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.