Fri, 26 Dec 2003

Listed firms enjoying earnings recovery

Rendi A. Witular The Jakarta Post Jakarta

The country's publicly-listed companies are enjoying better sales and operating profits this year on the back of improving macroeconomic stability and lower operating costs.

This improvement should raise hopes that the corporate sector is on the verge of a revival after being decimated by the late 1990s economic crisis.

Danareksa Research Institute's chief economist Raden Pardede said that the sales and operating profits of most companies in the third quarter of this year on average increased by between 10 percent and 11 percent respectively compared to the same period of last year.

"On average, most listed firms this year are experiencing improved sales and operating profits. This is what investors want to see in order to measure the companies' business prospects for next year," Raden said.

He explained that this year's improvement in macro economic conditions, and the relatively lower cost of sales and operating expenses had contributed to the increase.

The central bank reduced its benchmark interest rate further to an historic low of 8.42 percent on Dec. 10, down from around 13 percent earlier in the year, on the back of continued easing in inflation.

Many have predicted that inflation will also be at an historic low level of around 5 percent by the end of the year.

The relatively calm political and economic situation following the recent bombing of the JW Marriot Hotel in Jakarta has also supported foreign investor confidence, Raden added.

Meanwhile, thanks to capital inflows, the rupiah remains stable despite dollar demand from importers. The local unit is hovering at between Rp 8,400 and Rp 8,500 per U.S. dollar.

However, on average, listed companies are still suffering from negative net profit. This is a result of previous burdens as the companies have to repay debts (both principal and interest) and taxes.

But to fairly measure the performance of companies, one needs to look at their operating profit and sales performances as net profit figures are biased by earnings from currency gains and extraordinary transactions, which do not result from the companies' main business operations.

"The decline in net profits will of course impact on dividend payments. But investors tend to look at their sales and operating profits so that they can make forward estimates," Raden said.

Several companies with large market capitalizations have indeed enjoyed a surge in operating profits but a decline in net profits during the first nine months of this year.

State-owned telecommunications company PT Telekomunikasi Indonesia, the largest counter on the Jakarta Stock Exchange, recorded a jump in operating profit in the third quarter of this year to Rp 9.57 trillion (US$1.12 billion) from Rp 7.67 trillion a year earlier. Its sales also soared to Rp 19.9 trillion from Rp 15.6 trillion.

However, its net profit declined to Rp 4.37 trillion from Rp 7.56 trillion due to the absence of the extraordinary earnings it enjoyed last year.

Food processor PT Indofood Sukses Makmur is another example. The company booked a surge in operating profit to Rp 1.36 trillion from Rp 1.32 trillion, and in sales to Rp 12.9 trillion from Rp 11.8 trillion. However, its net profit declined to Rp 453 billion from Rp 651 billion.

According to Danareksa, the best performing listed companies this year in terms of earnings are those engaged in the mining sector, followed by the property sector, the basic industries sector and the infrastructure sector.

For example, PT International Nickel Indonesia (Inco), a unit of the world's second biggest nickel mining company, said its sales for the first nine months had skyrocketed by 61 percent to $131 million from $81.6 million in the same period of last year on higher nickel prices.

The company's stock price also soared more than sevenfold to Rp 27,000 on Dec. 12 from Rp 3,625 early this year.

As for next year, listed companies are projected to perform better despite the general election.

Raden estimated that sales of listed companies would surge by around 15 percent next year on the basis that the country's economy would grow by 4.8 percent and inflation at 7 percent.

The companies would also enjoy lower cost of sales and operating expenses as the government had decided not to raise utility prices and wages, he said.

He expected that companies operating in the consumer goods and telecommunications sectors would be the stars next year, benefiting from the hype over the general election.

The Jakarta Composite Index has increased by more than 50 percent since early this year.

The Index jumped to a four-year high of 656.74 on Dec. 12, up from around 410 early this year, because of positive sentiment on the country's macroeconomic situation and the privatization of three state-owned companies; Bank Mandiri, Bank Rakyat Indonesia and gas utility PT Perusahaan Gas Negara.

As for next year, many analysts predict that the Index will soar to more than 700, assuming that there are no security disturbances before, during and after the general election.


Stock index performance by sector

Sector Index Change

2002 2003 (Dec. 9)

1. Mining 94.87 243.72 157% 2. Property 24.33 44.59 83.3% 3. Basic industries 36.92 62.00 67.9% 4. Infrastructure 129.41 198.76 53.6% 5. Consumer goods 135.47 200.55 48.0% 6. Finance 51.03 75.01 47% 7. Miscellaneous industry 88.13 118.69 34.6% 8. Trade 107.61 139.30 29.4% 9. Agriculture 144.36 181.88 26%

Composite 424.95 644.46 51.6%

Source: Danareksa Research Institute


10 biggest firms by market capitalization

Stock Market capitalization

2002 2003 (Dec. 9)

Telkom Rp 38.80 trillion Rp 60.98 trillion Gudang Garam Rp 15.97 trillion Rp 26.93 trillion Unilever Indonesia Rp 13.88 trillion Rp 24.79 trillion Bank Central Asia Rp 14.88 trillion Rp 20.18 trillion Bank Mandiri - Rp 18.81 trillion HM Sampoerna Rp 16.65 trillion Rp 18.56 trillion Astra International Rp 8.21 trillion Rp 18.45 trillion Indosat Rp 9.57 trillion Rp 13.61 trillion Bank Rakyat Indonesia - Rp 11.93 trillion Indofood Sukses Makmur Rp 5.63 trillion Rp 7.31 trillion

Source: Danareksa Research Institute

Summary of listed company financial results

Sector 9 months '02 9 months '03 Percentage

Consumer goods Sales Rp 58.3 trillion Rp 62.5 trillion 7% Operating profit Rp 8.5 trillion Rp 8.3 trillion -3% Net profit Rp 5.6 trillion Rp 5.0 trillion -10% Operating margin 14.6% 13.3%

Cyclical and telecommunications Sales Rp 59.7 trillion Rp 70.4 trillion 18% Operating profit Rp 13.7 trillion Rp 17.2 trillion 25% Net profit Rp 13.3 trillion Rp 11.2 trillion -16% Operating margin 23% 24.4%

Others (bank, resources, miscellaneous) Sales Rp 121.9 trillion Rp 134.3 trillion 10% Operating profit Rp 24.0 trillion Rp 26.6 trillion 11% Net profit Rp 19.2 trillion Rp 16.5 trillion -14% Operating margin 19.7% 19.8%

Source: Danareksa Securities