers of Sritex' manufactured products include Timberland, Quicksilver, Zara, JCPenny, and Sears.

In total, Sritex has nine spinning plants, three weaving plants, three dyeing/printing plants and seven garment plants, occupying an area of 50 ha in Sukoharjo (Central Java).

The spinning division of Sritex transforms fiber into yarn. The company has nine spinning plants. The spinning division is supported by 2,500 machines with more than 320,000 ring-spindle and modified machines imported from Asia and Europe. Sritex' production capacity is 566,000 bales of yarn per year.

The company's weaving division transforms yarn into greige, producing a number of types of fabric with light, medium and heavy construction. This production unit involves 2,600 weaving machines, including high-speed looms. The company's production capacity is 120,000,000 meters of greige per year.

The dyeing and printing unit of Sritex transforms greige into finished fabric. It is supported by three continuous-dyeing production lines, nine rotary printing machines, 12 jet dyeing machines, nine stenter machines with a total production capacity of 120,000,000 yard per year.

The garment division transforms fabric into ready-to-wear clothing. It has seven garment units supported by 6,350 machineries. Production capacity of the division is 8,200,000 pieces of ready to wear garment per year.

Over 65 percent of the company's revenue is gained through from overseas sales, dominated by buyers in Asia, followed by Europe, America and Africa.

The textile industry is a labor-intensive industry hence workers’ salary is one of the main issues for textile manufacturers. Although Indonesia is in a good position as minimum wages in China have increased in recent years (making Chinese textile companies less competitive), Indonesia has also seen sharp minimum wage growth in recent years, limiting companies’ profitability and making Indonesian textile companies less competitive against textile producers in Vietnam and Pakistan.

In June 2013, Sritex conducted a successful initial public offering on the Indonesia Stock Exchange (IDX) and used part of the proceeds to acquire Sinar Pantja Djaja, a yarn producer (located in Semarang). This take-over was important to increase Sritex' production capacity as previously the company was operating close to maximum capacity.

Strengths of Sritex:

• The company has wide experience in the textile industry
• It is one of the largest vertically integrated textile firms in Southeast Asia
• Its network stretches 55 export markets and therefore forms a natural hedge
• The company has a low cost structure
• The global textile and garment markets have recovered from the economic downturn in the late 2000s
• Minimum wages in Indonesia are lower than in China (the world’s largest textile manufacturer)

Weaknesses of Sritex:

• The company’s raw materials are mostly sources overseas (primarily Australia, Middle East and USA)
• Expected to bear higher interest payments due to the issuance of new Senior Guaranteed Notes
• It is not a member of the Trans-Pacific Partnership due to high barriers for Indonesian textile firms
• High competition from China (imported woven fabric to Indonesian market)

Financial Highlights of Sritex:

Please note that starting from 2014 the company reports its financial figures in US dollars

	2011	2012	2013	2014	2015	2016
Sales	3,750.9	4,601.8	5,721.8	589.1	631.3	679.9
Gross Profit	495.8	685.1	1,018.4	122.4	133.4	145.4
Operating Income	378.2	495.8	667.9	93.6	98.1	115.5
Income before Tax	219.1	323.0	463.0	-	-	-
Net Income	161.5	229.3	309.6	50.5	55.7	59.4
Total Assets	3,107.5	4,278.5	5,591.0	698.9	783.3	947.2
Total Liabilities	1,923.0	2,853.0	3,271.4	467.4	506.6	616.1
Earnings per Share¹	12,43	17,65	19,33	0,0027	0,0030	0,0032
Dividend per Share¹	-	-	2	5.4	3

^{2011-2013 in billion of IDR rupiah except otherwise stated, 2014 onward in million of US dollar
¹ in IDR rupiah, in US dollar
Source: Sri Rejeki Isman, Annual Report 2016}

Projection Sri Rejeki Isman's Future Corporate Earnings:

	2017	2018	2019F	2020F
Net Revenue	759	1,034	1,062	1,106
EBITDA	158	379	204	227
Net Profit	68	85	93	105
P/E Ratio (x)	7.7	6.0	5.2	4.6
P/BV (x)	1.2	1.0	0.8	0.7

^{in million US dollar, unless otherwise stated
Source: Panin Sekuritas (09.07.2019)}