Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

The company benefits from its ties in MT with Alfamart and Indomart as it has higher hygiene perception and less chance of contact with another person which is appreciated during COVID-19. <a href="https://www.smartkarma.com/entities/industri-jamu-dan-farmasi-sido-muncul-tbk-pt" target="_blank" data-smartkarma-citation="entities:6033:1" rel="noopener">Sido Muncul (SIDO IJ)</a> Q2 2020 had a nice surprise where consumers switched from Tolak Angin to other products such as Vitamin C 1000 powder drink and Ginger-flavor beverages.Bintang Toedjoe's clinical trial on red ginger may have a negative impact in the short term but it presents a long term opportunity in the long run that Tolak Angin and other SIDO's products have an improved global acceptance, therefore, easier to sell in other countries. Post a share price increase from IDR 500 to 1400 in the past three years, the management feels that a 1 to 2 stock split is appropriate and it will happen sometime this month. This will create more liquidity and a share price that is affordable for retail investors (around IDR 700) thus a new entry point for investors who think they missed out on SIDO as the share price was deemed too expensive.

The company benefits from its ties in MT with Alfamart and Indomart as it has higher hygiene perception and less chance of contact with another person which is appreciated during COVID-19. Sido Muncul (SIDO IJ) Q2 2020 had a nice surprise where consumers switched from Tolak Angin to other products such as Vitamin C 1000 powder drink and Ginger-flavor beverages.Bintang Toedjoe's clinical trial on red ginger may have a negative impact in the short term but it presents a long term opportunity in the long run that Tolak Angin and other SIDO's products have an improved global acceptance, therefore, easier to sell in other countries. Post a share price increase from IDR 500 to 1400 in the past three years, the management feels that a 1 to 2 stock split is appropriate and it will happen sometime this month. This will create more liquidity and a share price that is affordable for retail investors (around IDR 700) thus a new entry point for investors who think they missed out on SIDO as the share price was deemed too expensive.

Sido Muncul (SIDO): Switch, Competitor and Split

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

It was reported last week the South East Asia's largest pharmaceuticals company <a href="https://www.smartkarma.com/entities/kalbe-farma-tbk-pt" target="_blank" data-smartkarma-citation="entities:6303:1" rel="noopener">Kalbe Farma (KLBF IJ)</a> is looking to spin-off its Nutritionals business at a total value of US$500m. This would be Indonesia's largest IPO of 2020. We take a closer look at this segment and whether a separate listing would add value.
As at June, 2020 Nutritionals made up 28% of the company's revenues and around 40% of EBITDA, as its share is boosted by the much lower margin distribution business which is 32% of sales.
The division covers a wide range of products including powdered milk products covering all age ranges from expectant mother to babies, kids, and adults under a number different brands, as well as producing supplements for diabetics to stabilise blood sugar, a cholesterol a sliming milk, and a weight-loss product called Slim &amp; Fit. 
<a href="https://www.smartkarma.com/entities/kalbe-farma-tbk-pt" target="_blank" data-smartkarma-citation="entities:6303:1" rel="noopener">Kalbe Farma (KLBF IJ)</a> also sells the popular Fit Bar and Fit Chips snacks under this division, which are very accessible and popular snacks found across modern trade and has the license to sell Blackmores Vitamins in Indonesia, where it has a leading market share.
Though there are scant details available on this potential spin-off, we attempt to ascertain whether this will be value accretive for shareholders of <a href="https://www.smartkarma.com/entities/kalbe-farma-tbk-pt" target="_blank" data-smartkarma-citation="entities:6303:1" rel="noopener">Kalbe Farma (KLBF IJ).</a>
The company distributes its nutritional products through its extensive network under <a href="https://www.smartkarma.com/entities/kalbe-farma-tbk-pt" target="_blank" data-smartkarma-citation="entities:6303:1" rel="noopener">Kalbe Farma (KLBF IJ)'</a>s distribution subsidiary<a href="https://www.smartkarma.com/entities/enseval-putera-megatrading-tbk-pt" target="_blank" data-smartkarma-citation="entities:12291:1" rel="noopener"> Enseval Putera Megatrading (EPMT IJ),</a> which cover the whole of Indonesia.
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We await further details on this but continue to see <a href="https://www.smartkarma.com/entities/kalbe-farma-tbk-pt" target="_blank" data-smartkarma-citation="entities:6303:1" rel="noopener">Kalbe Farma (KLBF IJ)</a> as a key defensive holding in Indonesia, which will benefit from more health-conscious Indonesians as well as a rebound in its pharmaceuticals business as PSBB measures are relaxed. It is also involved in testing for COVID-19 and in the development of a vaccine with Korean company Genexine, which could provide further catalysts. <a href="https://www.smartkarma.com/entities/kalbe-farma-tbk-pt" target="_blank" data-smartkarma-citation="entities:6303:1" rel="noopener">Kalbe Farma (KLBF IJ)</a>  is trading at a slight discount to its 5-year average forward PER of 27.5x currently on 26.4x but with a number of potential catalysts ahead.
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It was reported last week the South East Asia's largest pharmaceuticals company Kalbe Farma (KLBF IJ) is looking to spin-off its Nutritionals business at a total value of US$500m. This would be Indonesia's largest IPO of 2020. We take a closer look at this segment and whether a separate listing would add value.
As at June, 2020 Nutritionals made up 28% of the company's revenues and around 40% of EBITDA, as its share is boosted by the much lower margin distribution business which is 32% of sales.
The division covers a wide range of products including powdered milk products covering all age ranges from expectant mother to babies, kids, and adults under a number different brands, as well as producing supplements for diabetics to stabilise blood sugar, a cholesterol a sliming milk, and a weight-loss product called Slim &amp; Fit. 
Kalbe Farma (KLBF IJ) also sells the popular Fit Bar and Fit Chips snacks under this division, which are very accessible and popular snacks found across modern trade and has the license to sell Blackmores Vitamins in Indonesia, where it has a leading market share.
Though there are scant details available on this potential spin-off, we attempt to ascertain whether this will be value accretive for shareholders of Kalbe Farma (KLBF IJ).
The company distributes its nutritional products through its extensive network under Kalbe Farma (KLBF IJ)'s distribution subsidiary Enseval Putera Megatrading (EPMT IJ), which cover the whole of Indonesia.

