Initial Coverage - MARK.JK | 07 December 2021

MARK  Dynamics  Initiation  Report  -  Indonesia’s  best  play  for  Omicron  Concern

BUY  TP:  IDR1,600

For  Full  Report,  Download  Here:
https://bit.ly/MarkInitiation


PT  Mark  Dynamics  Indonesia  (MARK)  is  a  global  leading  hand-formers  maker,  pre-requisite  item  in  the  gloves  making  process.  During  Covid-19,  gloves  demand  surged  significantly  and  thus  demand  for  hand-formers  followed  suit.  On  the  back  of  these  events,  MARK  has  expanded  its  production  capacity  to  1.36mn  units/month  at  EoY  2021,  double  vs.  Pre-COVID  capacity,  with  ample  room  to  further  expand  the  capacity  by  another  40%.  MARK  is  our  top  pick  as  it  offers  highest  RoE  in  the  sector  and  44%  earnings  growth  in  the  next  two  years.
Revenue  to  jump  by  43.3%  YoY  to  IDR1.6tn  in  2022F,  as  global  gloves  makers  expands  their  capacity.

Gloves  industry  is  currently  adapting  to  a  structural  increase  in  gloves  demand  post  Covid-19  pandemic.  The  industry  is  expanding  production  capacity  aggressively  to  catch  up  with  surging  demand.  Some  of  MARK’s  key  customers  plan  to  increase  their  capacity  by  ~60%  over  the  next  two  years,  which  boost  MARK’s  revenue  growth  outlook.  Furthermore,  some  countries  (e.g.  China)  are  challenging  Malaysia’s  dominance  in  the  glove  market,  providing  new  source  of  customers’  growth  for  MARK.  Therefore,  we  foresee  43.3%  YoY  revenue  growth  as  MARK  capacity  increases.

Free  cash  flow  to  triple  in  the  next  two  years;  potential  dividend  play.
We  forecast  MARK’s  free  cash  flow  to  reach  IDR444bn  in  2023,  a  threefold  increase  vs  2021F  free  cash  flow.  This  translates  into  free  cash  flow  yield  of  7.8%/10.2%  in  2022F/23F.  We  expect  higher  dividend  payout  in  2022F/23F,  resulting  in  5.4%/5.8%  dividend  yield  in  2022F/23F,  the  highest  dividend  yield  vs  Indonesia  hospital  and  lab  sector.
The  most  undervalued  “COVID  Stocks”  in  Indonesia,  BUY;  TP:  Rp1,600  with  52%  upside.  
We  set  our  target  price  at  Rp1,600,  reflecting  13x  2022F  P/E.  This  is  14.0%  discount  vs  Malaysian  glove-maker  current  P/E  multiple  and  56.6%  discount  vs  Indonesian  hospital,  making  it  the  cheapest  “Covid  Stocks”  in  Indonesia.  This  is  also  a  25.3%  discount  vs  Malaysian  gloves  makers’  average  P/E  multiple  in  the  last  10  years.  We  recommend  BUY  for  MARK  with  target  price  of  Rp1,600,  implying  52%  upside.  Risks  to  our  thesis  include  lower  than  expected  utilization  rate  and  tougher  competition  with  new  entrants.

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