Gajah Tunggal benefits from lower raw material prices in nine-month results

PT Gajah Tunggal Tbk's nine month 2012 net sales grew 7.6 per cent to 9,381 billion rupiah from 8,722 billion rupiah last year. According to the company, the main impetus for this growth was “increased tyre demand in all categories in the domestic replacement…market.” However, profits were also assisted by a softening of historically high raw material costs in addition to double-digit percentage increases in domestic aftermarket sales.

Gajah Tunggal, which acts as the Indonesian part of the wider Singaporean owned Giti Tire group, reported that year-on-year, sales of passenger car radial tyres in the Indonesian aftermarket grew 26 per cent while motorbike tyre sales grew 25 per cent. Furthermore, recent new contracts with OEMs are also said to have contributed to significant sales increases in the four-wheel OEM sectors. 

Reported gross profit totalled 1,685 billion rupiah in the first three quarters of the year, up a huge 40.8 per cent year-on-year. This resulted in a gross margin of 18 per cent in the first nine months, which marks a significant improvement over the 13.7 per cent level achieved last year. Pre tax profits (EBITDA) for the first nine months reached US$ 156 million; up 34.8 per cent compared to the same period last year. Net income increased by 31.4 per cent to 778 billion rupiah in the period.

The only reported weaknesses during the first nine months of 2012 were a dampening of sales seen in the two-wheel OEM sector, due to new regulations on down payments for motorcycles as well as economic uncertainties in the US and Europe, affecting our four-wheel tyre exports.

Analysts: Gajah Tunggal results ahead of estimates

With EBITDA up nearly 35 per cent, it is no surprise to learn that financial analysts were impressed with nine-month results that were ahead of their expectations. Gajah Tunggal’s net profits, for example, have grown so quickly that they are already at 86 per cent of what Deutsche Bank analysts predicted for full-year 2012 financials.

However the market watchers also highlighted the fact that the figures have been largely driven by lower raw material costs and that the nine-month 2012 revenues are actually lagging behind the other measures at 69 per cent of full-year 2012 projections. This is said to be due primarily to lower sales volumes that only reached 67 per cent of full-year year estimates at the time of the nine-month results.

That said Deutsche Bank reported in an investor’s note dated 30 October that domestic market sales remains solid. This contrasts with exports that are said to remain weak. The fact that nine-month total domestic revenue is up 16 per cent year-on-year, while exports declined 5 per cent goes some way towards illustrating this.

Looking closer, as far as radial tyres are concerned, domestic OEM and replacement sales grew 29 per cent year-on-year, but exports declined 13 per cent. At the same time motorcycle tyre replacement sales were up 23 per cent, but OE sales fell 23 per cent as a result of lower sales to Yamaha Indonesia and what Deutsche Bank referred to as the new “down-payment”. Perhaps unexpectedly considering the continued trend towards global radialisation, domestic OE and replacement two-wheel bias tyres sales (up 23%) grew much faster than exports, which fell 17 per cent.

Gajah Tunggal wins brand development award

In addition to the positive financial results, Gajah Tunggal announced that it has received the 2012 Primaniyarta Award in the category of Global Brand Development from the local Ministry of Trade. According to the company, the award was presented to Gajah Tunggal by the president Susilo Bambang Yudhoyono at the official opening of Indonesia Trade Expo on 17 October 2012. Company representatives reported that the award is “a testimony of GT Radial brand’s existence not only in Indonesia but around the world.” 

Just over a year ago local news sources reported that Gajah Tunggal is ranked third in the Indonesian tyre market with an 18 per cent market share. This is some way off market leaders Bridgestone and Sumitomo Rubber (Dunlop)’s 31 per cent and 22 per cent market shares respectively. However it is also ahead the only other significantly sized player in the market Multistrada, which reported that its 8 million tyres a year of sales represent a 16 per cent market share.