We await further details on this but continue to see Kalbe Farma (KLBF IJ) as a key defensive holding in Indonesia, which will benefit from more health-conscious Indonesians as well as a rebound in its pharmaceuticals business as PSBB measures are relaxed. It is also involved in testing for COVID-19 and in the development of a vaccine with Korean company Genexine, which could provide further catalysts. Kalbe Farma (KLBF IJ)  is trading at a slight discount to its 5-year average forward PER of 27.5x currently on 26.4x but with a number of potential catalysts ahead.


Kalbe Farma (KLBF IJ) - A Nutritional Spin-Off?

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<a href="https://www.smartkarma.com/entities/industri-jamu-dan-farmasi-sd-mncl-tbk-pt" target="_blank" data-smartkarma-citation="entities:6033:1" rel="noopener">Sido Muncul (SIDO IJ)'</a>s herbal medicine products under its Tolak Angin brand are a household name in Indonesia, given they are a remedy for the country's most well known and widespread complaint of "masuk angin". The onset of COVID-19 has provided the catalyst for strong growth outside its core products as well as the development of new variants. A recent call with management confirmed a positive outlook despite the pandemic. 
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The onset of COVID-19 has provided a boost in demand for Tolak Angin products domestically but it saw some drag from slower general trade and sluggish export sales to the Philippines.
On the flip side, <a href="https://www.smartkarma.com/entities/industri-jamu-dan-farmasi-sd-mncl-tbk-pt" target="_blank" data-smartkarma-citation="entities:6033:1" rel="noopener">Sido Muncul (SIDO IJ)</a> saw very strong growth in its F&amp;B division with vibrant demand for its powdered vitamin and ginger-based drinks. 
The pandemic has also spurred management to develop more new products and variants designed to boost the immune system.  
The company has shifted emphasis to modern trade as well as selling online and through third-party market places, as general trade saw more of a slowdown. 
It has also reduced promotional activity significantly, which has helped the company improve margins and had stocked up on raw materials and packaging early to avoid any potential cost pressures.
<a href="https://www.smartkarma.com/entities/industri-jamu-dan-farmasi-sd-mncl-tbk-pt" target="_blank" data-smartkarma-citation="entities:6033:1" rel="noopener">Sido Muncul (SIDO IJ)</a> remains a high-quality Indonesian consumer play with a strong track record of sales and profits, as well as producing a healthy return for shareholders and a decent dividend yield. The company has the potential to generate higher growth by the introduction of new consumer health products in F&amp;B space with a greater demand for products to boost health and natural immunity. We would suggest that this could be the catalyst for the company to command higher valuations.


