Indonesian Alcoholic Beverage Producers in Focus: Delta Djakarta

In full-year 2017 Delta Djakarta's export sales performance soared 67.3 percent year-on-year (y/y) to IDR 1.69 billion (approx. USD $121,600). It is indeed impressive growth but it has to be mentioned that growth comes from a very low base. The company's export earnings are also very small compared to its domestic sales. Last year, Delta Djakarta earned IDR 870.5 billion (approx. USD $62.6 million) from domestic sales (after deduction of excise and taxes). But contrary to the company's rapidly growing export sales, its domestic sales declined 0.8 percent (y/y).

One key problem for companies that produce alcoholic beverages is Trade Regulation No. 06/M-DAG/PER/1/2015 on the Control and Supervision of Procurement, Distribution, and Sale of Alcoholic Beverages (which was signed by the minister on 16 January 2015). This regulation bans the sale of alcoholic beverages in all Indonesian minimarkets and kiosks starting from 16 April 2015.

The government introduced this ban in an effort to "protect the morals and culture of Indonesian society". Due to the high number of minimarkets and kiosks in Indonesia it became very easy for schoolchildren or students to buy light alcoholic drinks at stores located close to their schools. It remains possible, however, to purchase alcoholic beverages in the licensed supermarkets and hypermarkets. But because these big stores are harder to find than the minimarkets (that have mushroomed in the urban areas over the past decade), it means sales of alcoholic beverages dropped.

As a result of the ban Delta Djakarta's sales fell from IDR 879.3 billion in 2014 to IDR 699.5 billion in 2015. Sales rebounded to IDR 775.0 billion in 2016 but then barely changed (IDR 777.3 billion) in 2017.

A renewed focus on exports could offset the impact of stagnant sales at home. Last year Delta Djakarta started to export its products to Timor Leste. The company is now in talks with retailers in Thailand and Vietnam for the export of dark beer (branded "San Miguel Cerveza Negra").

Rising export sales should contribute to achieve Delta Djakarta's 5.25 percent sales growth target for full-year 2018. The company set a growth target that is similar to Indonesia's (estimated) gross domestic product growth. Although the domestic context is not too rosy, there remain growth opportunities. For example in the tourism sector. Over the past couple of years foreign visitor arrivals into Indonesia have risen significantly. In full-year 2017 a total of 14 million foreigners visited Indonesia for a short visit.

Delta Djakarta will also raise its focus on special sports or music events that are organized at home. Part of visitors at these events tend to enjoy an alcoholic drink. For example the 2018 Asian Games (to be held in Jakarta and Palembang in the third quarter of 2018) brings opportunities to sell more alcoholic beverages.

In fact, Delta Djakarta recorded a 12 percent (y/y) increase in net profit to IDR 86.82 billion in the first quarter of 2018. Net profit growth was supported by a 4.97 percent (y/y) increase to IDR 224.50 billion in revenue. Despite a decline in sales of beer (volume-wise), efficiency efforts (for example by engaging in long-term contracts with the suppliers of raw materials) and an increase in selling prices caused a jump in net profit.

Delta Djakarta operates a factory in Bekasi (West Java) with an installed production capacity of 1.1 million hectoliters per year.

So far in 2018 shares of Delta Djakarta, which is listed on the Indonesia Stock Exchange, have surged 20.37 percent to IDR 5,525 a piece.

Stock Quote Delta Djakarta - DLTA:

Local Jakarta Administration to Sell Stake in Delta Djakarta

In line with his pledge during the campaign period, Jakarta Governor Anies Baswedan wants to sell the 23.34 percent stake in Delta Djakarta that is owned by the local Jakarta administration. It is a step that is related to religious motives. The stake could raise around IDR 1 trillion (approx. USD $72 million) in new funds that can be used for several projects in Indonesia, according to Baswedan. Where the real value of the stake lies, is being studied.

Critics, however, argue that it is a mistake to sell the stake purely out of religious reasons. Delta Djakarta is a healthy company that posts good corporate earnings. Moreover, it distributes dividend to shareholders. For example, IDR 260 per share will be distributed to shareholders over financial year 2017. Considering the Jakarta administration controls 186.84 million shares in the company, it would collect IDR 48.57 billion (approx. USD $3.5 million) in dividend over 2017. If the stake is sold, then the local Jakarta administration cannot enjoy annual dividend payouts in the future.

Delta Djakarta's Financial Highlights:

	2015	2016	2017
Net Sales	699.5	775.0	777.3
Gross Profit	465.3	540.9	574.3
Net Income	190.5	253.7	279.7
Income before Tax	250.2	327.0	369.0
Total Assets	1,038.3	1,197.8	1,340.8
Total Liabilities	188.7	185.4	196.2
Earnings per Share¹	238	317	349
Cash Dividend per Share¹	120	180

 

	2009	2010	2011	2012	2013	2014
Net Sales	740.7	547.8	564.1	720.0	867.1	879.3
Gross Profit	339.2	359.6	392.9	517.4	605.3	617.5
Net Income	126.5	139.6	145.1	208.1	264.5	282.6
Income before Tax	178.0	193.0	204.9	287.5	358.4	380.1
Total Assets	760.4	708.6	696.2	745.3	872.7	997.4
Total Liabilities	160.8	115.2	123.2	147.1	199.6	237.0
Earnings per Share¹	7,900	8,716	9,060	12,997	16,515	17,647
Cash Dividend per Share¹	9,500	10,500	11,000	11,500	12,000	6,000

^{in billion IDR rupiah unless otherwise stated
¹ in IDR rupiah
Source: Delta Djakarta Annual Report 2017}

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