Multi Indocitra: Another Value Stock

Multi Indocitra (MICE) may not a well-known company both in the eyes of investors and the public in general, but this company is a manufacturer of one the most famous brand of baby needs in Indonesia: Pigeon, as well as cosmetics with the same brand. MICE also had had a side business by making energy-saving lamps with brand 'Hori', but it seems that the business was failed.

MICE is a relatively brand new company in Indonesia. The history started in 1995 as the holder of license from Pigeon Corp., a company of baby needs from Japan, to make products with brand ‘Pigeon’. Until today, MICE’ businesses are about to make milk bottles, pacifiers, breast milk pumps, soap and shampoo for babies, powder and baby oil. However, the company is quite successful in developing distribution networks for its products, which the products of baby needs with Pigeon label can be found from Banda Aceh, Aceh Province, to Jayapura, Papua Province.

Well, as a father of two toddlers, I think the business of baby supplies is indeed promising. When your wife give birth to your children, you, like it or not, have to buy milk bottles of various sizes. And in Indonesia, the most preferred brand is Pigeon (there is also ‘Huki’ brand, but we prefer Pigeon). When we were buying soap and shampoo for babies, the prices are more expensive than regular soaps and shampoos. There are newborn babies at any time, so MICE will always get consumers for its products.

Based on the profile of the industry, I assumed that MICE is a profitable company, and its net asset and net profit will grow consistently from year to year. Unfortunately, it is not. Here's more about the company financial performance since 2007. Please note that the equity is not including the non-controlling interests, and the net income is net income after shared with the non-controlling interests. Figures in billions of Rupiah, except profit margins and ROE in percent.

Year	2007	2008	2009	2010	2011	2012	2013
Equity	176	185	202	229	240	302	441
Revenue	244	308	340	423	465	560	591
Net Profit	30	24	28	28	30	41	40
Net Profit Margin (%)	12.3	7.8	8.1	6.7	6.5	7.3	6.8
ROE (%)	17.1	13	13.7	12.3	12.5	13.5	9.1

Okay, as you can see, except for 2007, MICE only able to generate profits less than 15% of its net capital, and the profit itself only able to grow less than ten percent (in average) each year. As a result, growth in equity is also not significant. And for the size of a manufacturer (MICE makes milk bottles, not importing it from Japan), MICE’ profit margins are too small, ie less than ten percent. If the company still performs like this until the following years, then the shares would not rise too high even after waiting for several years, and it means that MICE is not a best option for long-term investment.

So why does MICE not perform well, while the industry looks promising? Well, I do not know, but that's probably because there is a certain agreement with the Pigeon Corp. which depress the company’s profit. Because if you notice, in the last few years MICE is always trying to launch its own products/brands (outside Pigeon), but unfortunately still failed. For example, about two years ago the company launched ‘Hori’, a brand of light bulbs, but the results were disappointing: The lamp business only lasted briefly before then abandoned.

Later, the management of the company once again tried their luck with another expansion, with the launching of cosmetic products (in contrast to business of lamps, MICE already experienced in this business before, by producing cosmetics for teens, also with brand Pigeon) with brands of Astalift and Aibu. Astalift is a brand of cosmetics for upper middle class female, where MICE already opened outlets of Astalift in six major malls in Jakarta and surrounding areas, and another mall in Medan, North Sumatera. While Aibu is a brand of cosmetics for teens, which sold at all locations including through road shows to schools.

Outlet of Astalift in one of malls in Jakarta

Then how about the results? Will the two brands be successful? Well, considering that MICE launched Astalift and Aibu in this year, then of course the results will not be immediately visible in the near future. So we have to wait. Instead, maybe because the company was spending a lot of costs for the new ventures, the company’s revenue and profit for 2014 were depressed. Until the second quarter of 2014, MICE revenue was down 14.3% over the same period of the previous year, and the net profit also fell 36.6%.

And because of that bad performance, the stock became depressed to as low as Rp350 per share, but this is the point: MICE, at a price of Rp400 – 450 per share, was already a cheap stock, so today’s price only make it to become cheaper, with PBV of 0.5 times only. If you buy 100% stake in MICE at the current share price, then you will spend Rp 210 billion, to acquire net working capital (current assets net current liabilities) valued at Rp264 billion, not including fixed assets belonging to the company! So in this case, the stock of MICE can be said to be absolutely (not relatively) undervalue.

However, just because the stock price is cheap, it does not mean that MICE will immediately rise again in the near future. Based on experience, a stock will go up, sometimes skyrocketed if the value was really cheap (like this MICE), if, and only if the following things happen: 1 There is a certain positive sentiment which prompted the investors to belive that the company's financial performance will be improved in the next financial statements, 2 The company distributed large dividends, or 3. The financial performance of the company is actually improved, like if the profits seem higher than profits over the same period of previous year.

Now, note that for point number 1, the positive sentiment. For a stock like MICE, it is less likely to happen, because only few people pay attention to this stock (MICE is a third-liner stock, with market cap of less than US$ 20 million), as well as you can never read anything about this company in the media. For the dividend, this year MICE only paid dividends of Rp10 per share to the shareholders, aka not significant. In the past, MICE was very diligent in paying dividends, but the management is a little bit stingy this year, which probably because they need funds to finance their expansion above. From its net profit in 2013, only 15% are paid out as dividends.

So now we have the possibility of number 3: MICE will probably rise back if later the performance looks better. And that means, if you are interested with this stock, then you may have to wait at least until the company released its financial report for the third quarter of 2014, at the end of September.

On the other hand, if you still believe about the long term prospects of the company (if you read in the internet, MICE is often discussed by value investors since its valuation was very low), including also believe that this stock can present a jackpot like March 2013 ago, where it suddenly flew to nearly Rp850 per share, then you may do the installment from now on. MICE may still need time to rebound, can be up to next year if they are successful in their cosmetics venture, or if the company pays a large dividend. But on the other hand, the stock cannot go down further because after all, the valuation is already very low.

For your information, two veteran local value investors value, namely Mr. Haiyanto and Mr. Surono Subekti, also held MICE in large quantities since looong time ago. Only Mr. Haiyanto already sold his holding, may be when the price rose a lot in the last 2013. Well, if you are Mr. Haiyanto, then look at the MICE’ price today: Is it not tempting enough to make you buy it again?

PT Multi Indocitra, Tbk.

Rating of Financial Performance in First Half 2014: BB

Rating of Stock Price at 350: A