my analysis: April 2015

Background

Demand pull inflation?

There was a cut interest rate by the central Bank in the early of February 2015, the central decrease interest rate from 7.75 % in to 7.5 %. Based in the illustration of demand pull inflation cycle, the aggregate demand will rise due to the cut of interest rate and increase of government spending. Those will increase price level up. It may be an initial effect of demand pull inflation in the early of 2015. The aggregate demand shift rightward and it may create new equilibrium price at above real GDP as illustrated in the graph.

In the second step at the short run, there may be an adjustment of wage rate due to higher aggregate demand, the short run aggregate supply shift leftward and its movement will increase the price level. That will be happened if the aggregate demand constant.

If the real GDP exceed the potential GDP, the wage rate will increase due to more demand in the market which gets the company increase its production rate to fulfill the increase of demand. If the aggregate demand is constant and the cost of production increase, the producer will decrease its production rate.

Option of Bail in

As we know there were many banking companies in domestic had been bankrupt in 1998 due to massive monetary crisis, among of them were combined in merger and acquisition. Central Bank was allocating its fund to conduct the bailout program amounting to IDR 600 trillion include its interest.

According to the former ministry of economic coordinator, KKG, there were certain big losses in its bailout program. The government sold the bank companies which had already been improved and recovered by the central bank’s bailout program in price rate of share which were smaller than its cost of recovery. BCA and Bank Dagang Negara were spent a lot of fund for recovery program. The cost of each was bigger than the auction of its share.

If there will be a bail in program to pay the cost of recovery in 1998, among of bank companies will spend their money for it. For example, Bank central asia which was sold IDR 10 trillion to farallon, the share price is lower than its total cost which was amounting to IDR 88 trillion. There is a gap amounted to about Rp 78 trillion. On other hand the case of Bank Dagang Negara is almost similar, government was spending bigger cost than its sold price. There is a long debate on its Master Settlement and Acquisition Agreement (MSAA).

BBNI

The company is state company which is owned by government as the majority shareholder. The company established in 1946 by raden tumenggung Margono.

Based on its annual report, the biggest part of the total gross loan is at working capital segment in 2014. It was about 50 % of total gross loan by type of loan. Meanwhile, by economic sector perspective, the biggest part of the gross loan was manufacturing segment which was 24 % of total gross loan.

Based on annual report 2014, 15 % of the gross loan was in foreign currency and the foreign currency loan is given for mining sector which was as greatest segment with 36 % of total foreign loan.

It may be necessary to assess the credit risk of foreign loan due to stability of rupiah currency in money market. Rupiah currency started to lift up because of intervention from central bank and it was not happening by the condition of domestic economy.

In 2014, the company could increase its loan growth (gross) 10.8 % up than the gross loan in 2013. Although the growth of the gross loan in 2014 was decline compared to its growth in 2013 which was 24.9 %, the company could increase loan to deposit ratio from 83.5 % in 2013 to 86.2 % in 2014. The decline of loan growth was occurred due to decline of GDP growth from 5.8 % in 2013 in to 5.0 % in 2014 as illustrated in the picture at below.

Deposit from customer was also falling down from 13.3 % in 2013 in to 7.5 % in 2014. The Inflation rate may be as the main factor of the downfall of its growth. The cost of living increase sharply as rupiah exchange rate fell and government stop to import particular goods such as rice as its self fulfilling program for rice supply. As the result of that, people spend more money for their cost of living.

In conclusion banking industry is still interesting segment for entry, Indonesia provides higher net interest income margin compared to financial industry at others south east asia country.

Indonesian government put a target of economic growth at about 5.7-5.8 % (based on RAPBNP in 2015) in spite of slower economic growth at the last two years. On other hand, government sets inflation rate at 5.0 %, currency exchange rate at IDR 12,200 and oil price at US 70 per barrel and income from tax at about Rp 1,484 billion or up about 20 % than last year.

There are also increases in price of important goods and services for Indonesian people include rice, soybean, transportation and etc. As a result of that, consumption may decrease compared to last year. Meanwhile higher interest rate in US which is predicted in 2015 will weaken rupiah currency and as a result of that, inflation will increase as Indonesia’s manufacturing sector still need material from oversea.

Accordance to Bloomberg, the fed fund rate in about June 2007 was above 5 % and the Fed started to decrease its rate in that time gradually. In near February of 2009 the Fed had set its rate at almost zero percent. The Fed may increase its fund rate gradually until at 5 % once upon the economic condition is getting better and unemployment rate is decline. According to Paul kruggman in the early April 2015, the inflation rate in US is still low and that means the consumption is not growing significantly yet.

