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IPO Prospect of Kino Indonesia

As one of the most prominent players in the industry of fast moving consumer goods (FMCG) in Indonesia, the IPO of Kino Indonesia (KINO) may be interesting, because we know that companies in the field of FMCG usually have a stable performance in the long term. And KINO itself has a good reputation as an innovative company that always create new consumer products, while its founder, Harry Sanusi, is well known as an inspiring entrepreneur who successfully founding and developing company from scratch. Okay, let’s get it on.

The history of KINO began in 1991, when Mr. Harry, who had just graduated from his college, receive the rights to distribute ‘Larutan Penyegar Cap Kaki Tiga’, a product of health drink belonged to PT Sinde Budi Sentosa. As time went by, Mr. Harry implement various marketing strategies such as advertising, offering the product from store to store, opening a distribution point etc., and the result the brand ‘Larutan Penyegar’ became popular in the eyes of consumer. Five years later, in 1996, Mr. Harry began to think to distribute other products, but PT Sinde wants him to focus to distribute Larutan Penyegar only. This led to a dispute between the two parties, and eventually Mr. Harry lost his distribution contract from PT Sinde.

After without any job for almost a year, in 1997, rather than distribute someone else’s products, Mr. Harry decided create his own products. And after doing research for months, he decided to create a confectionery product, in this case a soft candy with the taste of coffee, because 1. The selling price of a candy is very low, so it can be marketed to all segments of consumers, 2. In contrast to other consumer products such as cigarettes, instant noodles etc. where consumer loyalty to product’s brands are significant (so it will be difficult for new players to introduce a new brand of cigarettes or instant noodles), there is no such brand loyalty in candy business, and 3. In Indonesia, no one has ever produced a soft candy flavored coffee before, so the product would have no competitors.

And with the help of a distribution network that has been built since 1991, the candy product, which labeled ‘Kino’, was a huge success. Still in 1997, Mr. Harry also launched a powdered beverage products under the brand 'Segar Sari', and snacks with brand 'Snack It'. Because all of these products have a selling price which is affordable even for lower class consumers, Mr. Harry’s candy business skyrocketed precisely when the monetary crisis hit Indonesia a year later. In 1999, still with the spirit to innovation, Mr. Harry entered toiletries business with the launching of brand 'Ovale', a facial cleansing products as well as moisturizing in one package (previously, facial cleanser and moisturizer products are usually made separately). Ovale is also a great success that in subsequent years, Mr. Harry also launched several other brands that have their respective markets, such as Eskulin (perfume), Master (perfume for men), Eskulin Disney & Master Kids (perfume for kids), Sleek (cleaning product for baby), Resik V (cleaning product for the area of ​​femininity), and Ellips Hair Vitamin (hair care). In this 1999, Mr. Harry established PT Kinocare Era Kosmetindo, which later became PT Kino Indonesia, the parent entity of Kino Group subsidiaries.

But the innovation never stops. In 2004, the Group went into beverage business with the launching of Larutan Penyegar Cap Kaki Tiga (the brand ‘Cap Kaki Tiga’ has been acquired from PT Sinde, and now PT Sinde produce the almost-same product but with ‘Cap Badak’ brand), followed by energy drink 'Panther', herbal drinks ‘Panda’, and juice drink ‘Tampico’. And in 2012, the Kino Group entered the pharmaceutical business with the launching of herbal cough drops and balms, both with the brand ‘Cap Kaki Tiga’.

So as long as KINO continue to create new consumer products, added with the personal skill of Mr. Harry in the realm of marketing and brand development, the company will continue to expand. In this case I remember to a technology company from the United States, Apple Inc., which became one of the biggest companies in the world because of the company's innovation in creating unique and exclusive products, plus they are also very good in the field of marketing. Compared to consumer giants in Indonesia such as Unilever, Indofood, or Kalbe Farma, then with Rp2.2 trillion in assets (about US$ 180 million) as of June 30, 2015, KINO is relatively a small company, so the chance to grow further is still wide open. And if you look at the track record of the company's performance in the last five years, which its revenue and earnings continue to rise consistently (just as expected), then the stock can be considered for long-term investment.

And what about the shares?

At its IPO, KINO release 229 million shares to the public at the price of Rp3,800 per share, so the proceeds would be Rp869 billion. The book value before IPO was Rp823 billion (as of June 30, 2015), so that after the IPO, the company's net equity will be approximately Rp1.7 trillion. Because the number of shares after the IPO will be 1,429 million shares, then KINO market cap at the share price of Rp3,800 will be Rp5.4 trillion. Thus its PBV = 5.4 / 1.7 = 3.2 times. In terms of PER, until the second quarter of 2015, KINO booked net earnings of Rp141 billion, which after divided by the number of shares after the IPO, the annualized EPS would be Rp198 per share. Then the PER is 3,800 / 198 = 19.2 times.

Now, with PBV and PER which are clearly above the market average (in normal market conditions, a stock with good fundamentals usually valued at approximately PBV of 2 times and PER of 10 times), then the IPO looks overvalued at first glance. However, given that some consumer stocks in the Indonesia Stock Exchange also priced at PBV 5 times or PER 20 times, while the fundamental of KINO itself is very good, and if we take the example of the IPO of another prominent consumer company, Sido Muncul (SIDO), where the stock rose from an offering price of Rp580 per share to almost reach 1,000 even though the valuations were also very expensive since the beginning, then perhaps Rp3,800 per share is still a reasonable price for KINO.

But one thing: Because the nominal price of the shares is quite high (3,800, usually an IPO of a mid-level company offering its shares in the price range of Rp100 – 500 per share), and the small volume of shares for the public (only 229 million shares), the stock of KINO is likely become illiquid, so it would not be so favored by investors/stock traders, so I doubt that KINO will rise just like SIDO two years ago, because in term of stock liquidity, KINO’s trading volume will be about one fifth of SIDO’s.

And if we talk about the power of brand, you may notice that the products of KINO are often appear on television these days, and maybe it is one of the strategies of the IPO, because I remember that SIDO had did the same: The ad of ‘Jamu Tolak Angin’, the company’s flagship product, had suddenly often appeared on television just before the IPO. Nevertheless, although the company is very competent in terms of branding, but in the end KINO is still a relatively new player in the industry of consumer in Indonesia, so that no one of company’s brand has been as popular as the brand of ‘Tolak Angin’ by Sido Muncul, 'Lifebuoy' belonging to Unilever, or ‘Indomie’ by Indofood. In this case KINO may be more appropriate to be compared to Tiga Pilar Sejahtera Food (AISA), which is also a middle-class consumer company, but the PBV of AISA, when this article was written, only 1.5 times.

In conclusion, although perhaps KINO is good for long-term investment, but I prefer to buy the stock later in the market, of course, if the price is more affordable (and by the word ‘later, it could be quite a long time from now, take it easy), just like SIDO which, when this article was written, the price is already below its IPO. But you do not need to worry because for the moment, along with the low position of Jakarta Composite Index (JCI), the stock market still offers many other options of investment with much discounted valuations. All you have to do is to choose carefully, because the fundamentals of most of these stocks were currently not too good, but well, the good ones are not that hard to find :)

PT Kino Indonesia, Tbk
Rating of Performance in First Half of 2015: AA
Rating of share price in 3,800: BBB

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