Sido Muncul (SIDO IJ)'s herbal medicine products under its Tolak Angin brand are a household name in Indonesia, given they are a remedy for the country's most well known and widespread complaint of "masuk angin". The onset of COVID-19 has provided the catalyst for strong growth outside its core products as well as the development of new variants. A recent call with management confirmed a positive outlook despite the pandemic. 

The onset of COVID-19 has provided a boost in demand for Tolak Angin products domestically but it saw some drag from slower general trade and sluggish export sales to the Philippines.
On the flip side, Sido Muncul (SIDO IJ) saw very strong growth in its F&amp;B division with vibrant demand for its powdered vitamin and ginger-based drinks. 
The pandemic has also spurred management to develop more new products and variants designed to boost the immune system.  
The company has shifted emphasis to modern trade as well as selling online and through third-party market places, as general trade saw more of a slowdown. 
It has also reduced promotional activity significantly, which has helped the company improve margins and had stocked up on raw materials and packaging early to avoid any potential cost pressures.
Sido Muncul (SIDO IJ) remains a high-quality Indonesian consumer play with a strong track record of sales and profits, as well as producing a healthy return for shareholders and a decent dividend yield. The company has the potential to generate higher growth by the introduction of new consumer health products in F&amp;B space with a greater demand for products to boost health and natural immunity. We would suggest that this could be the catalyst for the company to command higher valuations. 

Sido Muncul (SIDO IJ) - Health Beyond Herbal

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A recent conversation with <a href="https://www.smartkarma.com/entities/kalbe-farma-tbk-pt" target="_blank" data-smartkarma-citation="entities:6303:1" rel="noopener">Kalbe Farma (KLBF IJ)</a> management confirmed the company's resilience in a COVID-19 world, with its core pharmaceutical division seeing stable growth and its OTC consumer health products doing especially well.  Its direct involvement with testing and ongoing work on a COVID-19 vaccine could provide further upside.
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1Q2020 numbers were stable with +8% growth in sales and +12% in net profit, April was within estimates, whilst May was a bit weaker and June saw some recovery as PSBB measures were relaxed.
<a href="https://www.smartkarma.com/entities/kalbe-farma-tbk-pt" target="_blank" data-smartkarma-citation="entities:6303:1" rel="noopener">Kalbe Farma (KLBF IJ)</a> saw strong demand for multivitamins, as well as its herbal-based medicinal products, as consumers have sought to boost immunity during the pandemic. 
The company has also been actively involved in processing COVID-19 swab tests and is now processing around 20,000 per day as well as being involved in developing a COVID-19 vaccine for Indonesia in partnership with Korean company Genexin.
The company's valuations look reasonable in light of its defensive nature trading well-below its 5-year average PER. Despite its strong performance during the pandemic, we continue to take a positive view of <a href="https://www.smartkarma.com/entities/kalbe-farma-tbk-pt" target="_blank" data-smartkarma-citation="entities:6303:1" rel="noopener">Kalbe Farma (KLBF IJ) </a>given its unique exposure to pharmaceutical and consumer staples.


A recent conversation with Kalbe Farma (KLBF IJ) management confirmed the company's resilience in a COVID-19 world, with its core pharmaceutical division seeing stable growth and its OTC consumer health products doing especially well.  Its direct involvement with testing and ongoing work on a COVID-19 vaccine could provide further upside.

1Q2020 numbers were stable with +8% growth in sales and +12% in net profit, April was within estimates, whilst May was a bit weaker and June saw some recovery as PSBB measures were relaxed.
Kalbe Farma (KLBF IJ) saw strong demand for multivitamins, as well as its herbal-based medicinal products, as consumers have sought to boost immunity during the pandemic. 
The company has also been actively involved in processing COVID-19 swab tests and is now processing around 20,000 per day as well as being involved in developing a COVID-19 vaccine for Indonesia in partnership with Korean company Genexin.
The company's valuations look reasonable in light of its defensive nature trading well-below its 5-year average PER. Despite its strong performance during the pandemic, we continue to take a positive view of Kalbe Farma (KLBF IJ) given its unique exposure to pharmaceutical and consumer staples. 

