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PT ERAJAYA SWASEMBADA
TBK. (ERAA.JK)
PT. ERAJAYA SWASEMBADA, Tbk (ERAA.IJ)
Trade, Service and Investment - Indonesian Stock Exchange
Recommendation: STRONG BUY (Return 38.6%) Date: Dec 14th,2018
Target Price: IDR 3,035 Closing Price: IDR 2,190
CORPORATE GOVERNANCE
ERAA is always implements Good Corporate Governance (GCG) principles trough
the compliance to the twenty five recommendation of good corporate Governance
according to Circular Letter Number 32/SEOJK.04/2015 which issued by OJK on
2015. Throughout 2017, there was no change in ERAA’S BOC and BOD
composition, ERAA’S BOC is comprised of 3 people, one of them are the
independent comissioners. While, WIKA’S BOD is comprised of 7 people which one
of them is the independent director. ERAA issued its 2.9 Trillion shares which the
Source : Company Data
majority is held by PT Eralink International, to secure the control over the
FIGURE 8
Sales Growth company’s decision regarding BOC and BOD composition, salaries and performance
. At present, composition of shareholders come to PT Eralink International
(59.97%), BOC (0.08%), BOD (0.21%) and Public (39.74%).
14 Industry Analysis
13
12
20 1 3 2 0:1 Company
4 2 0 1 5 2Data
016 2017
INDUSTRY OUTLOOK 2018-2021
Source
Despite national retail sector did not record any significant growth to the
Source : Indonesia Statistics Bureau economic growth, but Indonesia remains in the list of the top 10 most
FIGURE 10
Economic Growth of Asean attractive countries in the retail sector for developing countries on GRDI
Countries (%) 2017 with the attractiveness for 49,3 % ( source : Bisnis.com ) as shown on
Appendix 1. The contribution of retail sector in Indonesia to the GDP is
pretty shows a stability.
Indonesia´s GDP rate has been showing a healthy increasing trend over
years. So far Indonesia has the biggest population in Southeast Asia which
also a regional economic efficacies, that is why Indonesia has the largest
total GDP and fast-growing GDP per capita that precedes most of the
Source : Indonesia Statistics Bureau
Southeast Asia region. During this case Indonesian economic process of
FIGURE 11 concerning 5.7 %. Afterwards, since 2015, Indonesian inflation has been
Indonesia Inflation and GDP Growth under control. Indonesia had inflation rates of between three and five
2015-2017(%) percent, per year which categorizes as low and stable inflation rate. In
addition, The World Bank reports that Indonesia recorded an EoDB score of
Inflation Rate Real GDP Growth 67.96. This figure is up 1.42 percent compared to last year's 66.54.
Therefore, With a population of 261.1 million, total GDP of USD 932.3 billion,
8
and economic growth of 5%. US NEWS reports that Indonesia is ranked
6
second best in the 2018 best countries for investment.
4
2 b. The stable level of Indonesia Purchasing Power
0 The increase in the average regional minimum wage IS 8.71% from the
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 previous year which had an impact on the increasing people's purchasing
Source : Indonesia Statistics Bureau, Bank of power. With the inflation rate still relatively stable, people's purchasing
Indonesia power is also relatively well maintained. BPS reports that the purchasing
FIGURE 12 power of Indonesian people in 2017 tends to be stable. The condition was
Indonesia Purchasing Power (%)
followed by expenditure shifting from non-leisure consumption to leisure
activities consumption.
Indonesian Purchasing
Power 2015-2017 c. Lower Impact of the import tariff regulation
5.2 Regarding to the issue of the import tax up to 7.5% is stipulated in the
5 2015 2016 2017 Minister of Finance Regulation number PMK 110 / PMK.010 / 2018. ERAA
4.8
considers this policy will not have a significant impact on its financial
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 performance. If the increase should be allocated to product prices, ERAA
estimates that it will not exceed 1% so it does not shake its market share
Source : Indonesia Statistics Bureau too much.
FIGURE 13
Internet Users Growth - Indonesia
d. The High Growth Rate of Internet Users
According to Statista research ( Appendix 4 ), Indonesia is include to the top
3 internet users in the Asia Pacific region after China and India as of January
2018, for 132.7 millions users which means it reach 54.68 % of the total
population of Indonesia. The internet users is go fast this last five years in
line with the growth in the number of fast-growing smartphone users as
Source : APJII
explained on figure 14. From 1998-2017 the growth rate of internet users
has 34.7 % CAGR. By the increasing need of internet and population year to
FIGURE 14 year, the mobile industry will accelerated rapidly going forward.
Smartphone Users in Indonesia e. Indonesia Government Blocked The “Black Market” Cellphones
Blackmarket cellphones are the cellphones sold illegally, which means that
those phones are sold without tariffs and somehow it doesn’t have
permission to be sent or used in a country, so that’s why this phones has a
cheaper price and attract many people nowadays. Meanwhile, since April
2018, Indonesia Government through the Ministry of Industry (Kemenperin)
and the Ministry of Communication and Informatics (Kemenkominfo) has
developed a system of International Mobile Equipment Identity (IMEI) in
order to combat the circulation of the illegal cellphones or the BM phones in
Indonesia. IMEI is attached to each cellphones as a unique identity number
for each device. IMEI validation system allows tracking the status of the
Source : Databooks cellphones in Indonesia, wheter it is sold officially or not. If it is not
registered in the validation system, it is ensured that the device is illegal.
Black market is one of the threats for the retailers and official distributors of
cellular telecommunication device so with this policy, of course it has a
positive impact on ERAA as an official distributor of telecommunications in
Indonesia.
