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.

 

INDOSAT - ISAT

Investment sector is still promising

Despite there was a slowdown in economic growth in first quarter of 2015, the investment segment has still been growing gradually in the last 4 years. In 2014 the total investment was 463.1 trillion rupiah and it was higher than total investment in 2012 which was 313.2 trillion rupiah. It increased 48 % up than total investment in 2012 (source: kompas newspaper). In first quarter of 2015 the investment was 124.6 trillion rupiah and it is expected keep growing.

The investment is dominated by investor from oversea; the bottle neck in investment is the complicated procedure in administrative procedure of each investment. There are too many institutions which were involved in the process of investment.

Generally indonesia is still promising for investment because the country has good natural resource and a surplus in demographic side. Hence, the total investment has been growing as the previous explanation.

Consumption dropped in ramadhan

The consumption sector is falling down due to higher inflation rate. Wage rate did not meet to the cost of living. Export rate is not performing as expectation due to many factors such as low price of commodities. The gradual increase of inflation rate since the early of 2014 might be the key reason to the slowdown in consumption. The biggest part of GDP is contributed by consumption and that is why the dramatic change has already been happening when new government decided to focus in investment for infrastructure project.

According to economic data of central bank in May of 2015, the segment of trading, mining and manufacture are experienced decline in its growth. The weak demand in these segments may cause the rise of nonperforming loan rate despite the credit distribution in mining and quarrying has raised 7.12 percent up compared to May of 2014. 

 Industry Analysis

The telecommunication industry may not be affected by the slowdown of economic growth. In fact people still need to communicate despite the cost of living is more expensive. The subscriber is still using various social media such as facebook and twitter to communicate to each other.

According to GFK 2013, the penetration of smart phone user is still promising, there is a sharply increase in its number since 2009. Its number increased from 1870 thousand user in 2009 in to 20,981 thousand unit in 2012. It was almost 1025 % up. And its number seems continue to grow at the future.

Market leader in this segment is still expanding their business, building new IT infrastructure and establishing new subsidiary to capture new opportunity. Telkomsel as the market leader in cellular segment is building Telkom indigo, subsidiary which focus in investing fund for Startup Company. It has also been establishing fiber optic cable at under the sea in order to connect Indonesia to Silicon Valley at USA.

Company analysis

Case of IMM : company has been sued for about 1.3 trillion payoff

The case of IM2 may hamper the performance of the company during 2015. The government sued to indosat for illegal use of 3G frequency for IM2. IM2 is subsidiary which operates in internet broadband connection. The government has sued the company for 1.3 trillion payoffs due to illegal use of 3G frequency in its internet broadband service. Indosat put that amount as legal provision in its income statement. Hence, the provision cost reduced the net profit of 2014. The provision is 5.7 % of revenue in 2014.

Despite the company has been supported by communication and information ministry and such association, the case has not been resulting final verdict. There is no execution yet from the jurisdiction.

IM3 was the key driver 

The key driver of sales was still from cellular segment which had more than 63 million users in across Indonesia. The subscriber’s growth was 6.1 % in 2014 compared to the number of subscriber in 2013. The cellular’s contribution to sales was 80.9 percent of total. The second was MIDI segment. For cellular segment there is a negative trend in last three years, there is a slightly decrease. Meanwhile for MIDI, there is a positive trend in the same period.

Despite the sales growth in 2015 was dropped 0.9 % compared to sales growth in 2014 which was about 6.4 % the company is still maintaining its position as the second largest cellular company in Indonesia.  IM3 was the most famous brand for cellular segment; its contribution was more than 80 % of total cellular segment. 

In spite of a slowdown in sales growth, the company has still developed its EBITDA margin. The EBITDA margin in 2014 was higher than EBITDA margin in 2013.

The company has more than 40 thousand BTS and 29.000 data connectivity service user.  

I think the company should focus to IM3 user which was dominated in generating sales growth. IM3 was successful brand in serving GPRS technology in the past. The user was attracted to GPRS technology because of its faster internet broadband connection.

Indosat is owned by ooredo asia as the biggest shareholder which has 65 %, a part of world telecommunication company from Qatar. The second biggest owner is Indonesian government which owns more than 14 % of total shareholder.

