SURYA CITRA MEDIA

The Fed did not change its Benchmark rate on September 2015

The Fed opted not to change its fed fund rate on September 2015, but they still plan to raise its benchmark interest rate in this year. They decided it due to the unemployment rate in US which is at 5.1 %. The Fed decreased its benchmark rate in to near zero three months after the collapse of big investment bank, Lehman Brother. The lower rate could increase sales in automotive sector and commercial estate. As the result of that the official unemployment rate dropped from 10 % in 2009 in to 5.1 % in august. According to moody’s the key marker of healthy unemployment for US is below 5 % and it is expected in next several months, the unemployment rate will move to below 5 %. The slowdown of economic growth in china is also as the key factor to decide not to change federal fund rate.   

The median projection for rates at the end of 2015, June 2016 and June 2017 is 0.375%, 1.375 % and 2.625 % respectively. The long term projection rate will be at 3.75 %.

For Indonesia and other ASEAN’s country the Federal fund interest rate is having strong influence in their currencies. Currencies may be declined when the investor pull their easy money back because their investment is funded from debt with lower interest rate.  It has been occurred once the Federal Reserve makes announcement about their monetary policy.

Company Analysis

SCTV was no.1 ranking in all the time 5 + demographic

Surya citra media is owned by Elang Mahkota Technology as the largest shareholder with more than 60 % of total share. The company’s key person is Mr. Sutanto Hartono, formerly CEO of Microsoft Indonesia, he hold MBA degree from university of California, USA. He has been supported by Mr Alvin widarta sariaatmadja which is as vice CEO of the company. Mr Alvin may be a relative of CEO of Elang Mahkota Technology, Mr. Eddy Sariaatmadja.

For president commissioner position is filled by Mr. Raden Soeyono, vice president commissioner is Mr. Suryani Zaini and Mr. Glenn M Surya yusuf has been appointed as independent commissioner. Mr. Glenn is also vice president commissioner of CIMB Niaga and non executive director of CIMB group.

Surya citra media has done a merger with indosiar karya Mandiri, the parent company of indosiar visual mandiri in 2013. At recent indosiar is one of company’s subsidiary.

Surya Citra Media has subsidiaries, it consists of Screenplay production, Indosiar Visual Mandiri(indosiar), Bangka television,Surya tri optima multikreasi, Surya Citra Gelora and Surya Citra pesona and also surya citra televisi (SCTV). Screenplay production is run its business in Drama series and television movie production. Meanwhile Surya tri optima multikreasi is shaped from joint venture with trinity optima production, a local artist management. This company operates in artist management and entertainment sector.

In 2014, the sales growth was 9.7 % compared to sales growth in 2015. There was also a slightly improvement in gross margin from about 62 %in to 64 %. The biggest client of the company in 2014 was wira pamungkas pariwara which contributed more than 24 % of total revenue from advertising.

For the program material in 2014, it consisted of 91 % local program, 3.6 % import and 11.7 % in house. According to emtek’s annual report SCTV is no.1 ranking with 17.2 % average audience share in all the time 5 + demographic, meanwhile indosiar achieved 11.9 audience share, it was no. 3 ranking.

In 2014, the company has expanded its business in digital advertising technology and service at Singapore. It acquired 50 % share of whisper media pte ltd.

The company has good liquidity; it has a lot of cash. The company has license of broadcasting of champion league, Europe league and others league. The bank guarantee from Citibank na was amounting to USD 13,4 million. 

Source: annual report SCMA, Annual report EMTK . internet  

CAP : Chandra Asri Petrochemical

Unemployment in Indonesia higher compared to its peers

As a slowdown in economic growth the unemployment in Indonesia rose. The unemployment population in Indonesia is commonly higher than its peers in ASEAN’s country. Indonesian is at 5.9 % of total population in 2014, Malaysia, Singapore and Thailand is 3.1 %, 1.9% and 0.8 %, respectively. The solution of this situation is opening new job vacancy through entrepreneurship.

Based on data from related ministry the entrepreneur rate in Indonesia is only 1.56 % of total population, and it is lower compared to Singapore and Malaysia which have rate of 7 % and 5 %. Based on experts the ideal number of unemployment rate is 2 % of total population, this country is still behind in developing entrepreneurship to create job.

In Indonesia bureaucracy is a bottle neck for entrepreneur in proposing loan, the debtor has to have experience at least 5 years. It is regulated by the central bank of Indonesia. On other hand, there is same condition for investing procedure, especially for foreign investment. For foreigner, there are hundreds of approvals which have to be available for establishing new company in Indonesia. 

Company Analysis

The only naphta cracker producer in domestic

The company is the only naphta cracker producer in Indonesia, this factor may be as the key success factor for this company. The company evolved to expand its production capacity to capture the demand both domestic and foreign. In domestic the company has no competitor and it plans to expand its cracker production in the future.

