You can contact the author (Teguh Hidayat) by email, teguh.idx@gmail.com. The author live in Jakarta, Indonesia.

See my pictures in Instagram, @teguhidx.

Tiga Pilar Sejahtera Food

What industry that is most immune to the turmoil of economies both nationally and globally? The answer is of course, the consumer goods industries, including food and beverage industry. Rupiah may fall, JCI may decline, but people will always need to eat and drink. That's why for most investors in the IDX, they have a policy that keep them to hold at least one stock of consumer goods companies, with the expectation that the stock would remain stable despite other stocks fall. Then, Tiga Pilar Sejahtera Food (AISA) is may considered as one of it.

AISA is a food company with a long history. The story began in 1959, when a businessman named Tan Pia Sioe established a corn vermicelli factory in Sukoharjo, Central Java, with the brand 'Cap Cangak Ular'. In 1978, Mr. Tan died, and the business was handed over to his son, Priyo Hadi Susanto. In 1992, PT Tiga Pilar Sejahtera (TPS) was formally established, and the company was handed toStephanus Joko Mogoginta which became director of the company, while Mr. Priyo remains in control as a commissioner. There is no information about whether Mr. Stephanus is the son or nephew of Mr. Priyo, but he is the grandson of Tan Pia Sioe.

In 2001, TPS entered the industry of dried noodles, and set up a dried noodles factory in Sragen, Central Java, but by keep maintaining corn vermicelli business. Two years later, ie in 2003, TPS went deeper into dried noodles business by acquired PT Asia Inti Selera Tbk (AISA), a manufacturer of dried noodles with brand 'Ayam 2 Telor'. Since AISA was a company listed on the Stock Exchange, the acquisition is automatically made TPS listed on the Stock Exchange (backdoor listing). The name of PT Asia Inti Selera then changed to PT Tiga Pilar Sejahtera Food (AISA). AISA then held its first right issue, where the new stocks were officially listed on the stock exchange on November 7, 2003.

Several years later, ie in 2007, AISA began to expand again, which marked by the change of logo of the company. One year later in 2008, the company held its second right issue, and earned cash of Rp327 billion. These funds were used to acquire three companies, namely PT Poly Meditra Indonesia (PMI), PT Bumi Raya Investindo (BRI), and PT Patra Power Nusantara (PPN). PMI is a manufacturer of snacks like biscuits, snack noodles, wafers and sweets. While BRI is a cooking oil manufacturer and PPN is a power company. By holding own supply of edible oil and power for the needs of food production, it was expected that the performance of AISA in the future will be more efficient, as the company managed to keep its production costs low.

The expansion continues. In 2010, AISA acquired five oil palm plantation companies, to meet the needs of raw material of crude palm oil (CPO) for BRI. AISA also went into the rice industry by acquiring a rice trading company, and a rice mill company. And in 2011, AISA held its thirs rights issue to obtain the net proceeds Rp690 billion, which the funds were used to develop the business, and pay off debts due to the acquisition which mentioned above. Also in this year, AISA launches a number of snack products with various brands, including acquiring ‘Taro’ brand from Unilever Indonesia (UNVR).

Going forward, AISA still have a lot of plans of business development. In this 2012, the company is focus on developing low price snack products (Rp1,000 per pack, or about 10 cents), especially in the category of biscuits and crackers. Thanks to the availability of own supplies of cooking oil and power, so the production cost is low and the selling price of the end product can also be pressed to be cheap. Consequently, AISA has a large market share for its snack products, as consumers from the middle and low class can also buy these products.

While in the area of ​​oil palm plantations, AISA is now planting palm oil trees in an area of ​​5 - 8 thousand hectares per year, so the company will have about 45 thousand hectares of oil palm plantations in 2015. The company is also looking to build several CPO processing plants with a capacity of 30 tonnes of fresh fruit bunch (FFB) per hour. If the process is going well, then in the future, AISA will be able to sell CPO or cooking oil with its own brand. But for now, AISA is not sell cooking oil directly to consumers, but rather use it as raw materials for snack production. AISA is actually sold some of its FFB to other companies, but the value of sales is relatively small compared to the company's overall revenue.

Finally, about rice business, AISA is currently developing a rice business with a target of 5% share of the rice market in Indonesia in 2016. The company will establish rice mills in the centers of rice in Indonesia, up to total of eighteen mills in 2016, from just two at this time. In addition, AISA is also working with universities to develop vitamin rice, which will make the rice produced by the company has more value than ordinary rice.

Well, sounds promising, right? Thus, AISA will have business in three sectors at once, ie snacks, cooking oil, and rice. And how about the company's original business, ie corn vermicelli and dried noodles? Looks like the management didn’t have any plans to expand the business, but only run it as usual.

