Equity Research

Archi Indonesia NOT RATED

ARCI IJ / ARCI.JK

BCAS Vignette | Metal mining Sector

13 July 2021

The new player Delvin Teh

delvin.teh@bcasekuritas.co.id
An exciting development +6221 23587222 ext 11108
We recently had the opportunity to discuss ARCI’s outlook with the company’s
CFO Pak Adam Jaya Putra. Archi’s market capitalization is standing around
IDR17.8tn. On its asset side, the company has an operating gold mine (Toka
Tindung) with expected reserves and resources of ~3.8mn oz and 5.5mn
respectively as of 2020. Production managed to reach up to 207k oz in 2020 Current Price: IDR720
implying a 5-year CAGR at 23%.
Reserves comparison: number 2 for now
If we were to compare the company’s gold reserves with its peers (UNTR, BRMS, PRICE PERFORMANCE
MDKA), the company would have the second-largest reserves after UNTR (4.3mn (IDR) (%)

oz). However, the company has plans down the road to further increase its 760 5.0

reserves, with an estimated reserve standing at a range of 5.3mn-13mn oz. While 750
740
2.5
-
no specific details have been given regarding the exploration date, Archi has the 730 (2.5)
potential to possess the largest gold reserves out of all its peers. If we were to 720 (5.0)
710 (7.5)
use EV/reserves as a comparison metrics, Archi’s valuation is standing at 700 (10.0)
USD323/oz, higher compared to UNTR (EV adjusted to reflect the gold segment
solely). However, if we take into account the probable average increase in gold ARCI IJ (LHS) Rel. to JCI performance (RHS)

reserves (~9mn oz), Archi’s valuation would be very attractive standing at 400

Vol (mn)
300
USD97/oz (lower compared to the regional mean of USD128.2/oz). 200
100
-
Production comparison: the biggest? Jun-21 Jun-21 Jul-21 Jul-21 Jul-21 Jul-21
Production volume-wise, Archi has the second largest production volume Source: Bloomberg
compared to its peers standing at 207k oz. In addition to increasing its reserves,
the company has plans to further increase its production capacity down the road MARKET DATA
up to 450k oz by 2026 (implying a 5-year CAGR at 117%), making the company the 2W price range (IDR) : 705-755

largest gold producer in Indonesia in the years to come. Using current EV/EBITDA 2W PE range (x) : 9.8-10.5
Outstanding shares (mn) : 24,835
as a comparison, Archi’s valuation stands at 10.6x (lower compared to regional
Market cap (IDRbn)/(USDmn) : 17,881 / 1,252
mean at 21.3x), a bit premium compared to UNTR but has the potential to go
Avg daily turn. (IDRbn/USDmn) : 4.1 / 0.3
down as the company increases its production capacity. Source: Bloomberg

A pure play in gold

Out of all its peers, Archi is a pure gold-play company with 96-98% of its revenue SHAREHOLDERS
coming from gold sales. As of current, the refinery process is still being handled PT Rajawali Corpora : 85.0%

by ANTM, however, the company is considering building its own refinery down Public : 15.0%
Source: Bloomberg
the road which we expect should allow the company to lower its cash cost going
forward (current cash cost standing around USD505/oz). As of current valuation,
if we were to use EV/Reserves (taking account the possible spike in reserves) at
the regional mean, share prices could increase up to an average of IDR947 (~+31%
upside from current price). Noting the importance of gold during times of crisis,
Archi should prove to be a good addition as a hedge against market volatility.

Exhibit 1. 2020 gold reserves comparison

(k oz)
5,000
4,500 4,300
3,884
4,000
3,500
3,000
2,500
2,000
1,500
1,000 702 668
500
-
UNTR ARCI MDKA BRMS

Source: Company, BCA Sekuritas

Exhibit 2. 2020’s production volume Exhibit 3. 2020’s EBIT comparison
(k oz) (USD mn)
350 200
318 175
180
300
160
250 140 123
207 120
200 175 100

150 80
56
60
100 40
20
50
-
2.6
(0.03)
- (20)
UNTR ARCI MDKA BRMS UNTR ARCI MDKA BRMS

Sources: Company, BCA Sekuritas Source: Company, BCA Sekuritas

Exhibit 4. EV/reserves comparison Exhibit 5. EV/EBITDA comparison

(USD/oz) (x)
700.00 60.00
643.15

600.00 50.00 47.90

500.00 459.00
40.00
400.00
323.22 30.00
24.70
300.00
20.00
200.00
10.60
103.42
100.00 10.00
3.70