Kalbe Farma (KLBF IJ) - Still a Healthy Choice

Ultrajaya Milk Industry & Trading Co. / Equity Bottom-Up

Ultrajaya Milk Industry & Trading Co. (ULTJ IJ)

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Based up in the cooler climes of Bandung, <a href="https://www.smartkarma.com/entities/ultrajaya-milk-ind-trading" target="_blank" data-smartkarma-citation="entities:13892:1" rel="noopener">Ultrajaya Milk Ind &amp; Trading (ULTJ IJ)</a> is one of Indonesia's hidden GEMs, with a 40% share of the liquid milk market and 70% chunk of the RTD carton tea market in Indonesia. It has no broker coverage, having a market cap of US$1bn and despite being acknowledged as one of Indonesia's best quality consumer staple companies catering to an industry with very low rates of penetration in the country. 
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<a href="https://www.smartkarma.com/entities/ultrajaya-milk-ind-trading" target="_blank" data-smartkarma-citation="entities:13892:1" rel="noopener">Ultrajaya Milk Ind &amp; Trading (ULTJ IJ)</a> should prove relatively resilient in the current COVID-19 environment, given the fact that milk is a staple and regarded as a healthy product. Its teas are readily available across modern and general trade catering for all levels of society. 
The company imports milk powder so there is some risk to margins from IDR weakness, given that the currency has depreciated by 15% so far this year. There is also a potential supply chain disruption from COVID-19 from Australia and New Zealand but this has not happened as yet. 
A second more recent conversation with management indicated the 1Q2020 continued to see decent performance including March but April has been more impacted given social distancing measures and reduced opening for some retailers. Meeting original guidance of double-digit for 2020 will be a stretch.
Having said the above, <a href="https://www.smartkarma.com/entities/ultrajaya-milk-ind-trading" target="_blank" data-smartkarma-citation="entities:13892:1" rel="noopener">Ultrajaya Milk Ind &amp; Trading (ULTJ IJ)</a> is a high-quality defensive staple with a long-term track record. This year will be tough but even if we assume no growth, the company is not expensive on 15.6x FY20E PER. Assuming a +10% recovery in 2021, it trades in 14.2x FY21E, which looks reasonable for such a high-quality consumer staple company. The company is relatively illiquid despite having a 42% free-float, so is more suitable for investors with a long-term investment horizon seeking to potentially purchase a block.


Based up in the cooler climes of Bandung, Ultrajaya Milk Ind &amp; Trading (ULTJ IJ) is one of Indonesia's hidden GEMs, with a 40% share of the liquid milk market and 70% chunk of the RTD carton tea market in Indonesia. It has no broker coverage, having a market cap of US$1bn and despite being acknowledged as one of Indonesia's best quality consumer staple companies catering to an industry with very low rates of penetration in the country. 

Ultrajaya Milk Ind &amp; Trading (ULTJ IJ) should prove relatively resilient in the current COVID-19 environment, given the fact that milk is a staple and regarded as a healthy product. Its teas are readily available across modern and general trade catering for all levels of society. 
The company imports milk powder so there is some risk to margins from IDR weakness, given that the currency has depreciated by 15% so far this year. There is also a potential supply chain disruption from COVID-19 from Australia and New Zealand but this has not happened as yet. 
A second more recent conversation with management indicated the 1Q2020 continued to see decent performance including March but April has been more impacted given social distancing measures and reduced opening for some retailers. Meeting original guidance of double-digit for 2020 will be a stretch.
Having said the above, Ultrajaya Milk Ind &amp; Trading (ULTJ IJ) is a high-quality defensive staple with a long-term track record. This year will be tough but even if we assume no growth, the company is not expensive on 15.6x FY20E PER. Assuming a +10% recovery in 2021, it trades in 14.2x FY21E, which looks reasonable for such a high-quality consumer staple company. The company is relatively illiquid despite having a 42% free-float, so is more suitable for investors with a long-term investment horizon seeking to potentially purchase a block. 

Ultrajaya Milk Ind & Trading (ULTJ IJ) - The Dairy King of Indonesia

Indonesia

Kalbe Farma is an Indonesian pharmaceutical, healthcare, and nutrition company. It specializes in the development, manufacturing, and distribution of prescription drugs, over-the-counter medications, nutritional supplements, and consumer health items. The company was founded on September 10, 1966, and is headquartered in Jakarta, Indonesia.

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Kalbe Farma (KLBF IJ)

Sido Muncul (SIDO): Switch, Competitor and Split

Structure: sales does not go as planned?

Henry Soediarko