Chitose International

What was going through your mind when you hear the word ‘Chitose’? For me, I immediately thought about folding chair which can be found on the event of wedding, etc. And Chitose International (CINT) is indeed the most prominent manufacturer of folding chairs in Indonesia. However, today CINT not only makes folding chair, but also a variety of general furniture products to be sold to office buildings, residential, hotels, restaurants, schools, until hospitals. In the future, the company still has a number of business development plan, which will be funded by cash obtained from its IPO in last June 2014.

The company's history began in 1980, where Chitose Manufacturing Japan, a Japanese folding chair company, opened its first factory in Indonesia (precisely in Cimahi, West Java) under the banner of PT Chitose Indonesia. Twenty years later, ie in 2000, the company was acquired by PT Tritirta Inti Mandiri, a local company who is also the owner of PT Trisula International (TRIS, a garment enterprise based on Bandung, West Java), so PT Chitose Indonesia became a local company, but the name ‘Chitose’ retained as the name of the company. In subsequent years, PT Chitose Indonesia continues to work with Japanese companies to design folding chairs and tables, and to export it to Japan.

In 2012, Chitose acquired five distributor companies spread in Jakarta, Bandung, Surabaya, Semarang, Denpasar, so now the company has its own distributors (previously Chitose always distributes its products through third parties). In 2013, PT Chitose Indonesia changed its name to PT Chitose International, and successfully went public a year later with CINT as its ticker.

There are several things that make CINT could be considered for serious investment. First, CINT is the market leader in all types of its furniture products without exception, while the brand 'Chitose' is also the most popular brand of folding chairs in Indonesia. Based on data from Markplus Research Institute, in 2014, CINT holds a market share between 24 - 38%, ie the largest among all of its competitors, for products of chairs, beds, and tables, which is commonly used by hotels, restaurants, food courts, offices, and schools.

Second, CINT has a convincing track record of growth in the last thirteen years. In 2001, or a year after the new management took over the company, CINT only produce 13 variants of chairs and tables. And now? The company already has more than 300 variants of products! And all of them become leaders in their respective markets. This success is mainly because the company was able to establish good working relations with Japanese companies in terms of technology transfer (for the manufacture of chairs and tables). CINT also successful in distributing its products to all corners of the archipelago, where today the company has marketing offices spread across 22 major cities in Indonesia, from Medan to Jayapura. If that was not enough, in the last few years, CINT also markets its products online, in this case by working with one of the most prominent online store in Indonesia, the Rakuten (www.rakuten.co.id).

Well, if compared with the other listed furniture companies, namely Gema Grahasarana (GEMA), then CINT has an advantage in because its products can be purchased online. Meanwhile, if you want to buy a furniture product of Vivere (a brand belonging to GEMA), then you should come to its booth. CINT also has cheaper prices for its products, so the market is automatically broader, with faster turnover. In 2013, CINT recorded inventory turnover of 7.2 times, which means that the company can turn the same inventory for more than seven times a year. And for the size of the manufacturing company, to be honest, it is a very good number.

And third, all this time the company is rely on one factory only, which located in Cimahi. But in the future the company will set up another new factory (still in Cimahi) to increase production capacity, using the funds obtained from its IPO. From the IPO, CINT raises about Rp99 billion (about US$ 9 million), which is enough to meet all the needs of the establishment of new factory, ranging from the purchase of land, construction of factory and warehouse, the purchase of machinery and heavy equipments, and working capital.

What is interesting here is, if you notice, a fund of US$ 9 million is of course not too large for the size of a company that successfully listed on the Indonesian Stock exchange. I personally quite impressed that the company could set up a new factory by using a relatively small money (so the company did not need to apply for a loan, which makes the corporate balance sheets become healthy). And even there still some cash left to set up showrooms with the concept of a flagship shop (Chitose specialty store, with a large signpost of ‘Chitose’ which is very visible from the side of the road) at some locations in Greater Jakarta and East Java. These flagship shops are expected to help increasing the volume of sales.

Of course, the new factory, as well as the  new flagship shops will be in operation later, in this case in 2016, because the construction would take time. However, without expecting the new plant, the track record of CINT’ financial performance in the last five years is quite impressive. Following the data, the numbers in the billions of Rupiah. Note that the value of the company’s revenue in each year is always much greater than the equity value:

Year	2009	2010	2011	2012	2013
Equity	40	45	58	71	185
Revenue	210	224	239	254	288
Net Profit	13	18	20	23	42

What should be noted here is, the net profits of the company is constantly increased in the last five years, when production volumes of chairs and tables did not grow at all. In 2008, CINT made 1.22 million units of various kinds of furniture. And five years later, ie in 2013, the production volume actually fell slightly to 1.18 million units. This is because the only factory of the company have a maximum production capacity of 1.3 million units per year.

So, it is interesting to see later when CINT get an additional capacity of production from the new factory. The profit margin of the company is also getting better since the year 2012, after CINT has its own distributors.

Okay, then what about the shares?

After IPO, the equity value of CINT would be approximately Rp280 billion. With a market capitalization of Rp348 billion by the price of Rp348 per share (the number of outstanding shares of the company is exactly 1 billion pieces), then the price would reflects PBV of 1.2 times. Actually, the price is very low for a company that has a popular brand, has a rapid turnover, and has a huge profit ratio (its average ROE is above 25%). I do not know why CINT only rose slightly after its IPO, but this is clearly an opportunity for us as bargain hunters.

The only risk that you may bear if you invest in CINT, is the company's dependence on stainless steel as the main raw material for the manufacture of chairs and tables. And it must be admitted, the company recorded a significant increase in profits in the last two years because the price of steel itself is down. Other than that, if you notice a fellow stock of furniture company, in this case GEMA, then GEMA was also relatively inexpensive but failed to rise as well, in addition that the stock is not liquid (CINT is not liquid too).

However, undervalued is undervalued. Just like GEMA which, although not rise yet, but also hard to fall down because the price was already low, so is CINT. And if the next financial statements of the company (second quarter of 2014) show a performance that is as good as in 2013, then the stock will not take long to take off. We'll see.

PT Chitose International, Tbk

Rating of Financial Performance in 2013: AAA

Rating of Share Price at 348: A