SMGR

Inflation rose more than 7.15 percent in May

The month of ramadhan will arrive in the middle of June and commonly consumption of goods and service will be double in quantity at ramadhan, as the result of that, the demand will pull the inflation rate. Aggregate demand will increase and the price level of goods and services are expected rise in month of ramadhan. In May of 2015, the inflation rate rose 7.15 %(source :  kompas) annually and it will be worst if the government do not anticipate it with more supply of goods in the market especially for consumption. Among of Indonesian citizen are Muslim who have duty to conduct fasting in that month.

The Fed rate may be increased in 2015?

The Fed rate is predicted increase in 2015 due the better economic indicator in US. The Fed would like to decrease inflation rate and money supply with higher interest rate. As the increase of fed rate the capital inflow is expected to be rose, the investor tend to look gain in US at Bond Market as the interest rate may be advanced.

Loan for Infrastructure project increased four times since 2007

Despite the loan for infrastructure project from bank increased four times since 2007, it is only covering 32% of total financial needs for the national infrastructure project.  Accordance to RJPM the infrastructure funding will allocate for various infrastructure project include Maritime, electricity, roads, housing, Oil and gas, water, Railroads, telematics and other transportations. The biggest portion is electricity project which is 20 % of total. The second is maritime sector (17.9%), followed by roads (16%) and housing (10%) (source : Indonesian update of Mandiri).

Cement consumption is predicted increase in 2015 due to the infrastructure project in Indonesia.

Financial Analysis

Semen Indonesia is a state owned company which is the biggest cement producer in Indonesia. In 2014, the sales growth was 10.1 % up compared to sales in 2013. The gross margin was 47.4 % of sales in 2014 which was less than gross margin in 2013 which was at 48.7 %. The activity ratio was stable; the company could maintain its business despite of the economic situation was slowing down.

The cost of operating may be added up by the higher price of energy. Semen Indonesia has several factories both in Indonesia and at abroad. The company had done acquisition of Thang Long cement at Vietnam in 2012 and at the same year the company has built new factories in Tuban and Sulawesi island. According its annual reports in 2012, the market share was more than 40 % in Indonesia.

