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For long-term investors in the stock market it is worthwhile to take a look at those listed companies on the Indonesia Stock Exchange that consistently pay a dividend to common shareholders. Recently, the Astra Group, one of Indonesia's largest diversified conglomerates announced its 2017 interim dividend payout. Several other blue chip stocks are reportedly also close to announcing dividend payouts.
Market share of HM Sampoerna, Indonesia's largest tobacco company, has declined. In the first half of 2017 the company's market share fell to 32.9 percent from 33.4 percent in the same period one year ago. Falling market share is related to the lower production volume of the company as well as falling cigarette consumption of the Indonesian people. HM Sampoerna is controlled by global cigarette giant Philip Morris International.
Most listed companies on the Indonesia Stock Exchange have now released their corporate earnings reports (covering full-year 2016) and this enables us to determine which companies' shares have been the most lucrative ones last year. Four companies stand out in terms of return on asset (RoA), return on equity (RoE), and return on invested capital (RoIC). These are (1) Matahari Department Store, (2) Unilever Indonesia, (3) Surya Citra Media, and (4) HM Sampoerna.
After having experienced overall weakening corporate earnings in 2015, Indonesia's largest companies saw rising net profit in full-year 2016 (in line with Indonesia's accelerating macroeconomic expansion last year). Of the ten biggest Indonesian companies (biggest in terms of largest market capitalization on the Indonesia Stock Exchange) only cigarette manufacturer Gudang Garam is yet to release its full-year 2016 financial results. The combined results of the other nine showed a marked improvement from the situation one year earlier.
In 2016 listed companies on the Indonesia Stock Exchange have a more expansive attitude compared to the preceding year, reflected by plans to raise capital expenditure. Plans for business expansion are supported by Indonesia's expected accelerating GDP growth in 2016, people's improving purchasing power, government-led infrastructure development (that should cause a multiplier-effect in the Indonesian economy), and the economic reforms that are set in the series of economic stimulus packages that have been released by the Indonesian government since September 2015.
Three new stocks will enter Indonesia's LQ45 index for the February-July 2016 period. The LQ45 index, compiled by the research and development division of the Indonesia Stock Exchange (IDX), consists of 45 stocks that meet a number of specific criteria. As the stocks listed in the LQ45 are the country's most traded stocks, investors should follow this index. The composition of the LQ45 index is adjusted twice per year (in February and August).
The Indonesia Stock Exchange (IDX) will give time until 31 January 2016 for the remaining 18 publicly-listed companies that have not yet complied with the new minimum free float requirement that aims to increase liquidity in the stock market. In January 2014, the IDX announced it designed a new rule that forces all listed companies on the IDX to have a minimum free float of 7.5 percent. Samsul Hidayat, Director of Corporate Listing at the IDX, said these 18 companies are currently studying whether to conduct a rights issue or a stock split in order to raise their free float.
Indonesia’s largest cigarette producer, HM Sampoerna, is expected to go-ahead with its planned rights issue despite weak market conditions. HM Sampoerna, subsidiary of USA-based global cigarette and tobacco giant Philip Morris International, needs to meet a recently-adjusted minimum free-float requirement on the Indonesia Stock Exchange (IDX).
Indonesian tobacco giant Hanjaya Mandala Sampoerna (HM Sampoerna), subsidiary of Philip Morris International, is studying the requirement to increase its free float ratio from (a mere) 1.82 percent to 7.50 percent. Last year, the Indonesia Stock Exchange (IDX) announced that it would force listed companies to offer at least 7.50 percent of their enlarged equity to the public. This rule will come into effect in January 2016. HM Sampoerna is the third-largest Indonesian company in terms of market capitalization (IDR 295 trillion).
With the new minimum requirement regarding the free float of shares (the portion of shares that are in the hands of public investors) at 7.5 percent of a company’s total enlarged capital, the Indonesia Stock Exchange (IDX) urges companies that do not meet this requirement to conduct a rights issue in order to raise the number of publicly issued shares. One of these companies is HM Sampoerna, Indonesia's largest tobacco company. Currently, 98.18 percent of the company is owned by international cigarette and tobacco giant Philip Morris.
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Every once in a while, Indonesia Investments discusses the cigarette manufacturing industry of Indonesia. Although it remains a big industry in Southeast Asia’s largest economy, it did lose some of its shine over the past decade or so as it faces various challenges.
Indonesian tobacco manufacturers continue to face big challenges this year amid fierce competition for market share and rising taxes (as well as other government measures that have been implemented with the aim to curb cigarette consumption, for example the setting of limits to advertisement content). Therefore, the corporate earnings of Indonesia's listed cigarette producers is expected to remain under pressure for the remainder of 2017.
Shareholders of the largest cigarette manufacturer of Indonesia, Hanjaya Mandala Sampoerna (HM Sampoerna), approved the company's plan to execute a 25-for-1 stock split. The move, aimed at making shares more affordable for retail investors thus boosting liquidity, will raise the company's total outstanding shares to 116.3 billion pieces. Since 2005 HM Sampoerna has been owned by international tobacco giant Philip Morris. The US-based company controls a 92.5 percent stake in HM Sampoerna.
One of the last decisions of the Susilo Bambang Yudhoyono administration before being replaced by the new Joko Widodo-led administration was to raise the tobacco excise by an average of 8.7 percent per 1 January 2015. This excise will be applied to all tobacco-related manufactured products. The higher excise, stipulated by a Finance Ministry decree, will boost state income and will also help to curb smoking. About 65 percent of Indonesian men smoke, supported by the cheap price of a package of cigarettes.
Widespread cigarette consumption among Indonesians (especially men) can have a negative impact on the country’s current demographic bonus. One of Indonesia’s strongpoints in terms of economic make-up is that it has a large and young, thus potentially productive, population. Indonesians in the productive age (15 to 64 years) outnumber those that are categorized as youth (below 15 years) and elderly (over 65 years). This large productive group should provide a boost to Indonesia’s economy in the next two decades.
Indonesia's largest company by market capitalization is still HM Sampoerna, the country's largest tobacco company. The company has been the top company in Indonesia since March 2013 when it replaced Astra International, Indonesia's largest diversified conglomerate, on the top spot. Astra had been Indonesia's largest company since 2010. Currently, the third-largest company in terms of market capitalization is Unilever Indonesia. Unilever, which is Indonesia’s largest consumer goods producer, jumped four places in the ranking since late 2012.
It is no secret that Indonesia's economy has been booming in recent years and is appearing more and more on the radars of foreign investors. In the 2000s it was the commodities sector that brought much profit for Indonesian companies that were engaged in the extraction of natural resources such as coal, palm oil, and rubber. The outbreak of the global financial crisis in the late 2000s, however, ended the commodities boom abruptly, while other sectors came to the fore as Indonesia's new gold mines.
Last week, I provided a basic introduction to investments in Indonesia's capital markets. Now, I will devote my column to the ten largest Indonesian companies by market capitalization. But first let me explain why I take the ten largest companies? Well, simply because these ten companies account for 43.71 percent of Indonesia's total market capitalization. In other words, they reflect almost half of the current condition of the country's capital markets.