Okay, now we are into the financial statements. In the First Quarter 2012, AISA recorded Rp599 billion of revenue (after discounts, its net was Rp577 billion), with the following details: Rp106 billion or 17.8% came from sales of vermicelli and noodles, Rp162 billion or 27.1% came from sales of snacks, Rp7 billion or 1.1% from the sale of FFB, and Rp324 billion, or 54.0% came from rice sales. Based on these data, it is clear that AISA’ main business is no longer corn vermicelli and dried noodles, but rice. Sales value of rice has also been growing rapidly compared to the period of previous year, which was only Rp109 billion (the increase is almost three-fold, while the increase of company’ revenue as a whole was only 64%). It is a very promising improvement, given the AISA had just entered the rice industry in 2010. Moreover, we all know that rice is the staple food of Indonesia, so that its consumers will continue to grow along with the increasing number of population. Currently AISA is practically the largest rice mill and trading company in Indonesia, behind Bulog (Badan Usaha Logistik/Logistics Enterprise) which is owned by the Government

In conclusion, with the profile of the industry, and the company's expansion plans that we have been discussed above, it is no doubt that AISA is a very, very promising company, so the stock is ideal for long term investment. Currently, the property sector is booming, but we never know when it will end. Likewise, the banking sector which was great in the year 2010 is now also going to slow. While the rice? People will consume it all the time. Similarly, vermicelli, dried noodles, snacks, and cooking oil, it all will always be consumed by so many people at all the time, so that AISA is offering a revenue and net income that are consistent for the long term. So, what are you waiting for?

But still, there are several things to note here.

First, the margin of rice trading business is actually small because AISA doesn’t have rice land, so they have to buy rice grains from farmers. In the company's public expose held on last 12 June 2012, management acknowledged that though the rice trading business is safe in terms of volume (the volume of rice sold will never go down), but it is less profitable from the view of margin. Management had mentioned that the company has obtained permission for the land concession covering 5,000 hectares in West Kalimantan, but did not explain whether the land will be used as a rice field or something.

In addition, AISA only sell branded rice, such as rice in packs of 5 - 10 kilograms that we usually found in the supermarkets. The price of this branded rice is more expensive than regular rice, so that its market share will be automatically limited. The company have no plan to sell ordinary rice with cheap price, which is probably because they couldn’t do it. Rice, after all, is a main food of Indonesian people, and occupies the first position in the list of basic needs, so its supply is set by the Government, and that means politics. So in this case, AISA could not compete against Bulog.

Second, you can say that AISA has taken a right decision by entering the snacks food industry, since it has always a good prospect. However, AISA will have to deal with many stronger companies in this field, such as Garuda Food, Nabati, Kraft Foods, Wings Food, Nestle, Unilever, Siantar Top, Orang Tua, and Indofood. AISA may have a good position as a manufacturer of vermicelli and noodles. But in the field of snacks, the company is just a newcomer. The brand of snacks produced by the company has not been widely known to the public, and perhaps that is why AISA acquired the brand 'Taro' from Unilever, which already had a brand position in the public. But of course, AISA can not always acquire snack brands from other companies.

But indeed, AISA has tried to address this problem by hijacking one of the officials of Orang Tua Group, Mr. Jo Tjong Seng, which then placed as director of branding and marketing of the company. The presence of Mr. Jo is expected to help the company in brand campaign. We'll see how it plays out.

Third, and most important, since AISA is still in the business development process, then the result will not be appeared in the near future. As mentioned above, the company’ target for oil palm plantations and rice business is expected to be achieved in 2015 and 2016 respectively. The company itself only expects net income of Rp200 - 250 billion for the full year 2012, or about US$ 20 – 30 million. Let say that AISA’ equity at the end of 2012 would reached Rp2 trillion (in First Quarter 2012, it was Rp1,886 billion), it means that AISA’ ROE would only 10% - 12.5%, a very small number for a consumer goods company. In terms of growth, AISA is has a good track record, especially since the company began its expansion in 2007. Including in the First Quarter 2012, AISA was also recorded a 115.1% of net profit increase, compared to first quarter 2011, significant enough. But still, this growth has not been able to make AISA to become a profitable company.

Then, still related to the business development of the company, since 2007, AISA has made two rights issue to raise funds for the acquisition, which in May 2008 and December 2011. The exercise prices for the new issued stocks were almost the same, ie Rp522 per share in 2008, and Rp560 per share in 2011. How AISA current stock price? 760, or not changes much. The problem is, since the company in the future will still needs a lot of funds to expand distribution networks for its snack products, to plant more oil palm trees, and to build rice mills, it is possible that the company will hold a right issue again, which certainly would dilute your ownership as an investor.

The ultimate conclusion, the prospect of AISA is very interesting, where the company has a chance to be a large food company someday, probably as large as Indofood. But the process would take time, and also maybe a little extra struggle of the management team. But one thing is clear, AISA’ current performance is not good enough. From its total assets of Rp3.5 trillion, there only Rp156 billion which represents the balance of retained earnings. So we better see next quarter, and hopefully we do not have to wait until 2015.

Okay, back to the question above, is AISA can be considered to be an investment in the consumer goods sector? I say, probably not, at least for now. But if the stock is fall to below 600, then you may buy it. At its position, AISA’ PBV is below 1.0, and it is fair enough if we consider the company’ track record and prospects.

Original article was written in July 20, 2012.

No comments: