Adira Dinamika Multi Finance (ADMF) became one of several companies that
has released financial statements for the period of Fourth Quarter of 2013, aka
the Full Year of 2013. And the results? Well, quite good! Its net income grew
significantly, ie 20.3%, while its equity also rose 19.6%. But the interesting
fact is, in contrast to the company’s well performance, the stock was continued
to sag in the last two years, from the peak of Rp13,000 per share to 9,000. An
opportunity for bargain hunters?
ADMF, as you might know, is one of the largest motor vehicle financing companies
in Indonesia, both two and four-wheeled vehicles. The company was founded by a
businessman named Theodore Permadi Rachmat in 1990, which the word 'Adira' is
derived from the combination of words of PermADI and RAchmat. In 2004, the
majority ownership of ADMF was acquired by Bank Danamon (BDMN), and since then
BDMN continued to add their ownership up to 95%. Because of that, of exactly 1
billion outstanding shares of ADMF, only 46 million shares that owned by public
investors, so consequently the stock became illiquid.
There is no written record about the performance of the company prior to
2004. But once managed by BDMN, ADMF noted significant developments. In 2008,
or four years after the entry of BDMN, ADMF successfully increased the number
of its outlets from 120 to 300 units, aka grow more than two-fold. In the same
year, the company recorded a profit of Rp1 trillion or about US$ 100 million for
the first time, which made it as the largest financing company in the country.
In subsequent years the expansion continues, until today, ADMF already has more
than 700 outlets across Indonesia, with a net profit for the year of 2013 amounted
to Rp1.7 trillion.
At a glance, the net income increase from Rp1 trillion in 2008 to Rp1.7
trillion in 2013, or just increased 70% within five years, is certainly not an
impressive track record. But it is partly because the year 2012 was a tough
year for the finance industry, including for ADMF, whose profits had dropped.
In that year, motorcycle sales in Indonesia fell 11%, as a result of government
policy that enforces the regulations of minimum down payment of 20% for the
purchase of a motorcycle on credit. On the other hand, the car sales actually
rose by 25% in line with the increasing number of middle class people in
Indonesia, but unfortunately ADMF core business is still in the motorcycle
financing. As a result, the company's net profit fell slightly from Rp1.58
trillion in 2011, to Rp1.41 trillion in 2012.
However, ADMF did not take long to get up, because the motorcycle market
itself also does not take a long time to adapt to the rules of the minimum down
payment. Based on data from the Association of Indonesian Motorcycle Industry (AISI),
the sales volume of motorcycle in 2013 was 7.8 million units, up from 7.1
million units in 2012. As a result the net profit of ADMF had successfully
re-grow to Rp1.7 trillion, as already mentioned above.
Then what about the outlook, let's say for this 2014?
In a period of ten years from 2000 to 2010, motorcycle sales volume
increased from 800 thousand to 7 million units, and was primarily driven by the
growth in markets outside the island of Java, in this case the Island of
Sumatra and Borneo, due to increased purchasing power of the people in the two
islands, and you probably already know the causes: The rise of palm oil and
coal business. During the period 2000 - 2010, there were emerging entrepreneurs
of palm oil in Sumatra, as well as the bosses of coal in Borneo, and so did the
standard of living of their employees are increasing, as well as local residents,
so they were eager in buying motorcycles.
However, in the period of 2011 – 2013, the condition reversed where the
price of palm oil and coal plummeted, not including the government rules of
minimum down payment. Actually there was a concern that motorcycle sales will
depressed for a long time, yet the only year in which the motorcycle sales declined
was just in 2012 alone. It seems that, because in the end the motorcycles are still
the most simple tools of transportation for most people in Indonesia, then the
sales volume of it would continue to increase along with the increase of
population.
Until today, the global prices of commodity, including coal and palm oil,
are still not fully recovered, but also has not dropped even lower. On the
other hand, the people are already familiar with the rule of minimum down
payment, and there are opportunity from the growing number of middle-class
society, which means the increasing sales volume of car. The portion of ADMF’ revenue
itself has been shifted from the previous 60 of motorcycle and 40 of car, to 55
: 45. The position of the company as one of the market leaders in the auto-financing
industry in the country is relatively enough to ensure that the company's
performance will continue to increase over time, as long as there is no
'interference' as happened in the year of 2012. And for the year of 2014, as the
such ‘disturbance’ is dissapeared, then what do you think?
Here are a few points that make ADMF can be considered for your investment:
- The financing business is one of the most
profitable businesses in Indonesia. Just imagine, you can charge interest
of up to 44% to the people who buy motorcycles on credit! From the first,
the interest rate on bank loans in Indonesia is one of the highest in the
world, and that's why the banking industry here is fairly profitable, but
the industry of financing is even more profitable.
- One of the major issues of financing
companies like ADMF, is how they can obtain a low-cost funding source,
because it's useless if they could charge interest 44% to motorcycle
buyers, but on the other hand they have to pay 30% of interest to the
owner of the funds, in this case the bank. However, ADMF’ position as a
subsidiary of Bank Danamon caused the company could obtain funding from
its own parent, with a low interest rate if they like because in the end,
the profit is for the Bank as the parent company. In addition, the big
name of the company allowed it to gain funding from the issuance of bonds,
of course with a lower interest rate. This is why ADMF is able to reduce its
operating costs so that the profits are maximum. In the last five years,
including in 2012, the rate of return on equity (ROE) of ADMF always
maintained at the level of 25 - 30%.
- ADMF is managed by a team that is competent, conservative (it can be seen from its leverage level that is below the average industry), and also royal to investors, where it can be seen from the distribution of dividends which reached 50% of corporate annual profit.
A little note, for the fiscal year of 2012, ADMF distributed dividends of
Rp703 per share. Since in the year 2013, the company's profit grew 20.3%, then the
dividends are also likely to increase to about Rp853 per share. With the
current stock price Rp9,000 per share, then that means its dividend yield is 9.5
percent! Interesting, is not it? And if you look at its PER and PBV, which were
5.3 and 1.5 times respectively, then this stock is actually undervalue. In the
past year ADMF has dropped 10%, which seems because investors were still think
that the motorcycle finance industry in the year 2013 is as dire as in 2012,
but it is not. In addition, we are not talking about a piece of sh*t here, but
Adira. I personally have intrigued by this company since the days of college in
Bandung, where the nameplate of 'Adira' could be easily found in almost every
shop complex on the roadsides.
However, investing in this stock requires a commitment from you to hold it
in a long time, because if you buy it in a considerable amount, then you could
not get out at any times due to liquidity problem as we discussed above. I do
not know if ADMF could gained significantly or not within the next 2 or 3 years,
but this stock is clearly has a relatively low risk, especially if you can
accumulate it at the range of current price.
PT Adira Dinamika Multi Finance, Tbk
Rating Performance in Q4 2013: AA
Rating of Stock on 9,000: A
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