Blue or black?

By Riyadi

JAKARTA (JP): In this time of uncertainty, only risk-taking investors with liquidity to spare would dare invest in equity to seek higher gains.

But for those who are wary of taking a high risk but still want to benefit from potential big gains from stock markets would be advised to invest their money in blue-chip stocks.

Some would argue that compared with world-class exchanges such as the New York or London stock exchanges, the Jakarta Stock Exchange (JSX) does not really have blue chips. But if investors compare stocks with their peers on the JSX, they can still pick blue chips.

According to Eva Nilayanti Muis, head of research at Kim Eng Securities, blue-chip stocks are normally sought after stocks.

They are big enough in market capitalization to drive the market up or down.

They should be among the most liquid stocks, so that they can be easily bought and sold.

And most importantly, they must have good fundamentals.

According to Kim Eng Securities, JSX's top 10 stocks -- those that can be categorized as blue chips -- are cigarettemakers Gudang Garam and Hanjaya Mandala Sampoerna, foodstuffs producer Indofood Sukses Makmur, international telephone operator Indosat, domestic telephone monopoly Telkom, consumer products company Unilever Indonesia, retailer Ramayana Lestari Santosa, cement producer Semen Gresik, pharmaceutical and health care producer Tempo Scan Pacific and carmaker Astra International.

Monthly financial magazine Asiamoney's latest Best Managed Companies Poll named Ramayana, Gudang Garam, Sampoerna, Unilever and Astra as investors' favorite Indonesian companies.

The poll, conducted annually, was based on 258 responses from 214 institutions in the Asia-Pacific region -- including Japan and Australia --, Europe and the United States.

Following are the characteristics of these stocks.

Gudang Garam: With average annual sales of more than 70 billion cigarettes, Gudang Garam is the country's largest cigarettemaker. Despite its low free float of 15.7 percent, Gudang Garam is the second largest stock in terms of market capitalization, trailing just after Telkom. Its market cap as of March 7, 2001 reached Rp 26.1 trillion. Not only is Gudang Garam the second largest capitalized counter, it also has solid fundamentals, with no foreign currency debt. Moreover, the cigarette industry has always been one of the better-performing sectors on the JSX. Last year, its stock prices plunged by 32.29 percent to Rp 13,000, and dropped further to Rp 12,950 on March 9. Gudang Garam still trades at an attractive price earning ratio of below 10 times, much lower than its average of above 20 times during the past five years.

HM Sampoerna: Considered the most innovative, transparent and aggressive Indonesian cigarettemaker, Sampoerna is the fourth largest stock in terms of capitalization, totaling Rp 12.5 trillion as of March 7. Sampoerna managed to reduce significantly its foreign debt to about US$101 million last year from $370 million recorded in early 1999. Sampoerna stock prices fell by 19.57 percent last year to Rp 14,900, and dropped further to Rp 13,250 on March 9. Sampoerna currently trades at an attractive price earning ratio of below eight times, far lower than its own historical valuation of above 20 times.

Indofood: The firm is the country's largest food producer, with its noodle products found in the majority of Indonesian households. It is the sixth largest capitalized stock, totaling Rp 10.2 trillion as of March 7. It managed to reduce its foreign debt from above $700 million in 1999 to $452 million as of Sept. 30, 2000. The company also claims that 84 percent of its foreign debt is hedged. Indofood reported a 54 percent drop in net profit to Rp 646 billion last year, with operating profit rising 5 percent to Rp 2.4 trillion. Indofood stocks fell by 55.33 percent last year to Rp 775, but then increased to Rp 900 on March 9.

Indosat: The state international telephone operator is one of the few companies that has a clean and strong balance sheet. It held cash and cash equivalents of Rp 2.3 trillion as of the first nine months of last year, while its debt amounted to only Rp 25 billion. It reported a strong net profit of Rp 1.75 trillion last year, a 27 percent increase from Rp 1.38 trillion recorded in 1999. It is the fifth largest capitalized stock on the JSX, totaling Rp 11 trillion. Indosat stock prices dropped by 45 percent last year to Rp 9,000, but rose this year to close at Rp 10,000 on March 9. At this price, the stock still trades at an attractive price earning valuation of around six times.

Telkom: The country's domestic telephone monopoly is the largest capitalized stock on the JSX, totaling Rp 30 trillion as of March 7. Like Indosat, Telkom also booked a strong net profit growth of 17 percent last year to Rp 2.54 trillion from the Rp 2.17 trillion recorded in 1999. Telkom's stock price dropped by 52.87 percent to Rp 2,050 but rose this year to Rp 2,775 on March 9. At this level, the stock still trades at an attractive price earning ratio of around nine times.

Unilever: A producer of household products, the company is claimed to be one publicly listed company unaffected by the economic crisis. It is the third largest capitalized stock, totaling Rp 15.8 trillion as of March 7. After a stock split, trading in Unilever stocks is increasingly on the rise, making the stock more liquid. Unilever stock was the only stock among the top 10 stocks that gained last year. The stock rose by 8.7 percent last year to Rp 12,500 and soared further this year to Rp 17,250 on March 9.

Ramayana: The company, which operates a chain of supermarkets and department stores across the country, has been chosen by world financial institution Morgan Stanley as one of the index barometers for investment managers for the company's brilliant achievement all through 1999, rising from the destruction caused to its outlets during the May 1998 riots. The company recorded sales of Rp 2.3 trillion last year, increasing by 43 percent from Rp 1.65 trillion in 1999. Ramayana's stock price dropped by 15 percent last year to Rp 2,625, but rose this year to Rp 2,750 on March 9. At the current price, the stock trades at an attractive earning multiple of around nine times.

Semen Gresik: Currently the country's largest cement producer, Semen Gresik has a production capacity of 17.25 million tons of cement per annum. But if the plan to spin off Semen Padang and Semen Tonasa from Semen Gresik proceeds, the company will no longer be the country's largest cement producer. But the effects of the spin-off will not be entirely negative, as part of the proceeds could be used to repay some of the company's outstanding debts. Semen Gresik's stock fell by 48.44 percent last year to Rp 5,800, but then rose to Rp 6,000 on March 9. The stocks trade at an earning multiple of around 10 times.

Tempo Scan: A conglomeration of pharmaceutical, health care and cosmetics manufacturing companies, Tempo Scan has been chosen as one of the top 10 stocks because its wide range of products reaches most urban people in the country. In addition, the company has also settled all of its debts. The company's stocks dropped 48.3 percent last year to Rp 3,075 and slid further to Rp 3,050 on March 9.

Astra International: A major diversified investment holding and operating company with significant interests in a number of sectors, Astra is better known as an automotive company, with the Kijang van being its most popular product. Astra, however, is dogged by foreign debt. Although its debts have been restructured, they will still burden the company's finances in the future. Astra's stocks dropped 47.7 percent last year to Rp 2,000, and has since slid further to Rp 1,850.