Stock to Watch: Jaya Pari Steel (JPRS)

Bloomberg Code: JPRS:IJ
Reuters / Yahoo Code : JPRS.JK

Jaya Pari Steel (JPRS) is producing iron and steel products. The company’s main products are steel plates, round bars, and flat bars. JPRS markets its products domestically and internationally. It is operated in Surabaya. Due to the tough economic condition, JPRS suffered some net losses in 4Q 2008 even though the full year 2008 income was good and also suffered a negative operating income in 1Q 2009.

(In millions of Rupiah)	2008	2007	2006
Revenue	732,703.00	432,808.00	340,210.00
Cost of Revenue	617,319.00	362,804.00	286,459.00
Gross Profit	115,384.00	70,004.00	53,751.00
Total Operating Exp.	634,352.00	377,308.00	300,488.00
Operating Income	98,351.00	55,500.00	39,722.00
Net Income	49,157.00	41,566.00	26,796.00
EPS	65.39	55.42	7.04

(In millions of Rupiah)	1Q 2009	4Q 2008	3Q 2008
	(3 Months)	(3 Months)	(3 Months)
Revenue	41,157.00	87,738.00	149,073.00
Cost of Revenue	44,157.00	132,541.00	101,922.00
Gross Profit	(3,000.00)	(44,803.00)	47,151.00
Total Operating Exp.	46,381.00	137,824.00	107,560.00
Operating Income	(5,224.00)	(50,086.00)	41,513.00
Net Income	78.50	(50,783.00)	27,169.00
EPS	0.11	(67.71)	36.07

If we look at the numbers, we could notice that the downturn is might be bottoming. The losses in operating income is decreased in 1Q 2009

	1Q 2009	4Q 2008	3Q 2008
Total Current Asset	256,092.00	373,882.00	473,192.00
Total Asset	282,912.00	399,344.00	491,992.00
Total Current Liabilities	12,173.00	123,117.00	170,352.00
Total Liabilities	13,061.00	129,572.00	171,438.00
Total Equity	269,851.00	269,772.00	320,554.00

The 1Q 2009 balance sheet also shows that JPRS debt to equity ratio is relatively low, around 4.84%. With this level of debt, I believe JPRS would be able to pass these hard times of economic slowdown.

With the current sign of improvement in global economy, I would expect JPRS to generate some significant income in the 4Q 2009. In my calculation, JPRS EPS for 2009 would be around 50. With this forecasted value of EPS, my estimated fair value for JPRS at the end of 2009 would be in the range of 500-600.