Another Mission Behind Garudafood’s IPO

Penulis: Hari Widowati

Jum'at 14/9/2018, 18.09 WIB

Garudafood is using an initial public offering (IPO) to convert its debt. The low number of public shares has the potential to make the company’s stock transactions not liquid.

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Eagerly awaited by investors for years, PT Garudafood Putra Putri Jaya Tbk will finally hold an initial public offering (IPO) next month, with the potential to earn IDR 1 trillion in fresh funds, plus the implementation of mandatory convertible bonds (MCB). However, the low number of shares to be released for public investors will make the transactions of its stock on the Indonesia Stock Exchange (IDX) not liquid.

Based on its prospectus, Garudafood will offer 35 million new shares or 0.47 percent of paid-in capital with a bid price of Rp 1,100-Rp 1,400 per share. The potential funds to be obtained are Rp 38.5 billion-Rp 49 billion.

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Along with the IPO, the company will also issue 727.84 million new shares or 9.86 percent of paid-in capital as part of the MCB implementation to Pelican Company Ltd. This debt conversion to shares is based on an investment agreement signed by both parties on 29 March 2018. Garudafood issued the MCB in 2017 with a value of Rp 935 billion.

Garudafood President Director Hardianto Atmadja said all IPO proceeds will be used as working capital and to support its long-term business strategy. The company has a vision to become one of the leading food and beverage companies in Indonesia and ASEAN.

The IPO is expected to be an investment choice for investors in Indonesia because the company’s business growth is above the industry’s average growth.

Garudafood is a subsidiary of PT Tudung Putra Jaya (TPJ) or Tudung Group, which was established in 1994. Initially it only marketed Garuda Beans, but then expanded to the food and beverage industry with five major brands: Gery, Garuda, Chocolatos, Leo, and Clevo. Its products consist of biscuits, nuts, chips, candies, milk drinks, and chocolate powder that includes 100 stock keeping units (SKU).

The company has two factories in Pati, Central Java, one in Gresik, East Java, and one in Rancaekek Industrial Estate, Sumedang, West Java. It has a total production capacity of 249,528 tons per year and exports its products to more than 20 countries, with the primary focus on ASEAN, China, and India.

Based on its financial report as of 30 April 2018, Garudafood recorded consolidated revenue of Rp 2.9 trillion, rising 13.51 percent compared to the same period last year. Food products sustained sales growth of 20.29 percent to Rp 2.55 trillion. Biscuit products recorded the highest growth of 31.52 percent due to the seasonal cycle ahead of Lebaran (Eid al-Fitr).

The sales of beverage products dropped 19.08 percent to Rp 356.12 billion due to changes in the distribution agreement between PT Sinarniaga Sejahtera (SNS) and PT Suntory Garuda Beverage (SGB), with SNS only responsible for product distribution outside Java.

As a consequence, the contribution of food products to total sales rose from 82.79 percent to 87.73 percent. Last year, Garudafood posted net sales of Rp 7.48 trillion, rising 13.31 percent from 2016.

As of 30 April 2018, its net income rose 215.03 percent to Rp 216.35 billion compared to the same period last year. This excellent performance was a result of its merger with PT Garudafood Beverage Jaya (GFBJ) in 2017. Net profit after adjusting the profit of the merged entity in 2017 fell by 40.37 percent to Rp 345.65 billion.

Its total assets as of 30 April 2018 reached Rp 4.37 trillion, rising 22.57 percent compared to the same period last year. Total liabilities fell 9.27 percent to Rp 2.3 trillion because the company accelerated the settlement of part of its long-term liabilities. Its equity soared 80.87 percent to Rp 2.27 trillion due to the recording of Pelican’s MCB in the equity post.

Competitor of Indofood and Mayora

The entry of Garudafood as a new issuer will heat up competition among food and beverage publicly listed companies on the stock market, such as PT Indofood CBP Sukses Makmur Tbk (ICBP) and PT Mayora Indah Tbk (MYOR). In terms of market capitalisation, Indofood CBP has the largest of Rp 103.79 trillion as of 30 June 2018, while Mayora Indah has Rp 63.5 trillion.

According to PT Indo Premier Sekuritas Director and Head of Investment Banking Rayendra L Tobing, Garudafood’s market capitalisation after the IPO is estimated at Rp 8 trillion-Rp 10 trillion. Indo Premier is the IPO’s underwriter.

The low market capitalisation is because of the small number of shares released by Garudafood. As a consequence, transactions of its stock on the IDX are estimated to be not too liquid.

PT Reliance Sekuritas analyst Anissa Septiwijaya said there are several factors acting as the catalyst for the growth of Garudafood’s business. It has well-known brands and wide distribution coverage of 350,000 distribution spots.

Economic growth will also continue to encourage consumer confidence to boost Garudafood’s business growth. Business competition is also an investment risk faced by the company. Performance will be affected if it or its subsidiaries cannot maintain or enhance competitiveness.

For long-term investors, the company’s shares are quite attractive. In its prospectus, Garudafood will pay a cash dividend at a maximum of 40 percent of the current year’s profit starting in 2019. This dividend policy will consider its cash flow and investment plan. Changes to the policy will be subject to shareholder approval at its general meeting.

Based on the valuation of the IPO share price using the lowest bid price, Reliance has set the price target of Garudafood shares for the next 12 months at Rp 1,850 per share. This reflects a price earnings ratio (PER) of 21.59 times and a price to book value (PBV) of 6.26 times.

Based on the valuation of PER and PBV, Garudafood’s stock is relatively cheaper compared to its competitors. Mayora’s shares have a PER of 42.88 times and PBV of 8.45 times, while Indofood CBP has a PER of 22.65 times and PBV of 5.03 times.

Garudafood will conduct the public offering of its shares on 2-4 October 2018, with the stock listing on 10 October 2018.