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Tempo Scan Pacific

From the fundamental quality side, Tempo Scan Pacific (TSPC) is actually quite equal to Kalbe Farma (KLBF), but the stock isn’t much liquid. However, its non-liquidity factor also causes the valuation of TSPC to be less expensive than KLBF, and the stock might be interesting to be noticed after it continued to fall lately, with the total decline of almost 30% in the last six months. Although there are so many undervalue stocks on the exchange currently, but TSPC is also considered interesting to be noticed, considering the type of its sector that is safe from the negative sentiment, and the movement of shares is not too influenced by fluctuations of the composite index (the beta is less than 1), which now remains bearish.

Most of people know TSPC as pharmacy company, and that’s no mistake. TSPC is the owner of some famous mild drugs/multivitamin brands such as Bodrex, Contrexyn, Oskadon, Hemaviton, and Neo Rheumacyl. Besides that, TSPC also produces/becomes the principal for specific drugs that are sold in pharmacies, produces medications that are sold to other pharmacy companies, and becomes the license holder of some drug brands that are produced by foreign pharmacy companies.

However, TSPC does not only sell pharmaceutical products, but also some daily consumer needs and cosmetics. For the daily consumer products, some brands owned by the company are Nivea, Zwitsal (both are produced for Unilever/UNVR), Marina Hand & Body Lotion, My Baby, SOS floor and the dishes cleaner, Mouthwash Total Care, and Claudia bathing soap. As for the cosmetics? There are Marina, Revlon, Estee Lauder, Aramis, and DKNY. On the third quarter 2013, the daily needs and cosmetics products contributed profit amounted to Rp1.2 trillion, or not so different from the profit from pharmaceutical products that was amounted to Rp1.5 trillion. So in this sense, TSPC is quite different from KLBF that focuses only on the drugs and nutritious drink/food production, but not producing bathing soap or cosmetic at all.

A collection of daily consumer and cosmetic products of PT Tempo Scan Pacific, Tbk

Although the business model is quite similar with UNVR, but TSPC’s performance, if judging from the profitability ratio, is still far behind that Netherland-based company. It’s probably because the consumers of TSPC’s daily needs and cosmetics are not as many as consumers of the same products of UNVR. But if seen from its maturity, anda the consistency of its performance in the long term, TSPC is as good as both UNVR and KLBF (TSPC’s maturity level can be seen from the great number of current asset position and the number of the almost-zero bank debts/bonds, so the increase/decrease on BI’s rate has no influence at all). If you see, although the consumer goods sector, including pharmacy industry, offers a consistent long-term growth, but it’s not necessarily mean that all companies in this sector have consistent performance as well. But for TSPC, its performance in the last five years has grown moderately but sure, as the results from the company's experience in pioneering the business since 1970. Recently, if you pass Jl. Rasuna Said, Jakarta, you will be able to see the Tempo Scan tower that stands majestically. The tower was just completed about a year ago.

Because the company has been well-established, then practically, there is nothing to tell about the development/expansion plan of the company in the future, unless the company regularly launch new products or repacking old product with new packaging that is fresher in the customers’ eyes. But with regard to the Government’s plan to organize a Social Security Agency (Badan Penyelenggara Jaminan Sosial/BJPS) that will begin in 2014, where it is likely to have a positive impact for the pharmaceutical companies, then TSPC as a well-established company is likely to use this momentum optimally. The company itself has started to register some types of their pharmaceutical products to participate in the program.

Then how about the labor issue who’d been held demonstration demanding for salary increase? Well, for this case, TSPC as the labor-intensive enterprise (employs many blue collar employees) also gets the impact. That also causes the income on third quarter 2013 only rose 3.7% due to the disruption in production because half of its laborers were conducting strike. The main factory of TSPC is located in one of the industrial area in Cikarang, West Java, which was the center of 'movement' of the demonstration. And in fact, maybe this also led to a decrease in stock of TSPC lately, because if we watch on television, the workers still insisted to get salary of Rp3.7 million per month, while Jokowi as the Jakarta’ Governor only approved Rp2.4 million per month.

And even if the laborers of TSPC didn’t do the strike, the company still deal with a significant increase in production cost due to the increase in the labor cost to become Rp2.4 million (last year was only Rp2.2 million).

Anyway, I consider the increase in labor cost is a common thing, and reasonable, which is regularly faced by any company every year. And that problem usually can be solved by raising the products’ selling price gradually, especially if the company in question engages in consumer goods industry, just like TSPC. For example, if the previous price of one strip of Bodrex at a grocery shop is Rp3,000, so when the price is raised to Rp3,500, I don’t think that people who got headaches will change their mind and did not buy this medicine.

That’s why, the decline in TSPC stock price remains a good opportunity. Now, how about the valuation? Is it already cheap?

On the stock price of 3,000, PER of TSPC was 19.3 times, while the PBV was 3.9 times. For the financial year of 2012, the company paid dividend of Rp75 per share, which mean that its dividend yield was 2.3%. For the bargain-hunter investors, this valuation hasn’t reasonably-priced. But for the investors who like to get the low-risk investment type, then the valuation was relatively reasonable. You know, if we talked about long-term investment in pharmacy sector, people will always point on KLBF, KLBF, and again, KLBF (let’s put aside KAEF and INAF for now). But if you reflect on such high valuation, then the decision to buy KLBF at its current price is like buying TSPC at the price of 4,500, aka too expensive. In addition, there is also risk of loss that is not derived from the fundamental change or deterioration in company, but from the possibility of change in the market perception that the valuations of KLBF could rightfully be cheaper.

And based on my experience, the consumers’ stock often declines significantly, not because the company becomes poor or bankruptcy, but because the previous price was already too high. The most recent example is the decline in Unilever (UNVR) and Charoen Pokphand (CPIN) prices, where the two shares respectively are at the price of 30,000 and 4,500 (in average). It’s indeed very expensive. While for TSPC? It’s actually quite the same. Its PBV of 5.5 times at the above stock price of 4,500 is clearly not cheap for the company with ROE of only 20.3%.

But now that the price is already at the level of 3,300 (in average), the stock is worth to be collected, or at least you can do that in installment. If you really want to get cheap price, then ideally, you need to wait until TSPC at the price of 2,500 to 2,800, which reflects the PBV of 3.0 - 3.3 times. Remember once again that JCI fluctuation is not so influential towards the movement of TSPC stock, so you can buy it at any time as long as the purchase price is ideal.

PT. Tempo Scan Pacific, Tbk
Performance Rating on Q3 2013: AA
Stock Rating on 3,300: A

Next week article will be about Tapering issue; another story from the United States.

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