SKLT

Digital currency revolution

Digital currency is being considered by people of whole the world for its new currency in transaction. Smartphone technology made digital currency as a choice in payment of their daily transaction. According to wall street journal the daily usage of digital currency of global in 2014 is USD 50 million a day. It is much smaller that the usage of Visa and master card which are amounting to USD 32 billion a day.

There are over than 2 billions of people at whole world which is called as unbanked people. And the developer of digital currency is set them as their target for digital currency product.

One of famous digital currency product is bit coin. Its system was established by satoshi nakamura three months after the financial crisis in US, in September 2008.  Mr satoshi took the momentum of crisis to launch bit coin.

Despite it could reduce cost of transaction, Bit coin still has flaws, it is vulnerable for money laundering and its price is also unstable.  Its currency iteration could change about more than 10 percent weekly. (source: wsj & internet)

Company analysis

The company exports its product to foreign countries such as US, Japan, Europe and etc. Its premium brand of product was called FINNA. But sales from domestic is still dominated its total income. The company has integrated business in food segment; its subsidiaries, Mitra Boga Sukses Abadi and Abadi Java food are operating in restaurant segment. For distribution, another subsidiary, Pangan Citra rasa Nusantara handle distributes the product across Indonesia. 

Surabaya is apparently a sea industry cluster, it is located near the sea and there are many industries either mass industries or home industries which are processing fish, shrimp, seaweed and etc both from fisheries segment and inland water.

Based on its financial statement revenue from local segment was more than 83 % of total revenue. The remained revenue was from oversea which was at 16 % of total revenue. Based on its products segment, the merchandise good segment was dominated which was 45.5% of total revenue of 2014. The second was cracker with 35.1 % of total revenue.

Based on euromonitor the food canned is expected having high growth in between 2013-2017. Its CAGR projection was more than 15 %. The company may start to increase its food canned or preserved food product to capture the demand in the market.

The sales growth of 2014 was more than 20 % compared to sales in 2013. The growth in 2014 was lower than sales growth in 2013 which was more than 40 %. It had occurred due to slowdown of economic growth in Indonesia. Among the people decreased their expenditure in 2014 due to higher cost of living and higher US dollar value to rupiah. Some company which depends on imported raw material has started to collapse and it has laid off employee.

According to the financial report of 2014, the largest share holder was Omnistar Inv H Ltd which has 26.78 % share. The second was PT Alamiah Sari with 26.16 % share.

Finally, the company is expected experiencing significant growth in next five years due its position as market leader of food of marine manufacturing industry in east java.  

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.  

ELTY : Bakrie Land Development

Acceleration of village development is expected lift economic growth up

Based on ministry of finance, one of factors which influenced the slowdown of economic growth was slow moving in absorbing budget. There is unused fund amounting to IDR 273.5 billion at BPD in each province.

That fund should be used for development of village as priority program of Jokowi administration. Jokowi in his campaign was promising special development program for villages across the country. He said that he would allocate IDR 1 billion for each village at entire nation.

Central bank expected the acceleration in absorbing budget could increase economic growth in second semester of 2015. It is predicted to reach 5 % growth.

Plan of revision in tax regulation for property: NJOP, BPHTB and price limit 

In order to get more tax revenue government plans to revise its tax regulation include for property’s sector. Government considers changing the price limit from IDR 10 billion to IDR 2 billion. If this new revision is implemented, there will be more people who pay tax for property. On other hand, government also plans to change taxable value of property (NJOP) which is used as guidance to measure how much land and building taxes (PBB) and land and building transfer fees (BPHTB) have to be paid. Government will use new system to measure land value which is called price zoning.

If those new regulations are approved, the consumer who purchase apartment valued 2 billon will be imposed more cost and the sale of this segment may be decline.

If the government changes the regulation, the developers may change its target for luxury segment as the cost increase. Developers are predicted to focus on property which is valued less than IDR 2 billion.

Tax paid on property: 5 % for Land and building transfer fee, 10 % for value added tax, 5 % for income tax and 20 % for luxury tax.

Company analysis: Purchase land bank in secondary city and expand in theme park segment

According to annual report the company experienced significant decline in revenue, the revenue of 2014 dropped about 50 %. Apartment was still the key driver with largest contribution to sales which was 21.6 % of total revenue and the second was housing with 13.6 % of total revenue. The significant decline of sales was occurred for sale of land, housing and apartments segments from about rp 1.042 in 2013 billion in to about 399 billion in 2014.Bakrie Swasakti Utama is the biggest revenue contributor which is more than 70 percent of total revenue. The decline in revenue was occurred due to strict regulation such as Loan To value and Tax regulation and happening because the slowdown of economic growth. It was reflected in sharply increase of inventory and receivable in period of 2013 until 2014.

In spite of decline in sales the company could increase its net profit and start new market in playground segment.

In 2014 the company purchased land bank in sidoarjo which was amounted to about IDR 500 billion as the company did acquisition of Mutiara Mahsyur Sejahtera. The company seems start to focus in secondary city as its strategic growth in 2014 due to removal of tax regulation for property and playground or theme park as its new market in challenging downturn of economy.

According to annual report the company has 1,030.18 ha as its land bank. The largest was located at bogor and the second was located in sidoarjo. In 2013 the company sold its several assets in golden triangle to pertamina and sinar mas teladan due to liquidity problem in paying its obligation

Meanwhile, capitalization of borrowing cost to inventory was amounted to Rp 115.5 billion and rp 501.51 billion until December 31, 2014 and 2013 respectively.

The largest share holder of the Bakrie land was avenue capital Luxembourg which was the part of Avenue Capital at New York, USA.  More than 75 % of total share is owned by Public. PT Asuransi Jiwa Sinar Mas MSIG own 5 % and Interventures Capital pte Ltd owns more than 8 %. 

The company has debt amounting to USD 155 million which would be matured in March 2015. The convertible bond has three monthly coupon payments with 8.625 % interest rate.

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BBRI

Fed Fund Rate: Psychology effect of tapering Tantrum

The fed in several times announced that they had a plan to raise their fund rate as US economic growth had started to recover in 2015. This acts triggered the investor to make decision in responding the announcement, global investor in emerging country tends to remove their fund from the country to another country which they assumed having lower risk. According to domestic newspaper in the early of July 2015, china had loss fund more than 35,000 trillion rupiah from its capital market. They might remove their money because the fed announced its plan to increase the fed fund rate in 2015.  

The Fed apparently did that action to search the respond from global investor, they may analyze where the money was removed by global investor after the fed made announcement about the fed fund rate.

Government should anticipate the raise of fed rate which may be lifted in September of 2015. They should not only increase its interest rate to maintain capital outflow but they should also do more than that, they have to establish better logistic distribution to decrease cost. Capital outflow which will be removed from capital market should be projected before September. The rapid increase of the fed rate will possibly be a deadly trigger for currency rate if the fed does that monetary policy. Despite central bank has hundred billions of foreign deposit, the worst scenario should be prepared. Our big domestic investors have changed in to global investor and they could act as global player. They will bring their money to lower risk country to save their asset. 80 % of economic growth has been driven by 20 % of the business people who own share in big company at Indonesia. These people have big portion of investment in capital market.  

We remember that the chaos in 1998 was triggered by high inflation rate which rupiah was sharply falling. In 1998 the richest people of Indonesia brought their asset to Singapore.

Slowdown in credit growth: from 20 dropped in to 10

The slowdown of credit growth in among of banks is caused by the shrink of commodity price which decreased export. In 2013 the credit growth was more than 20, 17 % which was higher than credit growth in 2014 which was at 11,6 %. In May of 2015 the credit growth was only less than 10 %.

There are many companies in commodity sector have postponed their business expansion and delayed to purchase good.

On other hand the non performing loan ratio of banking sector increased in 2015 due to slowdown of economy. The decline of demand for goods and services make the manufacture industry decreased their production and as the result of that several companies may have liquidity problem in pay their short term liabilities.

Company Analysis: Kupedes is the famous brand for customer

Government of Indonesia owns more than 56.75 % of total share. BRI is one of the best bank in Indonesia with good performance. The company seems focus in retail banking and micro banking. According to annual report of 2014, the biggest contribution of interest income was from loan for micro segment, it was more than 44 % of total interest income. In spite of that the biggest loan portion is loan for retail segment which was more than 50 % of total loan in 2014.  The interest rate of micro credit may need to be considered in order to increase loan for micro segment.

The famous brand is kupedes which was 36 % of total loan by its type. The company seems focus in developing its micro and retail segment by establishment of Teras BRI and Mobile Teras BRI. Based on annual report in 2014 there are 245 new mobile teras unit and 145 new Teras BRI unit.

The company seems plan to capture more in micro segment as the interest rate margin is promising. In 2014 net loan growth is more than 13.9 % higher than loan in 2013. The biggest contribution was credit in trading, hotel and restaurant segment by its economic sector.

Capital expenditure: rp 831 billion for satellite and rp 1,032 trillion for computer and machinery

In spite of economic slowdown in 2014, the company was still confident to expand its business by developing its technology. They purchased satellite for development and they have spent more than Rp1.03 trillion for computer and machinery. They increased its ATM from 18,292 units in to 20,792 units and they added EDC machine from 85,936s unit in to 131,204 units. They want to be the biggest national

payment bank in Indonesia. 

As the result of that they were able to increase its fee base income in 2014 compared to 2013. Although there are many achievement at domestic the company liquidated its subsidiary in hongkong. BRI was shutting down BRI finance ltd in Hongkong.

Opinion

I think BRI should use more part of his loan portfolio for youth entrepreneur because this is the biggest part of population. This could reduce unemployment in Indonesia and finally it could contribute economic growth for Indonesia. Mandiri is better in building this segment by creating entrepreneur program.

Back to back loan could be an option for this segment, the company could use csr program for giving back to back loan for business leader. Then leader will manage this loan for distributing for beginner entrepreneur.

The back to back loan is using revolving basis which let the debtor only pay the interest only during one period of facility. The purpose of the loan is financing working capital. If the business is failed the asset should be liquidated.