ROA ROE
245 10
240 5
2017 2018F 2019F 2020F
0
Source: Team Analysis 2015 2016 2017
Market risk
Competition risk (R2)
ERAA has many competitor in the telecommunication retail and distribution industry,
Source: Bank Indonesia
it means the competition is quite tight, so ERAA need extra efforts to attract more
customers than it’s competitor, right now ERAA try to improve their expansion
FIGURE 27 aggressively by build more stores in second semester of 2018 to reach for more
BI 7-DAY (REVERSE) REPO customers.
RATE Exchange rate risk (R3)
The rupiah exchange rate is still depreciating but volatility is still maintained. The
rupiah weakened by an average of 2.07% in September 2018. With this
development, year to date up to October 22, 2018, the Rupiah depreciated 10.65%
or still lower than weakening that occurred in Brazil, India, South Africa and Turkey.
Because the rupiah is weakening it can affect ERAA’s profitability by decreasing the
return from their investment in foreign country.
The US-China trade war (R4)
Because the disputes between US and China regarding their exports and imports, it
may bring implications to the economic condition around the world included Asia.
Both country imposed tarrifs on each other imports. The tariffs themselves is not the
main problem. Concern about trade war will likely reduce investor for investing in
risky asset.
Financial risk
Upward trend in BI 7-day (reverse) repo rate (R5)
Interest rate related to the company’s liability to obtain capital for their business.
The rate affecting the amount of liability that the company should pay. The table of
BI 7-day (reverse) repo rate shows that the rate is increasing over time. It means
Source: Bank Indonesia the amount of liability that the company should pay is increasing too.
Inflation (R6)
FIGURE 28 Inflation is still under control at a low and stable level. The Consumer Price Index
RISK ASSESSMENT MARTIX experienced a deflation of 0.18% in September 2018, deeper than last month's
deflation of 0.05% . This deflation was mainly due to deflation in the volatile food
I category, while core inflation slowed and inflation in administered prices was stable.
With these developments, annual inflation reached 2.88% , down from 3.20% in the
m R7 previous month. Increase in inflation can reduce the customer purchasing power in
the future and increase in cost of business, however since the inflation currently at
stable level, it means it’s at the right condition to encourage the customer doing
p R6 R2 consumption.
a R4 Political risk
2019 general election after effect (R7)
Because the uncertainty condition after the general election 2019, it makes people
c R1 R3 R5 becomes more careful in spending their money because they don’t know what will
futures bring, so ERAA should think a strategy to attract customer more and be
t ready in case if new laws regarding retail and distribution company will be
established in future.
Like hood
Source : A.T. Kearney’s GRDI 2017 Source : A.T. Kearney’s GRDI 2017 Source : UNCTAD, Chinadaily.com
Appendix 4 Appendix 5
Internet Users in the Asia Pacific Indonesia EoDB Point & Ranking
Region 2018
Appendix 6 Appendix 7
ERAA Billed Outlets 2014-2017 ERAA’s Distribution Center and
Owned Retails Outlet 2014-2017
0 = NO THREAT
10 = LOW THREAT
20 = MODERATE THREAT
30 = HIGH THREAT
The number of buyer for mobile telecommunications product are high so it is less concentrated,
almost everyone in this world using mobile phone no matter how old they are or what job they have they
have at least one phone each. because of that, the producer percentage of sales from one buyer is not
that significant. It means that the pressure that the customer has to the producer is low, its different if
the number of buyer is low, in that case, even one demand of customer is significant and producer can’t
ignore it, but because the buyer are high, the demand of one customer is immaterial. In conclusion, the
bargaining power of customer is low.
Until now the substitute goods for telecommunication and information technology is hardly exist, this
market completely dominated by smartphones and tablets and substitute goods for that is hard to be
found. So, the position of substitute products can be categorized as low.
PT. Erajaya Swasembada, Tbk. Is a retail and distribution company, so their supplier were
manufacturing company and their business relies on their supplier’s product. Compared to the buyer, the
supplier is more concentrated since their number is lower. Also each supplier has their own specific
expertise or technology to manufacture goods. Because of that, each of them has a big customer basis
already. In conclusion, the position of bargaining power by the supplier is high.
There are many barriers for new entrants in this industry. One of them is cost of capital, this kind of
industry requires huge amount of investment to start doing business, beside that the existing company
has many advantages such as having the best supplier and often than not the supplier that has contract
with this company makes the new entrants difficult to form relation with, the existing company may have
better information and technology and also they have customer basis already. Because of this barrier the
threats of new entrants position is low.
PT. Erajaya Swasembada, Tbk Are retail and distribution company, in other words, the products that
they sell and their market segment tend to be the same with the competitor in same industry. And
because they are no switching cost for the customer that wants to start purchasing from other company,
the competition is more competitive However PT. Erajaya Swasembada, Tbk has approximately
32%-33% market share in 2017 and supported by their strong brand image, lead them to become the
leading telecommunication retail and distribution company in Indonesia. In conclusion the rivalry among
competitor position is moderate.
APPENDIX 9. ERAA Income Statement (In Mn)
PT Bank Central Asia Tbk 210,330,208 Market risk Premium (3) 2.05%
Enterprise value
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Market making:
The author(s) does [not] act as a market maker in the subject company’s securities.
Ratings guide:
Banks rate companies as either a BUY, HOLD or SELL. A BUY rating is given
when the security is expected to deliver absolute returns of 15% or greater
over the next twelve month period, and recommends that investors take a
position above the security’s weight in the S&P 500, or any other relevant
index. A SELL rating is given when the security is expected to deliver negative
returns over the next twelve months, while a HOLD rating implies flat returns
over the next twelve months.
Disclaimer:
The information set forth herein has been obtained or derived from sources
generally available to the public and believed by the author(s) to be reliable, but
the author(s) does not make any representation or warranty, express or
implied, as to its accuracy or completeness. The information is not intended to
be used as the basis of any investment decisions.