About a year ago, in August 2012, I began to analyze the stocks in sectors
that were not so popular: Sector of retail for mobile phone products and
accessories, and vouchers (for phone credit). From several stocks in this
sector, such as Trikomsel Oke (TRIO), Erajaya Swasembada (ERAA), TiPhone Mobile
(TELE), Skybee (SKYB), and Global Teleshop (GLOB), it was ERAA that selected.
And ERAA indeed made considerable gain, whose the price of shares continue to
rise from 2,200, until reaching 3,500 as its peak in last May. You can read the
full
article here.
Unfortunately entering the year of 2013, ERAA’ financial performance was
down, so that the shares tumbled and return to its IPO price, ie 1,000's. The cause
of the ERAA’ lower performance was very clear: The weakening of Rupiah against
the U.S. Dollar, where it became one of the main risks of the company's
business as a distributor of mobile phone. So
then, I sold out the stock at the first quarter of 2013 and no longer
pay attention to it, as well as the sector.
Until yesterday a friend asked me to analyze TELE, and it seems that this
stock is now more interesting than ERAA (ERAA is still attractive because of
its status as the largest distributor for smartphones in Indonesia, but we have
to wait until its performance back to normal, maybe next year). That's why we
will discuss about TELE here, here we go!
History of TELE began in 1992, when its owner, Hengky Setiawan, opened his first mobile phone store in Jakarta.
Five years later, ie in 1997, Mr. Hengky gained trust from Telkomsel to become
a distributor for phone credit vouchers and SIM Card of Telkomsel. The
agreement gave birth to Telesindo Shop,
and Telesindo officially incorporated (became PT Telesindo Shop) in 2001.
Furthermore, in 2006, Mr. Hengky once again earned trust from XL Axiata,
which was still called Excelcom, to become a distributor for phone credit vouchers
of XL, so that the entrepreneur set up his second company, PT Excel Utama. Two
years later ie in 2008, Mr. Hengky acquired the rights to distribute the
TiPhone mobile phone (a mobile phone brand from China) in Indonesia, so PT
TiPhone Mobile Indonesia was established. And in 2010, Mr. Hengky entering the
business of mobile phone service and content providers, by set up PT Setia
Utama Service and PT Media Aplikasi.
In 2011, all the companies were consolidated under PT TiPhone Mobile
Indonesia, which then held an IPO in 2012, with ‘TELE’ as its ticker. As of
April 2013, TELE already has no less than 146 outlets, 92 service centers, and
180,000 active resellers throughout Indonesia.
In general, here are some lines of business of TELE:
- Distributor of starter packs and phone credit
vouchers of Telkomsel, Telkom Flexi, and XL Axiata.
- Distributor and retail partner for mobile
phone brand products such as TiPhone, Blackberry, Samsung, LG, Nokia, HTC,
and iPhone. But TiPhone is still the largest product sold by the company.
- Mobile phone service and repair centers, and
- The business of applications and content providers, but still not active yet.
In 2012, approximately 90% of TELE’ revenue derived from sales of starter
packs and vouchers. But entering the year of 2013, along with the increasing
portfolio of mobile phone brands held by the company, the proportion of revenue
of the company changed to 70% of starter packs and vouchers, and 30% of mobile
phone (there was no revenue from the business of service centers, applications,
or content providers). The value of the company's revenue from mobile phone
distribution business is very likely to increase after TELE officially acquired
two companies which are importers of iPhone and Samsung mobile phones. So it
seems that TELE can no longer be underestimated as a distributor of low-end mobile
phones like TiPhone. However, until the first semester of 2013, TELE’ revenues
are still dominated by sales of starter packs and vouchers. While as a
distributor of mobile phones, TELE is still far below ERAA, which is the
largest mobile distributor in the country.
But apart from that, TELE offers a very attractive growth prospects. After
the acquisition of importers of iPhone and Samsung at this year, TELE expects
revenue of Rp4.5 trillion (about US$ 450 million) from sales of mobile phone in
2014, from only Rp1 trillion in 2013. After adding the revenue of Rp9 trillion from
the sale of starter packs and vouchers, then TELE will make Rp13.5 trillion (about
US$ 1.3 billion) of revenue in 2014. Assuming that TELE could maintain its net
profit margin of 3%, so the company’s net profit in 2014 would be Rp405 billion
(about US$ 40 million). However, the net profit margin should be increased to
be 4 - 5% in 2014, because the margin of mobile phones distribution is greater
than the margin of starter packs and vouchers. As an illustration, during the
first semester of 2013, TELE’ operating profit margin from sales of mobile
phone reached 11.6%, while the margin of starter packs and wouchers was only
2.8%.
