Sido Muncul

Some time ago I heard a picturesque story. On 15 October 2017, in Bantul city, Yogyakarta, there was a wedding with unusual dowry, which is not gold or alike, but stocks, ie 50,000 shares of Sido Muncul (SIDO) at a price of Rp555 per share (so the total is Rp27,700,000, or about US$ 1,910). This is interesting, because the groom was a stock market investor that started to know stocks since 2013, so he really meant it when he delivered the stocks as the dowry. The question is why SIDO that is choosen as the dowry, and not the other stocks?

SIDO, as you knew (because SIDO is one of the most well-known companies in Indonesia) is the producer of herbal medicines or commonly called jamu with its flagship brand Jamu Tolak Angin with its varieties (Tolak Angin Anak, Tolak Angin Flu, Tolak Angin Herbal, etc.). Besides jamu, SIDO is also producing foods and supplement drinks with also well-known brands such as Kuku Bima Ener-G, Este-Emje, Kopi Jahe Sidomuncul, Kunyit Asam, and Alangsari. Since 2014, SIDO entered pharmacy industry by acquiring PT. Berlico Mulia Farma that producing medicines with brands of Anacetine (child’s fever medicine), Berlosid (stomachache medicine), and Suprabion (vitamin supplement). Until this article was written, SIDO keeps launching several other product varieties which focuses in medicines/herbal supplements, and also launched the Jamu Sido Muncul Cafe, a franchise program that people can start a new stall/café that sells Sido Muncul jamu products only with Rp1 million (US$ 100) investment. This program might be the first jamu franchise in Indonesia (and maybe in the world). Before launching Café Jamu, SIDO through its subsidiaries PT Muncul Mekar, has owned its own distribution networks that spread from North Sumatra to Papua. SIDO also exports its products to at least 16 different countries, eventhough the portion still very small, only 2% from its total revenues.

This medicine is a must-have for most of Indonesian household in their kitchen

Since SIDO listed in stock market in December 2013, I have already been interested in the company because of some considerations: First, SIDO is one of the most famous companies in our country, and with popular brands of products too. As we have discussed before, popularity and brands power are the most valuable assets of a company, so that the stock is deserve a higher valuation. In this term of brand power, SIDO is more or less equal to Unilever Indonesia, Kalbe Farma, and Indofood. SIDO is also the most well-established jamu company (established since 1940), and the largest compared to its competitors, such as PT. Air Mancur, Jamu Jago, Jamu Nyonya Meneer, etc.

Second, the products of ‘jamu’ have reputations as ‘healthier’ medical products if compared to common medicines, because they were made from herbal plants such as saffron, gingers, curcumas, etc. In addition, the selling price is cheaper; therefore, the market share is automatically bigger. The problem, usually jamu products are in form of powder and need to be poured by hot water, which is a little bit inconvenient, and the taste are also bitter, so that many people dislike consuming them. Luckily nowadays jamu producers, including SIDO, has been innovated by launching jamu in forms of liquid, tablets, and even candies, which more practical and have sweet taste.

Third, in line with its status as the biggest jamu producer in Indonesia, SIDO performances are very good and consistently growing. In 2008, SIDO booked revenue of Rp1.04 trillions, which grew into Rp2.56 trillions in 2016 (meanwhile the total assets of the company were only Rp2.99trillions). SIDO net profit also grew to Rp380 billion in the first nine months of 2017. The interesting fact is, the management used almost no leverage to achieve the growths. Since a long time ago until today, SIDO has no bank debts nor bonds, and this condition makes SIDO’s profit margin free from interest rates expenses, thus the company is very safe from business turnaround risks. On the other side, as part of consumer goods industries, jamu business itself has low risk that only limited to fluctuation of raw materials price, and the risks of competition (luckily, SIDO has been one of the best players in its industry in the first place).

Fourth, SIDO is managed by a traditional management team that only makes jamu then sell it, that’s it. The company’s owner, Mr. Irwan Hidayat and family (he is not my uncle), also only focus on SIDO and has no other business, except Hotel Candi network in Central Java and Yogyakarta, and he also has a good reputation. Mr. Irwan, altogether with other figures like Dato’ Tahir (owner of Mayapada Group), entrepreneur and vice president M. Jusuf Kalla, until kebaya designer Anne Avantie, have been honored by Forbes Magazine as 4 of 48 “Most Philanthropic Figures in Asia”. Just like Mr. Tahir, Mr. Irwan is popular with their philanthropic activities, delivered in form of CSR. For example, since 2011 until now, SIDO routinely initiate free cataract operations for public.