The company hired key person who has experience in similar industry, and they commonly recruited from international company such as Shell and etc. The company also has partnership in maintenance technology with SCG chemical, a chemical company from Thailand, which is also its share holder. SCG is also supplying naphta to the company. Then the naphta is manufactured to produce naptha cracker, polypropylene, olefin, polyethylene, butadiene and etc which are used as raw material of several industries such food and beverage, automotive and etc.

The company is owned by Barito Pacific as the biggest share holder which has more than 50 %. The second is SCG chemical company which has more than 30 % of total share.

In 2014 the company’s sales declined 1 % compared to sales in 2013. The fluctuation of crude oil price and the naphta cracker product such as polypropylene might inflict the fluctuation in its sales price. There is also the slowdown in economic growth which affected several industries related to its product such as automotive sector. According to annual report there was a slightly decline in its sale volume from 1672 KT in 2013 in to 1649 KT in 2014.

For advancing the supply chain, the company developed several warehouses in places at java in order to accelerate its delivery time. The company is also having supply chain infrastructure such as pipe line for transferring the ethylene directly to the customer in Cilegon and Merak district. In order to support the production process, it built own 53 MW power plant for naptha cracker production.

In 2014 the company added its ownership in Synthetic Rubber Indonesia, its subsidiary which produces synthetic rubber. The company has spent more than USD 8 million to purchase additional share. SRI is its joint venture with Michelin, foreign company from France.

In addition, the company has stopped its crude C4’s export in 2014 in order to create value on its product. The crude C4 recently uses as raw material for its new butadiene extraction plant. 

On other hand, the fluctuation of exchanger currency rupiah to USD could be a serious threat for the company. If the oil price increased the company would face the increase of raw material cost, interest expense and operating expense. It is necessary to build additional tank storage of crude oil deposit to anticipate the increase of oil price. The company’s revenue in 2014 was dominated from domestic sector which was more than 77 % of total revenue.

PWON - Pakuwon Jati

Anxiety of crisis in 2015

In 1997 the economic crisis started from Thailand and Malaysia, its currency exchange rate was slump to US dollar. Then the crisis spread to other countries includes Indonesia. The speculators used that momentum to attack the foreign reserves of the ASEAN’s country to get gain in money market. Indonesia and Philippines needed more time to recover from economic crisis. They took more than three years to fix their economic condition.

At the past, Indonesia got loan from IMF which was disbursed 3 times in two years. At the last aid, Indonesia considered to the 50 point of understanding of proposal from IMF. The points were apparently not matching with circumstances of Indonesian economic condition. IMF did the same treatment for economic recovery package of Indonesia with other countries such as South Korea and Mexico in 1995 and 1997 respectively.

  In 2015, the crisis may be started from Malaysia; it was begin from the wall street journal which was posted an article about the conjecture of corruption by the prime ministry through 1^st MDG foundation. He was reported receive fund amounting to about USD 700 million through the foundation. The case has deteriorated the stability of politic condition in Malaysia. The opposite party started to do massive demonstration in its capital to ask the prime ministry to resign.

The momentum had apparently been used by the speculator to attack the Ringgit due to the economic and politic issue in the country. Ringgit was experienced the worst decline in August among of ASEAN’s currencies.

The current issue in Indonesia is the case of the dwelling time in the sea port especially for Priok. The case may relate with the previous regime, there was a friction between government official who has different interest in the sea port.  

NPL attained highest level since 2011, construction is the worst

Non Performing loan of banking industry in Indonesia reached highest level since November 2011. The allowance of bad loans soared due to its increase. The highest increase of bad debt provision cost was CIMB Niaga.  The average increase of bad debt expense was 57 % year on year. Latest data from OJK and the central bank said that the NPL ratio of banking industry in April 2015 was at 2.48 %.

The highest NPL rate was in Construction sector which reached 5.5 %. The second was socio cultural, community, entertainment, other individual services sector which was at 3.78 %, followed by transportation and warehousing with 3.53%.

Market is irrational in Short Term ?

Although the macro indicator showed particular data either positive or negative, the market is irrational in the short term as Soros’ opinion and theory. The investor in money market tends to decide for investing based on what the majority people do in the market and based on issue and information in media.

Druckenmiller, the son of Soros, was doing mistake in predicting US dollar currency movement. He bet the US dollar falls, a decision was taken based on macro indicator, the increase of current account deficit which indicates that the import side exceeds export side.

Economic stimulus: 12 policies for banking sector  

OJK planned to conduct policies for economic stimulus; it consisted of stimulus for banking, Capital market, non bank financial institution and Education and consumer protection. For banking sector, OJK would like to implement 12 policies related with credit risk and credit quality in encouraging the loan growth in Indonesia.

Company Analysis: Asset rose by Acquisition

Based on annual report In 2014 there was a significant increase of asset, it rose 80.4 percent up compared to asset in 2013. The increase of asset was reached from acquisition of Pakuwon Permai, Centrum Utama Permai and others. The company acquired PP with cost more than IDR 2.34 trillion. The fund was attained from bonds amounting to more than USD 200 million. Another acquisition was Centraum Utama Prima, the company increased its share from 45 % in to 70 %. It set as controller position with more than 50 % ownership.

