Indonesian FMCG firms in Focus: Kino Indonesia
Fast moving consumer goods company Kino Indonesia experienced a turbulent month in September following a Supreme Court decision in response to a lawsuit filed by UK citizen Russel Vince. Jakarta's Supreme Court agreed that the logo of the brand Larutan Cap Kaki Tiga, which is produced, distributed, and sold by Kino Indonesia under a license from Singapore-based Wen Ken Drug Co. Pte. Ltd, too closely resembled the Isle of Man's triskelion flag and therefore it prohibit the use of the logo.
This decision led to sharply falling shares of Kino Indonesia on the Indonesia Stock Exchange (IDX) in September. Considering the beverages that are branded Larutan Cap Kaki Tiga account for 26 percent of Kino Indonesia's total sales in the first half of 2016, this reaction made sense. Over the past ten weeks the company's shares plunged 42 percent due to the Supreme Court's verdict.
However, Peter Chayson, Director of Kino Indonesia, stated that the company has already resumed production of the beverage and will continue producing the beverage until 2026 when the contract with Wen Ken Drug Co. Pte. Ltd expires. This statement has, however, not led to a significant rebound in the company's share performance.
In the first half of 2016, Kindo Indonesia's sales rose 11 percent (y/y) to IDR 1.94 trillion (approx. USD $149 million), while the company's net profit was recorded at IDR 183.71 billion (approx. USD $14.1 million). Bahana Securities stated that the financial performance of Kino Indonesia will most likely not meet its earlier estimates, despite the boost given by the Lebaran/Idul Fitri period (which are the festivities that follow the holy Islamic Ramadan month) when consumer demand rises significantly. Kino Indonesia's corporate earnings will also be negatively affected by rising prices of raw materials.
There are four basic materials that cause higher production costs for the company. These are sugar, plastic bottles, cans and alcohol. The price of sugar, which accounts for 7 percent of Kino Indonesia's total raw material costs, rose 51 percent over the past 20 months. Meanwhile, the price of plastic bottles jumped 23 percent so far this year. Therefore, Bahana Securities expects Kino Indonesia's profit margin to remain around 11.6 - 11.8 percent up to 2018, while the net margin is expected at 7.9 - 8.1 percent in the period 2016 - 2018.
Bahana Securities has now revised (down) its net profit growth projection for Kino Indonesia to +16 percent (y/y) in 2016 and +22 percent (y/y) in 2017. The company's share price target has been cut from IDR 8,300 to IDR 5,450 a piece due to the recent developments. Despite the big decline in September, the company's shares have risen 8.59 percent to IDR 4,170 per share so far this year.
Kino Indonesia's Financial Highlights:
| 2014 | 2015 | 2016F | 2017F | 2018F | |
| Sales | 3,339 | 3,604 | 3,973 | 4,590 | 5,398 |
| EBIT |
428 | 461 | 536 | 636 | |
| Net Profit |
104 | 263 | 316 | 364 | 435 |
| P/E Ratio (x) | 51.9 | 22.6 | 18.9 | 16.4 | 13.7 |
| EBIT Margin (%) |
11.9 | 11.6 | 11.7 | 11.8 |
in billion IDR rupiah, unless stated otherwise
Source: Bahana Securities (07/10/2016)