However, though it seems perfect in fundamentals (or quoting Granpa Warren, SIDO is a wonderful company), SIDO still has weaknesses, ie related growth prospects in the future. As I said before, SIDO was managed traditionally without any leverage (however, if Mr. Irwan announces that SIDO needs borrowing, I am prestty sure the bankers will immediately get in line), but unfortunately also with almost no expansion, that the company only acquired one entity (PT Berlico) in the past few years, and SIDO is still in progress of increasing its liquid jamu factory capacity, whereas the project has been started since 2014 (the fund was from its IPO proceeds). The lack of courage for expansion also can be seen from the management policy that using 99% of its annual net income as dividends, and even with that policy, SIDO still have so much cash in its balance sheet. As the third quarter of 2017, from the total assets Rp2.97 trillion, Rp810 billion or 27% of which is non-productive cash. If we look at Warren Buffett’s Berkshire Hathaway, the company always keeps net cash position at about 15% of its total assets, so that Buffett could buy good assets at good prices in case of market crash or sort of, but even that cash position is said to be too cautious (other companies usually only put their cash positions at 5 – 10% of their total assets). But SIDO cash position is much more than that, and the number could be even greater if the company did not pay dividends in large amounts.

So SIDO is a contrary of Tiga Pilar Sejahtera Food (AISA) which also a consumer goods company, but AISA has been very aggressive in expansion where the company often held right issues, issuing bonds, taking bank debts, and offering private placements. By this way, AISA has been growing rapidly, but on the other side the company also fragile to bankruptcy/suffers big loss in case that something bad happens (in fact, AISA has got several problems, such as its poor investment in Golden Plantation/GOLL). As for SIDO, considering the conservatife style of its management, the company will not face any problems, but on the other side the growth of the company would be very slow. And although I said that SIDO has consistent performances in long term, but ‘long term’ here is between 5 to 10 years, or even longer. Meanwhile, if we look only in 2 – 3 years ahead, I could say that the revenues, net profits, and the company’s equities will only be stable (keep increasing, but with lower rates of increase).

What I mean is, if I am the controlling shareholder of SIDO, I will still not take any debt, but the company will only pay dividends in fair portion of its net income, ie 30 – 40% of its annual net income. SIDO can use the retained earnings to acquire other jamu companies, and we only have to seek for the best deal (good price for good assets). With this way, SIDO revenue could grow faster, on the other side the business risk stays low because, once again, we do not use any debts to fund the acquisitions. Remember that, altough SIDO’s brands of product has been well-known in the country, but if the management is a lil bit more ambitious, Jamu Tolak Angin could be as popular as Indomie (instant noodle brands of Indofood), which is now recognized as the most popular instant noodle in many countries starting in Taiwan, Nigeria, to Netherland. In short, SIDO actually has many chances to grow and become a huge company, once again, if the management put a little more effort.

In the end, I still agree that SIDO is a wonderful company that worth being a lifetime partner, that you can hold it for ‘as long as possible’. Actually in 2014, when SIDO kept going down from Rp900s to Rp450 in the middle of 2015, I started to think that the price is already low enough, but I then waited for the possibility of lower price. Because PBV of 2.5 – 3.0 times PBV is a bit high for a company that offering no growth prospect at all (since that year, SIDO had used almost all of its profit as dividends).

However, two years have passed, and it turns out that SIDO has not gone lower but stuck on its price range of Rp450 – 500 per share, while on the other hand its performance is still smooth as usual. So yes, maybe the current price range is low enough for the stock. If you are looking for low-risk stocks that can be held for long-term, SIDO is one of the best options, that if we see it in the next 5 – 10 years, I truly believe that SIDO will provide handsome profit. Also keep in mind that even though SIDO looks less good in terms of providing capital gains (as the stock has been going nowhere in the last few years), its shareholders will still received generous dividend of around Rp26 per share, or 5% of its share price. In comparison, dividend yields from bluechip companies are usually only 2 – 3% per annum.

Okay, so back to the question above. Why does the groom choose SIDO as dowry? Why not BUMI, for example? Well, what do you think?

PT. Industri Jamu & Farmasi Sido Muncul, Tbk

Rating of Performance as of Third Quarter of 2017: AA

Rating of Stock Price at Rp500: A

Original article was written and published (in Indonesian Language) on October 30, 2017. Any inquiries, contact the author (Teguh Hidayat) by email teguh.idx@gmail.com.