BEST SMALL CAP COMPANY
Ace Hardware
Ace Hardware Indonesia is taking full advantage of strong in-country demand for housing improvement equipment by implementing a strategy that provides quality service, a large variety of products and store maintenance according to consistent company guidelines.
Although the hardware maker continues to expand the number of stores across Indonesia and now has 82 outlets in 25 cities, analysts say the company has trained its staff according to professional standards to ensure that its store quality is consistently maintained.
“If you go to any of their stores, you can see that the distribution, hiring, level of service maintenance and stock of products are the best in Indonesia,” according to Nicolaos Oentung, an equity analyst for Macquarie Securities in Jakarta. “Even though they are in expansion mode, they are only able to train about 1,000 personnel. They don’t go over that either so that they don’t compromise their services.”
A combination of these aspects has allowed the company to grow according to its annual target of 25% during the first half of the year. Ace Hardware has produced return on equity of 25% for the past five years.
A growing middle class and rising disposable income is also helping Ace capitalise on rising demand for its 70,000 home improvement products. Even though the competition in this sector is heating up and operating costs are increasing as minimum wages rise, Oentung says the company has been able to secure strong store locations and generate solid sales revenue.
He expects Ace Hardware to increase annual profit from US$43 million in 2013 to US$60 million by 2015. The company also has a net cash position.
BEST MEDIUM CAP COMPANY
Tower Bersama Infrastructure
Tower Bersama is benefiting from the rising number of Indonesians buying mobile phones and the gradual movement of the country into the 3G era.
The nation’s top telecommunications carriers such as Telekomunikasi Selular (Telkomsel) and Indosat are major clients of Tower Bersama, which owns and operates the telecom signal towers. The increasing demand of these telecom companies for its services has helped boost its earnings. Meanwhile its competitors only have second-tier customers.
“The fact that they have the top three customers gives them a big chunk of the market. They also have more diversification,” according to an equities analyst.
That has put the company in a comfortable position to capture growth from the country’s middle class. Tower Bersama’s revenues and profits doubled in the first half of 2013 as it secured more tenants than the year before. It is also buying more towers owned by telecom carriers.
“Their growth strategy is to strengthen acquisitions but the good thing is that they already have customers so they don’t have to worry about revenue,” said another analyst. “The country is also switching to 3G from 2.5G and the telecommunications operators who are selling their towers are putting this equipment in place before they are selling it to Tower Bersama.”
The country is promoting telecommunications carriers to lighten up their assets, which is persuading them to sell their towers to companies like Tower Bersama.
Tower Bersama also received strong interest from international investors when it tapped the bond markets in April. A US$300 million bond was oversubscribed by more than 14 times due to solid fundamentals and the fact that its towers were used as secured assets for the bonds.
With offshore funding channels readily available, the company will be able to spend more to invest in its towers and infrastructure, employ the latest telecommunications technology that will help increase the speed of data transmission. This will help also attract more top-tier tenants for its towers.
Tower Bersama was the first Indonesian telecommunications tower company to issue a US dollar-denominated bond in the international markets.
BEST LARGE CAP COMPANY
Kalbe Farma
Rising inflation and an economic slowdown weigh down on companies such as pharmaceuticals giant Kalbe Farma, but the company’s robust marketing and strategy has helped it continue to boost demand from Indonesians for its health-care products.
“Kalbe is able to defend their marketing share in products especially in the pharmaceuticals industry, where they are the largest player. Competition is becoming fiercer but the fact that it has a diverse set of products has helped them grow in the double digits,” according to a senior equity analyst. “They’ve also brought in some new marketers.”
Kalbe Farma was still able to lock in a 14% increase in profit in the first half of the year to INR922 billion (US$87.5 million) compared to the previous year.
The company is also set to become the first pharmaceutical manufacturer in Indonesia to tackle oncology products. The launch could take place next year as it is still in the process of obtaining approvals.
Kalbe is also in a comfortable position to benefit from the government’s plans to provide universal health care to Indonesians by 2020, as the scheme will increase demand for its medicine.
Additionally, the company is diversifying its product portfolio away from pharmaceuticals to good effect. Its nutritional division, which includes milk products, saw its revenue grow 32% to INR1.76 trillion in the first half of 2013. Moving into this sector has helped Kalbe weather weaker growth and a volatile rupiah, which the company said will put pressure on its profit margin.
“They are strengthening their product lineup, introducing new products especially in their consumer health division and improving their marketing strategies. In addition, they are looking into export market for some of their products,” said Maynard Arif at DBS Vickers Indonesia.
BEST EXECUTIVE
Maurits Daniel Rudolf Lalisang, CEO of Unilever Indonesia
Unilever’s management is famous within Indonesia for possessing a productive corporate culture that other companies increasingly seek to mimic.
Credit for both this corporate leadership and Unilever’s ability to move nimbly amid intensifying competition belongs squarely to Maurits Lalisang. Its net sales rose 15.5% to INR15.43 trillion for the first months till June in both its home and personal care as well as foods and refreshments divisions.
“One of things that set Unilever apart from the others is that they are not complacent,” says an Indonesian equity analyst. “They sense out competition, block it quickly, and innovate rapidly. They’re also able to adapt to the local culture.”
The analyst explains that this is a difficult task for any large company to do, especially for one with annual revenue of US$20 billion and a strong market positions.
“Most of them try to maintain the status quo. Unilever Indonesia doesn’t.”
For example, Unilever has been able to beat out local competition by providing attractive financing terms for distributors. It has also been willing to venture into new areas such as ice cream, which another analyst says has so far been successful.
At the same time Unilever has been able to provide investors with a return on equity of 130% so far this year from the 80%-90% in previous times, a level of growth that analysts believe it can sustain for the next few years.
It will be interesting to see how Lalisang will be able to offset more challenges as the company is bracing for a change in consumer demand trends due to a spike in fuel and electricity prices and an increase in interest rates that could slash domestic demand for disposable products.