The significant increase in asset was property investment part, it rose from about 3 trillion rupiah in to 8 trillion rupiah.

In 2014 the sales increased 27.8 percent compared to sales in 2013. The company used equity method in acquisition either PP or CUP that is why the sales did not increase significantly. The company also got gain in purchasing companies with discount price.

The gross margin in 2014 was about 60 % in spite of there has been a slowdown in economic growth. According to audited financial statement, the land yet not developed in 2014 was at 1,461,183,232 thousand rupiah, it increased from previous position which was at 438,535,058 thousand rupiah. Its biggest portion was at south Jakarta. Meanwhile, there was also significant increase in its net income in 2014 compared to net income in 2013. It was more than double or above 128 % up due to acquisition as the above explanation.

Real estate was the key driver in 2014 with largest contribution at more than 50 % of total sales. In spite of there was a plan to change tax regulation for property the company seem still able to show good performance in 2014.

Source: Mandiri institute: Economic review , Annual report 2014

INDOFOOD - INDF

Rupiah attained IDR 14,000/USD: Economic condition walk to negative growth?

As the prediction of some economist that after quantitative easing pace US dollar will be stronger again compared to other currencies. Rupiah attains its psychological level again in Monday, august 24. Government tends to blame global economic effect as the reason of currency’s fall. The peers are also experienced the same condition, other currencies at south east asia region are shrinking and investors seem run after US dollar to save their investment.

Jakarta stock index has depreciated in to lower level since the early of 2015. Despite the stock market capitalization in Indonesia is only 50 % of its GDP, the psychological effect is important to be considered. People who invested money in capital market usually are categorized at the middle up class who have bigger portion of asset in Indonesia. Based on Guillaume de Gantes, Partner, McKinsey Indonesia, Indonesian consumers are family oriented, they take decision investing or purchasing based on advice from their family. If Singapore is more attractive the rich people could remove their money Singapore and rupiah will be more depreciated again as more US dollar is purchased.

In crisis of 1998, Indonesian economic growth was merely -12 %, this crisis may be occurred again after about 20 years. There were many companies which had declared their bankruptcy. Unemployment is serious threats for stability of economic and politic circumstance. In 1998 rupiah was destroyed by George Soros, the well known Fund Manager who has sophisticated skill in derivative product such as future and etc. Soros and his global investor was betting rupiah fall to US currency. And it was occurred and Soros got gain from the crisis.

Food and beverage manufacturing: highest growth rate in 2010-2014

Manufacture industry which produces food and beverage product segment advanced at highest growth rate among other manufacturing industry. According to euromonitor its CAGR in 2010-2014 was more than 8 percent. On other hand GAPMMI predicted sales of food and beverage product in Indonesia will over than rp 1000 trillion in 2015. Ice cream and ready to drink coffee are beverage products which are forecasted at more than 16 % growth in between 2013 until 2017.

The food and beverage manufacturing industry may concern to produce those kinds of beverage products. Meanwhile, frozen processed food and canned food are products which are predicted with high growth rate in period of 2013 – 2017.

Company analysis: club and milkuat strengthens brand portfolio  

Consumer branded product segment is still the key success factor which has sales contribution more than 46 % of total sales in 2014. In the same year the company was able to improve its gross margin from 26 percent in to about 29 percent. Low commodity product and high margin company acquisition may be as the key factor to improve margin. In 2014 the company was also able to increase sales more than 14 % compared to sales in 2013. The sales growth in 2014 is also higher than sales growth in 2013 which is at about 10 %.

In 2014 the company acquired bottled water product, Club and also acquired danone dairy Indonesia which has several strong brand include milkuat. In cultivation segment, the company acquired Madusari Lampung indah which operates in sugar cane cultivation.

For cultivation and granulation segment, the company has agreement to sale its 52% share in CMFC in to CMZ BVI. CMFC is operating in vegetable cultivation and granulation in china. The company decided to leave this segment. Based on annual report of 2014, the company categorized the segment as discontinued operation due to sale agreement of its 52 % share in CMFC to CMZ BVI. The disposal asset may be conducted after March of 2015.

The company has several plantation in china which are located in Fujian, Sichuan, Inner Mongolia, Tianjin, Jiangxi, Shanghai , Yunnan, Hubei and Jiangsu.

Indofood is owned by CAB holding which has about 50 percent of total share and the rest is owned by public. CAB is subsidiary of First Pacific holding in hongkong which is listed in its stock index.

As the weakened rupiah the price of imported raw material such as wheat may increase significantly. Wheat is used to produce noodle in CBP segment and wheat flour for bogasari. Hedging is used to protect the cost from the currency exchange risk which very fluctuates in the recent time due to currency war between China and US.

Based on euromonitor the frozen food and canned food are having good demand in the market. The company could enter the segment to capture the demand from consumer. Based on BPS in 2014 the each person uses more than 26.4 percent of total monthly average food expenditure per capita for purchasing prepared food and beverage. The people start to consume more prepared food and beverage product due to its easy way of consumption. They do not need to cook for eating the food, they only need do simple thing.