BRPT 2015

Barito Pacific was founded in 1979, its name was PT Bumi Raya Pura Mas Kalimantan. The company run various business that comprises petrochemical (Chandra asri petrochemical), property (griya idola), plantation ( royal indo mandiri),industrial timber plantation ( rimba equator permai),logging and timber manufacturing (tunggal agathis indah wood). 

Company snapshot

In 2015, almost all segment sales of the company were dropped, plantation segment was an exception. The demand of commodities at global market declined due to slower growth at global, as the result of that the price of commodities dropped. The booming of shale gas industry in USA may possibly push oil price to lower rate. 

The total sales in 2015 dropped 43 % in comparison with the total sales in 2014. Petrochemical was the suffered a biggest decline which was 44 % down. However, the decline in petrochemical was not only occurred due to slower economic growth, but it was also caused by the scheduled maintenance of naphtha cracker of petrochemical unit.  The company had been developing naphtha cracker facilities during 2015 and its project was accomplished in December. The company claimed its new naphtha cracker facilities will be able to increase its capacity 43% compared with previous facilities. Petrochemical supply was probably under its demand. 

The petrochemical segment had contribution more than 97 % of total income. On other hand, this segment was the key driver of company’s performance. 

Meanwhile, Plantation segment in 2015t grew more than 200 % in comparison with its position in 2014. It was increased by the operation of new palm oil processing mill through its subsidiary PT Tintin Boyok sawit in Sekadau, West Kalimantan. 

For the property segment, Griya Idola started to build Griya Idola Industrial Park through its subsidiary, Griya Tirta Asri. The 50 hectare industrial park is located at the western tip of Jakarta. 

In 2015 the company was able to improve its net profit from negative in to 0.4 % of total sales.  

CAP 2015

Company Snapshot

Slowdown in economic growth of indonesia in 2015 which stood 4.7 % decreased income of corporation in petrochemical industry segment. Chandra Asri Petrochemical as the main player in petrochemical industry experienced a decrease in its revenue. The sales volume fell due to decline in demand from the customer. The decrease of revenue was not only occurred by the dropped sales volume but it was also happening because the decline in its naphtha price in line with the decline in oil price at global market.

The net revenue in 2015 dropped -44 in comparison with net revenue in 2014. However, the company was able to improve their margin as its value chain in its business has been developed better in 2015. Net profit margin increased from 0.7 % in 2014 to 1.9 % in 2015. So did the gross margin, it increased from 7.3 % in 2014 to 15.1 % In 2015. The lower price of raw material might also advance the gross margin in 2015.

 The decline of sales was also caused by the scheduled turn around maintenance activities, the company shut down the naphtha cracker facilities for 85 days. As the result of that, the utility of the factory is not at the maximum point.

The company hired Toyo engineering to conduct cracker expansion project to produce naphtha cracker. Toyo engineering has been commencing the project since 2013. Another project was Synthetic rubber plant worth US 435 million in Cilegon, Banten. The plant will start to produce in 2018, it is a joint venture between the company and Financiere Du Groupe Michelin. 

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.

CHANDRA ASRI PETROCHEMICAL CAP

Background

Indonesian economic in 2014 may possibly be at down turn, economic growth decline since 2012 -2013 which was at 6.3 and 5.8 consecutively. Accordance to bank mandiri, the economic growth of indonesia will be at 5.1 in 2014. Based on data at the central bank, Economic growth of third quarter is at 5.1 %.

The decline of economic growth might be caused by the economic slow down of emerging market such as india and china and also the hike of price level as government allocated fuel subsidy to other sectors.

Government allocated its subsidy for fuel and allocated it to several productive posts such as infrastructure and also fund for social security.

The inflation rate will be rise as the price of gasoline increases up. In other side Government spending will be higher as the its allocation of subsidy to others sectors. The inflation rate is predicted at 6.5 – 7.5.

In short run Aggregate demand will decrease and real GDP will decline, in order to keep better real GDP equal potential GDP, the allocation program has to be implemented as soon as possible.

Meanwhile the fed will increase its interest rate, the fed will reduce its money supply and they will sell more Treasury bill. Foreign capital may be removed out from indonesia in huge amount. The currency rate will be hit by the Fed’s policy which plans to rise  interest rate in second quarter of next year.   

Central Bank has increased interest rate at 7.75 % to reach its target of inflatiion rate. That means the central bank reduces the currency in the market. The currency rate will be expected at stable exchange rate to US dollar as the increase in interest rate of goverment bonds.

The positive news is the decrease of Global oil price that is expected reducing cost for importing crude oil. Based on Bloomberg in November 2013, oil price decline 30 %, demand of crude oil is slowing down and several industries seems start to use substitute product such as natural gas, solar energy,shale gas and coal etc. 

The weaken currency will be an opportunity to increase export sector. As the source of various commodities indonesia has opportunity to export commodity with cheaper price even though the bank will rise interest. The strategic industry related to export oriented may need lower financial cost to advance export. Government might give particular incentive such as tariff, quota and tax in order to increase export as operational cost climbs driven because of allocation of fuel subsidy.

Politics and Government

The government under president of Jokowi has programs in agriculture, infrastructure and social security. Government plans to build many water dams for plantation and farming and to open irrigation. Another program is at maritime industry. The sector related to its sectors may increase significantly during Jokowi administration.