So if the margins of 4 - 5% are realized, then the company's net profit
would be in the range of Rp540 - 675 billion (US$ 54 – 67 million). Because TELE
equity position is currently Rp1.8 trillion, then it was certainly a very big
number of net profit for the size of a distributor company. Last year I said
that TELE would be worth for investment if the company is able to acquire the
distribution rights for mobile phone brands outside TiPhone, and they actually
did it! Also, there are other potential revenues from the business of applications
and content provider, which is still in the development stage.
But of course, the figures above are only rough projections that may be
wrong. Meanwhile, if we look at the current valuation of the shares, then TELE is
competing against ERAA as the most exciting mobile phone distribution companies
on the Indonesia Stock Exchange (in terms of valuation). Here is the data of
PER and PBV for five stocks of starter packs, phone credit vouchers, and mobile
phone distribution companies on the IDX, based on closing price of the stocks
at October 16, 2013.
Stock
|
Price
|
PER
|
PBV
|
TELE
|
495
|
11.8
|
2.1
|
GLOB
|
1,320
|
10.3
|
3.4
|
ERAA
|
1,220
|
13.6
|
1.4
|
TRIO
|
1,400
|
12.3
|
3.4
|
SKYB
|
500
|
125.0
|
1.2
|
Okay, if you notice, since the beginning TRIO and SKYB are not good options
for investment because their fundamentals were not convincing, where TRIO has a
lot of debts, and SKYB failed to made a consistent profit (plus, the management
never perform any corporate actions). So the options are only TELE, GLOB, and
ERAA. From the management side, GLOB is a subsidiary of TRIO, so even though the
company is showing good fundamentals, but the quality of its management is doubtful.
While TELE and ERAA, both are conservative companies that focus on
developing their businesses itselves, without ever held the rights issue,
issuing bonds, or the like (ERAA had issued new shares in order of MESOP, but it
was only 20 million shares). So the conclusion, if you want to invest in the
business of starter packs, vouchers, and mobile phone distributor, you have two
options: TELE, or ERAA. Fortunately the trading volume of the two stocks are
liquid enough.
About the prospects, as we have discussed above, TELE is clearly more
attractive. But when viewed from its valuation, then ERAA is more interesting
with PBV of 1.4 times only (considering its current financial performance, then
ERAA is expensive at the price of Rp2,000’s per share, but now it's only 1,000!).
Because after all ERAA is the largest mobile distributor in the country, with a
distribution network that is much better than its competitors, including TELE.
Its declined performance at this year is due to the unavoidable risk factors,
namely the weakening of Rupiah, but other than that there were no problem. So
if Rupiah back to its track, perhaps next year, then ERAA’s performance will
also increase.
However, it does not mean that TELE could not overtake ERAA someday. ERAA,
as we know, could be the largest mobile phone distributor in Indonesia because
of it was the owner of PT Teletama Artha Mandiri (TAM), which is the largest
distributor of Blackberry smartphone in the country. But today, the market of
Blackberry in Indonesia is challenged seriously by Android (Samsung), and
that's why TELE acquired importer of Samsung, not Blackberry. If ERAA, or in
this case the TAM, did not immediately ‘do something’ in this regard, then it
is possible that in next 2014, the company’s performance will be disturbed by
TELE and others.
In conclusion, if you confident with the prospects offered by TELE, then
the stock is worth to invest, especially if you can buy it at prices that
reflect PBV less than 2.0 times, which means Rp450 per share. Target price? Let
say 1,000 next year, of course, if the company successfully achieved its
revenue targets. I do not need to remind you that investing in stocks like TELE
is more risky than invest in defensive stocks such as consumer goods, which
TELE’ future performance, whether it increase or decrease, will be affected by
many factors.
Meanwhile, if you are more interested to ERAA, then the shares may only be
interesting if the company successfully made a net profit growth in the First
Quarter 2014. On the other hand if you've already bought the stock, then do not
sell it at current price because ERAA, based on the current price, is the
cheapest stock in the sector, especially when considering the big name of the
company. If you ask Warren Buffett when he was young (before he held
partnership with Charlie Munger in the 1980’s), then Buffett would likely
prefer ERAA than TELE. Because in 1964 he once said, 'Investing in undervalue/cheap
stocks offers reasonable profit after one to three years. The reasons for
buying the stocks may emerged after, either because the company's performance
improved after some time, there are offers of acquisition, or there are psychological
changes from the market’s opinion about the stock.'
Original article was written at
October 16, 2013
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