- -
UNTR ARCI MDKA BRMS UNTR ARCI MDKA BRMS

Sources: Company, BCA Sekuritas Source: Company, BCA Sekuritas

Exhibit 6. Market capitalization comparison Exhibit 7. 2020 Cash cost comparison

(IDR bn) (USD/oz)
80,000 74,790 1,000
900
69,860 900
70,000
800
60,000
700
50,000 600 525 505
40,000 500
398
400
30,000
17,880 300
20,000
10,140 200
10,000 100
- -
UNTR ARCI MDKA BRMS UNTR ARCI MDKA BRMS

Sources: Company, BCA Sekuritas Source: Company, BCA Sekuritas

Exhibit 8. Valuation simulation

Before After (+9mn oz reserves)
EV (in USD) 1,255,401,984.91 1,255,401,984.91
Reserves 3,884,000.00 12,884,000.00
EV/reserves 323.22 97.44

Target price assumptions

ARCI's EV/reserves 97.44
Regional mean EV/reserves 128.2
Target EV (USD) 1,651,728,800
Target EV (IDR) 23,524,664,847,560
Price per share 947.24
Sources: Company, BCA Sekuritas

Archi Indonesia, 12 July 2021 2

Exhibit 9: Archi’s financial summary
Income Statement
Year–end 31 Dec (IDRbn) 2018 2019 2020
Revenue 5,013.3 5,541.6 5,680.4
Cost of goods sold 2,273.7 2,988.7 2,331.1
Gross profit 2,739.6 2,552.9 3,349.3
EBIT 2,667.9 2,495.7 3,135.7
EBITDA 2,778.5 2,700.1 3,296.1
Interest income 5.0 3.1 3.8
Interest expense (349.5) (332.6) (289.9)
Other income (expenses) (160.7) (72.5) (68.9)
Pre-tax profit 2,162.7 2,093.6 2,782.0
Taxes (660.1) (751.1) (1,000.7)
Net income 1,502.6 1,342.5 1,781.3
EPS 60.5 54.1 71.7

Balance sheet
Year–end 31 Dec (IDRbn) 2018 2019 2020
Cash and cash equivalents 227.2 699.3 580.5
Receivables, net 2,006.2 1,529.6 311.2
Inventory 1,713.3 1,547.1 1,736.7
Fixed assets 2,010.4 1,971.5 2,066.2
Other assets 3,224.0 3,111.7 3,974.4
Total assets 9,181.1 8,859.2 8,669.0
S-T liabilities 737.5 847.9 1,023.7
Other S-T liabilities 629.5 681.3 796.0
L-T liabilities 4,809.9 4,057.7 4,714.2
Other L-T liabilities 755.8 762.0 772.5
Total liabilities 6,932.7 6,348.9 7,306.4
Minority interest 0.0 0.4 0.3
Total equities 2,248.4 2,510.3 1,362.6
Total liabilities & equities 9,181.1 8,859.2 8,669.0

Cash Flows Statement

Year–end 31 Dec (IDRbn) 2018 2019 2020
Receipts from customers 5,081.0 5,652.1 5,798.9
Business payments (2,102.8) (2,200.2) (2,191.3)
Others (1,296.7) (1,014.4) (1,359.5)
Operating C/F 1,681.5 2,437.5 2,248.0
Capex (1,030.6) (594.5) (1,236.4)
Investment in associate 0.0 0.0 (2.5)
Investing C/F (1,030.6) (594.5) (1,238.9)
Net change in debt 284.6 (663.0) 780.6
Dividends paid (1,441.4) (1,083.2) (2,919.7)
Others (2.9) 374.2 1,011.5
Financing C/F (1,159.6) (1,371.9) (1,127.6)
Change in cash (508.8) 471.1 (118.4)
Forex gain (loss) (0.8) 1.0 (0.4)
Beginning cash flow 736.8 227.2 699.3
Ending cash flow 227.2 699.3 580.5

Key Ratios 2018 2019 2020

Gross Margin (%) 54.6% 46.1% 59.0%
EBITDA Margin (%) 53.2% 45.0% 55.2%
EBIT Margin (%) 55.4% 48.7% 58.0%
Pretax margin (%) 43.1% 37.8% 49.0%
Net Margin (%) 30.0% 24.2% 31.4%
ROE (%) 66.8% 53.5% 130.7%
ROA (%) 16.4% 15.2% 20.5%
Current ratio (x) 2.0 1.6 0.8
Acid ratio (x) 0.7 0.6 -0.1
Gearing (%) 246.7% 195.4% 421.1%
Net gearing (%) 236.6% 167.6% 378.5%
Net Debt/EBITDA (x) 2.0 1.7 1.6
EV/EBITDA (x) 3.0 2.8 2.5
PE (x) 11.9 13.3 10.0
Source: Company, BCA Sekuritas

Archi Indonesia, 12 July 2021 3

 Equity Research Division Institutional Equity Market Division Sales Equity Market Division
research@bcasekuritas.co.id ecm@bcasekuritas.co.id sales@bcasekuritas.co.id

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Archi Indonesia, 12 July 2021 4