Among of countries across the world are afraid if the Fed will raise its fund rate to its rate in 2007 which was about 5 %. It will strengthen dollar and weaken other currencies include rupiah.

Infrastructure project: 5 % of GDP

Government expects that its infrastructure project master plan could drive the economic growth although there are many obstacles to execute the project such its project financing. State companies may take big portion in its various projects that is why government has changed almost all directors and commissioners in state companies and government started to issue its bonds in capital market both in domestic and oversea such as Japan. The fund rising may be the key issue in its project, some experts said that domestic bank is difficult to give loan for infrastructure project as its size and long term financing although they have state company for infrastructure financing, SMI.

According to Indonesia infrastructure finance, Indonesia plans to increase its infrastructure project from about 2 % GDP in to 5 % of GDP. The huge spending will be allocated in Sea transportation (IDR 496 trillion), residential (IDR 384 trillion), roads (IDR 340 trillion) and water resources (IDR 275.5 trillion). The sectors which are related with those main projects may increase significantly in next 5 years.

Second Most Optimistic consumers

Based on Guilaume de Gantes, Partner of Mckinsey, Indonesian consumer is at the second of the most optimistic consumer of the world after India in 2013. The consumer tends to be family oriented, purchase good or service base on family’s advice or request, Favors local brand and emotionally engaged to the product.

Due to higher inflation rate the consumption may decline and if government intends to maintain consumption government should make effort to decrease inflation rate.

Based on national statistic in 2013, the prepared food and beverage was the biggest portion of average monthly spending per capita of commodity (food category). It was 26 percent of total average monthly expenditure in 2013. Meanwhile for non food category, the biggest portion was housing and household facility which was more than 40 percent of its total expenditure. For period of 2007 until 2012, the CAGR of average monthly expenditure of education cost is the highest growth and the second is tax and insurance cost.

That means consumer spends more money for prepared food and beverage product than cereal product such rice or grain in average.

Manufacturing industry in food, refreshment, household may still have good potential to grow.

In conclusion, the government tends to focus on its infrastructure project due to the lack of infrastructure facilities in Indonesia and strong dollar weakened rupiah and because of that, the economic growth may decline than last year. In 2008 – 2014 the consumption section takes the highest part of gross domestic product and it could be a slightly change in recent government. Self full filling in energy sector and food sector will also make government reduce or stop import goods in those sectors.

Company Analysis: Biggest skin care product in Asia

The company is owned by foreign investment as its biggest share holder, Unilever Indonesia holding BV with 85 % of total share. Commonly each brands of the company is the market leader in each market in Indonesia. UNVR is one of reputable company in Indonesia with strong performance; it was having two digit growths in its revenue in the past 4 years. UNVR has been operating its business in Indonesia for over 30 years and it acknowledges political and macro economic situation Indonesia.

In 2014 the revenue was rising 12.2 % up compared revenue in 2013. The company could maintain its brand as the market leader in the market. The famous brand for skin care such as ponds, dove, Vaseline and etc are key drivers of its incremental sales in 2013. Skin Care product is one of the main business cores of the company in Indonesia; the company has established the biggest factory of skin care product in asia in cikarang, west java.

The revenue in 2014 consists of home and personal care product ( 71 %) and also food and refreshment product (29%). Other top brands are buavita,wall’s,Zwitsal, rinso and etc. food and refreshment product experienced double digit growth which was at about 19 %.

In 2014 the gross margin decreased slightly from 51 % to 50 % due to higher cost of transportation and higher price of imported raw material. The net profit margin also slightly decline from about 17 % to about 16 % of total sales. Despite those ratios slump slightly the activity ratios such as day receivable and day inventory had been improved.

The company has strong internal cash resources, it does not have any long term loan and it has good financial leverage. Its free cash flow is also positive due to strong margin and available internal source of fund.

In 2015 revenue growth may slow down than 2014, there is a certain trend that incremental sales follows the economic growth since 2011 as it can be seen at the table. The acceleration of revenue tend to follow acceleration of GDP.

Opinion

I do not know the exactly business operation of the company, the idea is very simple, how the company could engage customers more?

Skin Care product

Each person has each physic character include skin character. Among of the customers usually do not know each type of skin character, dried skin or oiled skin

The company will provide product based on its skin parameter such as humidity or something else.Firstly, the consumer will do such a skin test for knowing which product is suitable for their skin. There will be various parameters appear and the options of the suitable products for their skin.The equipment for skin test will be installed at big shopping center or etc.