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IPO Prospect of Sido Muncul

The IPO of an PT Sido Muncul seems quite interesting to be noted, not only because the great name of the company, but also because it is very interesting sector of the company, which is herbal pharmacy/drugs or what is usually called as medicinal herbs (‘jamu’ in Indonesian). As we’ve known, pharmacy sector is one of the most profitable sectors in Indonesia, and Sido Muncul is seems to be one of the best players in this sector. On the full year 2012, the company recorded net income of Rp388 billion, which reflected return on asset (ROA) of 18.0%. For comparison, on the same period, Kalbe Farma (KLBF), which can be considered as the best pharmacy company in IDX, also recorded ROA of 18.8%.

While if we look at the history of performance data of the company, at least for the last five years, Sido Muncul’s performance is relatively better than KLBF. Anyway, let’s see this Sido Muncul from the beginning.

Sido Muncul’s history started since 1940 in Yogyakarta, where a woman entrepreneur named Rahkmat Sulistioningsih pioneered a traditional medicinal herbs industry in her house, with the help of three employees. The business was growing successfully, and on 1951, a company named ‘Sido Muncul’ was established, which means ‘The Dream Came True’. Its first factory was located in Semarang, with its main product Tolak Angin, which became its most reliable product until today.

On 1972, the ownership of the company was given to Irwan Hidayat, who is the grandchild of Rahkmat Sulistio. Three years later, on 1975, Sido Muncul was officially incorporated (became a PT). But the company’s development next was considered slow, where the expansion was usually only in form of factory capacity expansion, or replacement of machinery with newer and more modern devices. Sido Muncul has just had its second factory on 2002, located in Ungaran Regency.

Logo PT Sido Muncul, which containing the picture of Mother Rahkmat with her 4-years old grandson, Irwan Hidayat

The slow development of the company was probably because of the company did not actually need any development. Before becoming a company worth of trillions Rupiah like now, since the beginning, Sido Muncul has been a very profitable company because it focused on mild medicinal products and nutritious food or drinks, such as cold medicine, fever, and energy drinks, where those products are largely and continuously consumed by group of people (it’s different from diabeted medicine, which only consumed by the diabetics). Besides that, because the company take the ingredients from types of plants that are easy to obtain from nature such as saffron, ginger, turmeric, cinnamon, and galangal (which can be easily obtained even in traditional market with very low price), the the production cost is very low, and consequently, the net income margin becomes great.

But the type of product and the cheapness ingredients prices factors of course cannot be a guarantee of success of a company. For Sido Muncul, its success is delivered from its two well-known product brands, which are Jamu Tolak Angin and Jamu Kuku Bima. Thanks to those two products, Sido Muncul is practically the main competitor of PT Bintang Toedjoe (a subsidiary of Kalbe Farma/KLBF) in herbal medicine industry. If likened, PT Bintang Toedjoe is Unilever, and Sido Muncul is Wings Group.

But lately, just as Wings Group that expand by launching Mie Sedaap noodles and soy sauce, Sido Muncul also started to expand by developing several new products such as Minuman Alang Sari, Kunyit Asam, Beras Kencur, and Jahe Wangi. So far, those products are quite successful in the market.

However, as I’ve expected before, this good company usually will not be detached just like that by the owner, although through mechanisme of IPO. Because, judging from any side, Sido Muncul doesn’t need any funding support at all, even though they plan to establish new factory, because their cash funds position is very abundant. So, unless the company can be IPO-ed by releasing few shares at premium selling price, then its better that the company doesn’t do the IPO at all.

And its apparently true. On its IPO now, only 10% of Sido Muncul shares relased to public, with 1% of it alocated to its own employee (so the actual shares released to the public is only 9%). The price? Obviously not undervalue. Sido Muncul’s shares is planned to be relased at the price of Rp600 per share, so it reflect the market cap of Rp9 trillion. Because the company’s net capital after IPO is Rp2.1 trillion (in average), then it means that its PBV is 4.2 times. Sounds expensive? Absolutely yes, because a normal PBV of the company’s shares with the fundamental quality like Sido Muncul is two or three times (If later Sido Muncul enter the blue chip groups, then it can be more expensive than that).

But reletively, probably not. If we use PBV of KLBF that is 8.1 times on the price of 1,280 as comparison, the IPO of Sido Muncul is considered quite fair because its price is only half of KLBF. If we talk about its long-term prospect, there is not a thing to be worried about, considering the company’s business typical that resistant to economic turmoil. You know, if you had heart attck, and must be hospitalized, then before that you have to deal with the administrative officers. But if you had stomachace because of catch a cold, then you can go to the nearest grocery store to buy Tolak Angin at the price of Rp1,500 (about 15 cents Dollar) per sachet.

However, if two or three years before, the IPO were hunted by the investors because the price was usually soar at the first date of listing, but about past year, the condition reversed, where many IPO shares didn’t only soar when it is traded on the market, but fell down. On the other hand, the one that rise was actually the shares with unclear fundamentally, and usually end up with decrease like crazy (just like the case of stock of Gading Development/GAMA).

That is why, although Sido Muncul is undoubtedly one of the very good companies and suitable for long-term investment, but it’s better if we see how the movement in the market first (like my experience in Semen Baturaja/SMBR and Wismilak Inti Makmur/WIIM). But what can I say is, if later Sido Muncul actally fell after the listing, then the declining will stop at certain price, and for the next long run, it will rise again. So, you can buy the share when it fell down to that certain level. This kind of thing had been happened to Indofood CBP’s (ICBP) shares that had fell from IPO price of 5,350 until it stopped to the level of 4,000 (in average), but it is now on the level of  1,000 (in average).

But what if it successfully rises? Then let it be, do not pursue it. Because on this unstable market condition, there are more other interesting undervalue shares either relatively or fundamentally, to be collected.

PT Industri Jamu dan Farmasi Sido Muncul, Tbk
Performance Rating per July 2013: AA
Shares rating on 600: A

Original article was written on November 22nd, 2013

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