The big concern is at the stability of politics situation. As long as parliament still has either internal conflict or external conflict there is no guarantee the politics circumstances will support the economic situation. According to Bloomberg news, 38 % of government bond is owned by investor from oversea that means rupiah exchange rate is likely affected by investor from abroad who is sensitive to political situation.

Parliament is owned by the opposite parties as they are the major part of parliament. The parliament plans to use its interpellation right to ask the government about the allocation of fuel subsidy. The politics situation may possibly be worse. Government needs support from the opposite parties, as they power more than 50 % of votes.

Petrochemical Industry

Expert said that this sector as the mother of industry because it contributes to give input to various industries such as automotive, textile, food and beverage and etc. In indonesia, petrochemical industry is still lack of investment because it needs much more fund to establish integrated petrochemical industry such as petrochemical refinery, olefin industry and etc.

Olefin as potential market

Olefin is the most demanded raw material in petrochemical industry at Indonesia. Olefin could be extracted in to various products such as polyethylene, polypropylene, styrene monomer and etc. These products could be used to produce many kind of product in downstream industry. These are plastic bags, bottles, food containers, automotive parts, tires, synthetic rubber, fibers and filaments and others consumer product.

Although the demand of olefin product has increased, the supply of chemical product is not able to capture the opportunity. The upstream petrochemical industry is not capable yet in serving domestic demand. There are two biggest companies in upstream industry of petrochemical which produce olefin, Pertamina and Chandra Asri centre.

Olefin is a downstream product which is having strategic value because of its derivative product is used in many industries.

The stumble in enhancing olefin production is the availability of naphta in indonesia. Naphta is a derivative form of crude oil. 90 % of cost of production in producing olefin is spent for purchasing naphtha. This is useful to breakdown the chain of hydrocarbon. In almost every year indonesia Imports 2 millions tones of naphta for domestic industry.

The lack of naptha supply for olefin industry is caused by less investment in petrochemical refinery in indonesia. The high demand of crude oil for fuel product and the decline of oil reserve in indonesia are affected the supply of naphta. This circumstance insists the industry player import the naphtha from another country. The cost is very affected by the fluctuation of foreign exchange rate which is used to make decision in investing fund for purchasing naphta.

In other side the industry is also having problem in capacity of production, especially for ethylene and propylene. The capacities of those are below the domestic demand. Its capacities are 600,000 tones and 865,000 tones while the demands are 1.04 million tones.

In 2015, few companies will increase the capacity of production; they are joint venture of pertamina - PTT Global chemical and Chandra Asri Petrochemical.

Chandra Asri Petrochemical is the only producer of ethylene, styrene monomer and butadiene in domestic. The company is also one of two producer of polyethylene and one of three producer of polypropylene in indonesia. Chandra Asri has 50 % market share for polypropylene and has 30 % of polypropylene’s market share in domestic. (annual report).

The opportunity in olefin industry and its derivative product is still promising for investor because the main player in its business is small in number and its capacity is under the domestic demand.

CHANDRA ASRI PETROCHEMICAL

Strong Capital access

The company is established in 2011, it is new company which was formed from a merger between two companies, Tri Polyta and Chandra Asri. This is owned by several conglomerates group, they are salim, ciputra and prayogo pangestu’s family,

The Majority shareholder is PT Barito Pacific with 55.36 % of total share. The biggest contribution to sales is Polyolefin product, which is at 50,86 %of total revenue.  The other products are Styrene Monomer, Olefin and Butadiene. 75 % of total revenue is contributed from domestic market and the rest is from export.

The company also has strategic partnership with international company such as Michelin for synthetic rubber production and Basf for production license.

Capital Barrier to new entry and high Plant Capacity utilization rate

The barrier for new entry in this industry is huge investment amount for establishing the business.  The company has big market share in indonesia. Accordance to its annual report the company has used its capacity almost 90 % in average. The demand in 2013 is still high and I think the company will have strong demand in 2014 as the competition in olefin production is low. 

The average of capacity utilization is also high; the demand in the market seems strong. The average of its utilization is 91.8 percent. The lack in this industry is limited supply of naptha, it is fully imported from abroad.

Chandra Asri Petrochemical is the only producer of ethylene, styrene monomer and butadiene in domestic. The capacity of production is still below the domestic demand. 

Global Oil price and inflation rate

naptha as the main raw material of the company declines in its price as the oil price decreases more than 30 % compared to the previous years. The company may reduce its cost of goods sold and it is expected increase profit. The decline of rupiah currency is expected exceed by the decline of oil price. As long as wages do not highly increase, the downward of oil price can be a good momentum to increase net income.

75 % of total revenue is contributed from domestic market, which means the biggest income is in local currency. The energy price is also higher caused by the allocation of oil subsidy by government; other costs which hike are transportations.

In 2013 the revenue has advanced 9.7 % up compared to 2012. The company has expanded its business segment in butadiene segment. The profit rises sharply and so did the gross margin in 2013 compared to 2012.

The activity ratio is better in 2013 than 2012, with good market share and low competition in domestic, the company will grow in the next 3 years. My assumption, the sales will grow more tha 10 % as the inflation rate advanced. The capacity of production is beneath the demand, the company should add new factory or equipment to increase production.