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Wednesday, January 7, 2015

LOTTE CHEMICAL TITAN NUSANTARA – FPNI: IJ




Global economy growth decline, World Bank forecasts GDP growth at 5.2 %
Based on world bank calculation in October 2014, Indonesian economic growth of 2015 is predicted at 5.2 % growth. It has been concluded as the sluggish world economic growth in 2015. The world bank forecasts that the Europe zone will be disappointed, Japan will fall in recession and the others emerging economics such as brazil, Russia and mexico is also predicted slowing in 2015. On other hand, China is also facing a decline in its growth in 2014. Accordance to world bank the bright area amongst advanced economy is US. As a result of this US may possibly need more raw material and goods in 2015 as its economy is going to be better.

Government budget is lifted since 2009, Higher BI rate reduces Bank Credit
According to world bank, government budget tend to increse since 2009, in 2015 the budget is predicted bigger than 2014 since the government plan to develop many infrastructure project. On other hand bank loan in september 2013 is lower than in the same period of 2012 related to higher BI rate in 2013. In 2014 BI raised its rate in to 7.75 % and it has reduced bank loan. Consequently, The contractor who is choosen in its infrastructure project, they will face a problem in getting bank loan to purchase raw material and fund the working capital.








prices of Commodities are falling in 2014
Based on world bank almost all of commodities’ price decline during 2014. Since June, there are decreases in the price of coal -12 %, LNG – 14 %, CPO – 15 %, rubber -22 % and Brent crude oil decline about 30 % down.
Although Indonesia implemented its export mineral ban, the price of commodities still down in commodity market. The demand of commodity is expected rise in 2015 as the decline of its prices. The impact of lower oil price in Indonesia is at energy sector, petrochemical manufacture and the fiscal sector. Indonesia is a net oil importer; the decline in oil price could help the trade balance.
The decline of oil price may be influenced by substitute energy resource such as shale gas and renewable energy. US is the second largest of shale gas deposit country. US government was supporting shale gas exploration with stimulus to improve economic growth. 
The inflation rate has increased in 2014 as fuel subsidy had been allocated, but it was only happening in short time, in the end of 2014 it was down.

Petroleum Refinery: less investment sector
Investor needs huge capital to establish petroleum refinery that is why there is lack in investment in this sector. On other hand, this country is a net oil importer, the oil reserve in indonesia tend to decline during the last five years. The average growth of the petroleum refinery industry is only 1.8 % in between 2006 in to 2012.

Lotte Titan Chemical Indonesia : First polyethylene producer
Formerly its name was Titan Kimia Nusantara, it was established in 1987 under the name of PT Indofatra Plastik industry. Then in april 2013, the company changed its name in to Lotte Chemical Titan Nusantara.
Shareholder
The majority shareholder is Lotte Chemical Titan International Sdn Berhad, a malaysian petrochemical company, it owns 95.15 % of total share.
Firstly, the company is the first producer of polyethylene in indonesia and it is also a largest producer of polyethylene in indonesia. Another trading product is polypropylene. There for, the company only does whole sale trading of polyethylene and polypropylene.

Product
Polyethylene (PE) is a polymer product with wide range usage. It is used for shopping bag, food container and another packaging product. The company produces two kind of polyethylene, high density polyethylene (HDP) and Low density polyethylene (LDP).  

Analysis
The key driver of revenue of 2013 is coming from domestic revenue which its contribution is about 83 % of total sales. The oversea revenue in 2013 is only contributing at 17 % of sales revenue.
The company only produces polyethylene and the significant buyer is Bukitmega Masabadi with $ 92.532 thousands in 2013.

In 2013 the company loss 6,150 thousands, it has been improved than last year which its loss was 16,474 thousands.

The small gross profit margin could be seen in between 2012-2013. The gross profit margin of 2012 and 2013 is only at 3.5 %. The lower oil price in 2014 is expected reduces the COGS and there for, it could increase gross margin.

The company does not have bank loan, it conduct its fund rising from capital market through bonds and suku ijarah payable.

In 2013 its activity ratio seems better, the cash cycle improved and more over the loss has decreased.  Finally, in spite of deficit in retained earnings and $ 1,999 thousands of insurance claim, the performance of the company in 213 is better than its performance in 2012.

Forecasting
The assumption
The company plan to expand in polyethylene market as the capacity of its production is at below the demand in the market. On other hand, the lower oil price in 2014 is chance for the company to expand despite of the weaken rupiah currency to US dollar.
Revenue increase of 10 % is taken with aggressive capital expenditure. The company will get a bank loan to finance its business operation and purchase of fixed asset. The capacity will increase and the economics of scale will be better. As a result of this, the gross profit margin will be better.












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