Indopoly Swakarsa In Your Everyday Shopping Basket

COMPANY PROFILE
Indopoly is a producer of plastic packaging film, Biaxially-Oriented Polypropylene (BOPP). Starting 2011, Indopoly also produces Biaxially-Oriented Polyester (BOPET). The products are mainly used for consumer product packaging such as food and cigarettes. Indopoly start commencing its first operational activities in 1996. In 2009, Indopoly acquire Yunnan Kunlene and Suzhou Kunlene, both also producers of BOPP that server China mainland needs. In total, Indopoly and its subsidiaries currently have 80k/annum tonnes BOPP production capacity.

KEY HIGHLIGHTS
In Your Everyday Shopping Basket
Indopoly products mainly serve fine food packaging (46% of sales) and cigarettes (40% of sales) for big names such as Djarum, Gudang Garam, Philip Morris, and Indofood. Indopoly also produces several types of specialty products which is used also mainly for consumer products. With such arrays of product users, Indopoly should be benefited from both of rising domestic and global consumption demand. Indopoly’s products demand also relatively recession proof considering I) the nature of the end user products is mainly daily necessities and II) Indopoly focuses on high quality products that attracts long term customers with strict requirements which are usually reluctant to change supplier once they make up their mind.

This also poses an entry barrier to direct competition from low-end Chinese products. The high end product industry itself has high barriers to entry, including high initial capital expenditure, a time consuming learning curve, and about a two or two and a half years’ lag between ordering of machinery and their delivery.

Ramping up production
Indopoly is targeting to complete installing additional capacity of 20k tonnes for its new product, biaxially-oriented polyester (BOPET), in May. On full commencement of the plant, Indopoly production capacity will increase by 25% from its current annual capacity of 80k tonnes for BOPP products.

The company expects the new machines to be fully utilized within a month as it had secured some orders prior to building the BOPET plant. It expects the new product to boost its blended profit margin. BOPET’s gross profit margin is approximately 50%, much higher than its existing product, BOPP, which fetches a gross profit margin of 30%. In addition, starting January, the company will also be producing thermal film and providing metalizing services to increase its value-added, which also command a higher profit margin than basic BOPPs.a

COMPANY REPORT CARD
ROE
We expect Indopoly ROAE to be at 33.6% in 2010 and 25.1% in 2011. The fluctuations are due to difference in equity base before and after IPO.

Management
The board of directors team led by the company founder, Henry Halim who has 30 years experience in the plastic packaging business.

Dividend
We expect the company to pay 20% dividend payout ratio in this year

RECOMMENDATION
We recommend buy on Indopoly with the target price of IDR430 based on our DCF calculations with WACC of 13.6% and terminal growth of 3.5%.