expressed in rupiah (SMGR)	2013	2014	2015F	2016F	2017F
Revenue	24,501,240,780.0	26,987,035,135.0	29,415,868,297.2	32,063,296,443.9	34,948,993,123.8
COGS	-12,577,694,219.0	-14,195,968,934.0	-15,296,251,514.5	-16,672,914,150.8	-18,173,476,424.4
Gross Profit	11,923,546,561.0	12,791,066,201.0	14,119,616,782.6	15,390,382,293.1	16,775,516,699.4
Operating Expense	-3,902,612,073.0	-4,565,707,889.0	-4,976,621,599.0	-5,424,517,542.9	-5,912,724,121.8
Depreciation n amortization	-1,048,549,677.0	-1,271,618,313.0	-1,363,204,978.6	-1,439,842,114.5	-1,511,312,751.2
Other Income / - expense	288,183,490.0	519,945,090.0	566,740,148.1	617,746,761.4	673,343,970.0
Interest Expense	-340,168,567.0	-382,919,122.0	-22,198,008.7	-22,500,000.0	-22,500,000.0
Pretax Income	6,920,399,734.0	7,090,765,967.0	8,324,332,344.4	9,121,269,397.1	10,002,323,796.5
Taxes	-1,566,101,213.0	-1,517,188,688.0	-1,781,130,970.5	-1,951,649,062.2	-2,140,165,475.5
Net Income	5,354,298,521.0	5,573,577,279.0	6,543,201,373.9	7,169,620,334.9	7,862,158,320.9
Cash	4,070,492,871.0	4,925,949,551.0	10,312,208,723.2	16,369,631,770.5	23,186,379,894.2
Short Term Investment	142,434,379.0	105,569,233.0	105,569,233.0	105,569,233.0	105,569,233.0
Trade Receivable	2,238,452,900.0	2,553,653,508.0	2,783,482,323.7	3,033,995,732.9	3,307,055,348.8
Inventories	2,645,892,517.0	2,811,704,405.0	3,029,630,310.1	3,302,297,038.0	3,599,503,771.4
Other Current Asset	874,837,703.0	1,251,667,978.0	1,364,318,096.0	1,487,106,724.7	1,620,946,329.9
Total  Curr Asset	9,972,110,370.0	11,648,544,675.0	17,595,208,686.0	24,298,600,499.0	31,819,454,577.3
Net Property, Plants and equipment	18,862,518,157.0	20,221,066,650.0	21,357,861,671.4	22,418,019,556.9	23,406,706,805.7
Other Non Curr Asset	1,958,255,565.0	2,445,054,702.0	2,665,109,625.2	2,904,969,491.4	3,166,416,745.7
Total Non Curr Asset	20,820,773,722.0	22,666,121,352.0	24,022,971,296.6	25,322,989,048.4	26,573,123,551.4
Total Asset	30,792,884,092.0	34,314,666,027.0	41,618,179,982.6	49,621,589,547.3	58,392,578,128.7
Short Term Debt	320,926,026.0	81,808,678.0	90,000,000.0	90,000,000.0	90,000,000.0
Account Payable	1,672,272,211.0	2,160,613,721.0	2,328,075,741.5	2,537,602,558.2	2,765,986,788.5
Curr Portion of Long term debt	519,274,300.0	516,069,752.0	530,000,000.0	530,000,000.0	530,000,000.0
Other Curr Liabilities	2,785,158,000.0	2,514,776,971.0	2,741,106,898.4	2,987,806,519.2	3,256,709,106.0
Total Curr Liabilities	5,297,630,537.0	5,273,269,122.0	5,689,182,639.9	6,145,409,077.5	6,642,695,894.4
Long Term Debt	113,093,127.0	131,988,819.0	130,000,000.0	130,000,000.0	130,000,000.0
Deferred Taxes	7,219,730.0	58,201,897.0	58,201,897.0	58,201,897.0	58,201,897.0
Other Non Curr Liabilities	3,570,964,823.0	3,848,754,253.0	4,195,142,135.8	4,572,704,928.0	4,984,248,371.5
Total Non Curr Liabilities	3,691,277,680.0	4,038,944,969.0	4,383,344,032.8	4,760,906,825.0	5,172,450,268.5
Total Liabilities	8,988,908,217.0	9,312,214,091.0	10,072,526,672.6	10,906,315,902.5	11,815,146,162.9
Minorities	921,432,547.0	960,414,183.0	960,414,183.0	960,414,183.0	960,414,183.0
Common Share	593,152,000.0	593,152,000.0	593,152,000.0	593,152,000.0	593,152,000.0
Additional Paid Up Capital	1,458,257,900.0	1,458,257,900.0	1,458,257,900.0	1,458,257,900.0	1,458,257,900.0
Retained Earning	18,480,910,979.0	21,630,157,442.0	28,173,358,815.9	35,342,979,150.9	43,205,137,471.8
Other	350,222,449.0	360,470,411.0	360,470,411.0	360,470,411.0	360,470,411.0
Share holder Equity	20,882,543,328.0	24,042,037,753.0	30,585,239,126.9	37,754,859,461.9	45,617,017,782.8
Share holder Equity & Min Interest	21,803,975,875.0	25,002,451,936.0	31,545,653,309.9	38,715,273,644.9	46,577,431,965.8
Total SE,Min Interest and Liabilities	30,792,884,092.0	34,314,666,027.0	41,618,179,982.6	49,621,589,547.3	58,392,578,128.7
Financial Ratio	2013	2014	2015F	2016F	2017F
ROA	17.39	16.24	15.72	14.45	13.46
ROE	25.64	23.18	21.39	18.99	17.24
Gross Margin	48.67	47.40	48.00	48.00	48.00
Profit Margin	21.85	20.65	22.24	22.36	22.50
Current Ratio	1.88	2.21	3.09	3.95	4.79
Debt to asset	0.03	0.02	0.02	0.02	0.01
Dividend Pay Out Ratio	41.2	-	-	-	-
Days Payable	49	56	56	56	56
Days Inventory	77	72	72	72	72
Days Receivable	33	35	35	35	35
Free Cash Flow		3,453,984,102.0	5,366,126,421.2	6,057,423,047.3	6,816,748,123.7
EBITDA	8,309,117,978.0	8,745,303,402.0	9,709,735,331.7	10,583,611,511.6	11,536,136,547.6
EPS	905.00	938.00	1103.12	1208.73	1325.49
Revenue Growth		10	9	9	9