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Adira Dinamika Multifinance

Warren Buffett once said that, when calculating the value of a company, do not only look at the company’s tangiable assets like plants, inventories, receivables etc, but also look at intangiable assets such as reputation, power of brands, and company’s competitive advantages. In short, if there are two companies with the exact same book value, but company A have a better reputation and its products also more well-known to the public than company B, then Buffett would pick company A, even if the price is higher.

And this explains why the most popular companies in Indonesia Stock Exchange like Bank BCA, Astra International, or Telkom, their stock valuations, either by price to book value (PBV) or price to earnings ratio (PER), are far higher than the average valuation of less-known companies. For example, you probably could buy stock of a small and relatively unknown company at PBV of less than 1 times, but the lowest possible prices for Astra’s shares is about at PBV 2 times, and only at the bear market period.

But what if I told you that there is a stock, which the company is the largest in its industry, have good reputation and strong brands, plus excellent track record of earnings, but the price is substantially lower than Astra et al?

Yup, the company is Adira Dinamika Multifinance (ADMF). With total asset of Rp30.7 trillion as of September 30, 2018, and established as an automotive financing company since 1991, Adira is the largest and most established multifinance company in Indonesia, and the company is doing relatively well in the long term where it had annual return of equity of 20 – 25% (only dropped to 15% in 2014 and 2015 due to economic slowdown in the country at the time and the tightening of loan disbursement by the Bank Indonesia/BI). But more than that, Adira is the most well-know financing company in Indonesia and also with good reputation (the company had never serious issues either with law or with its customers), also with highest number of office branches throughout Indonesia. And the multifinance itself is a very profitable business in Indonesia, because the interest rate is very high but nonetheless the non performing loan ratio was relatively low, at least for Adira which only 1.6% at the end of 2017. As of September 30, 2018, the average contractual interest rate for consumer financing of Adira were 18.1% per annum for cars, 34.0% for motorcycle, and 47.7% for durable goods. I mean, where in the other part of the world you could get such high interest rates??

With all the above criteria, and also because the company still post an increase in net income and equity in its latest financial statements of third quarter of 2018, then normally you can only buy the stock at a premium valuation. But at the current price of Rp9,000 per share, the PBV was only 1.4 times, and PER 5.0 times. And considering its dividend of Rp704.5 per share (before tax) in last year, the yield was also high at 7.8%.

So what’s the problem? First, possibly because the Adira is THAT good, Bank Danamon Indonesia as the majority shareholder owns not less than 92.1% stake of the company, leaving the public shareholder with only 7.5% or 75 million shares in the market, and that caused the stock to become illiquid, with trading value of only about Rp1 billion per day, thus the stock is not liked by most traders and investors. With the lack of demand, of course the price of the stock would never be too high. Secondly, Adira once suffers a decrease in net income back in 2012 – 2015, which as mentioned above, due to the tightening of loan disbursement by BI, and during that period the stock also fell from Rp12,000 to as low as Rp3,000 per share. And although the company’s net income surged once again since 2016 until today, but probably those events left a question for investors who consider to buy the stock for long term: What if someday the BI tightening the loan disbursement once again??

But even if you do not wish to hold the stock for 5 years or so, the stock still offers a handsome profit for shorter term. First, you see eventhough the stock is not liquid, but Adira still climbed from 3,000 to 9,000, or gained three folds in the last three years because the company ‘s fundamentals are indeed very good. Secondly, just in August 2018, the BI has loosened the loan to value (LTV) regulations, which allows multifinancing company to disburse more loan, and there is no indications that BI would tighten the regulations in the near future (in 2012, the LTV regulations had been tightened due to fear of bubble in property market, where the price of property units could climb 100% or more in only few months because of easy housing loan at the time, but today there is no such bubble issues). And third, Adira last time paid dividend of Rp704.5 per share in April 2018, so it’s likely that the company will also pay dividend in April 2019 (a few months from now), of course with higher payment because the company booked higher earnings in 2018. And usually, the stock will climb high before the payment date, because of high dividend yield.

In conclusion, we now have a stock which offer investment opportunity for both short and long term, and the momentum is just right, that you may miss the opportunity if you read this column 6 or 12 months from now. Because, before 2012, Adira was indeed valued at premium valuation, with PBV of more than 4 times due to its consistent financial performance and strong brands. So if the company could maintain its current performance since 2016 until the next few years, and the company have a good chance to do so, then someday the price should be back to its premium valuation just like in the old times. In short, it is now or never!

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