RHB Indonesia - Nippon Indosari Corpindo - Details On Rights Issuance (Nippon Indosari Corpindo, Economics) Unknown Senin, 02 Oktober 2017


Good morning,

Nippon Indosari Corpindo – Details On Rights Issuance

Nippon may raise IDR1.4trn in a rights issuance, with a ratio of 2 (new) : 9 (old). It would effectively issue 1.1bn new shares, of which the proceeds are to be used for expansion. Notably, one of major shareholders, Indoritel Makmur may not exercise its rights. Meanwhile, Bonlight Investments would be the standby buyer of this rights issuance. Maintain NEUTRAL with a DCF-derived IDR1,180 TP (6% downside), which implies a FY18F P/E of 21x.


¨ Details of the rights issuance. Nippon may raise IDR1.4trn, by issuing 1.1bn new shares. Every shareholder with nine old shares – whose name is recorded in the company’s shareholders list dated 10 Oct – owns rights to purchase two new shares at an exercise price of IDR1,275/share. The estimated maximum dilution is 18.2% for the existing shareholders who do not exercise their rights. Our calculation reveals that a rights issuance theoretical price is IDR1,260/share. Trade and execution period of the rights is 12-18 Oct 2017.
¨ A major shareholders may not exercise its rights. Indoritel Makmur Internasional (Indoritel Makmur) (DNET IJ, NR) – the owner of 31.5% Nippon Indosari Corpindo’s (Nippon) stake – may not exercise its rights, hence its stake is likely to decline to 25.78%. Meanwhile, Bonlight Investment Ltd (Bonlight) and Pasco Shikisima Corp (Pasco) have announced that they would exercise their rights. Bonlight – Nippon’s founding investment vehicle – would be the standby buyer of this rights issuance. After this exercise, Bonlight is likely to become the largest shareholder of the company.
¨ Preparation for future expansion. Nippon has allocated c.USD300m capex for the next five years for expansion, to be funded by c.USD100m proceeds from a rights issue and c.USD200m from internal cash. Nippon is to build six new plants – including two frozen dough plants – to be located in East Java, Central Java, Palembang, Kalimantan and Jakarta. In addition, it may build two new bread plants in the Philippines.
Nippon revealed that its ten existing bread plants would be running at an optimum capacity of 75-80% by the end-2017. Hence, it needs new plants to support future demand.
¨ Maintain NEUTRAL. Our DCF-derived TP is IDR1,180 and implies a FY18F P/E of 21x.
¨ Risks. Key upside risk to our call is a faster-than-expected recovery, which would lower operational expenses. A downside risk is higher competition. (Andrey Wijaya)

Link to daily report: Indonesia Morning Cuppa 021017

Economics Update:

August Loan & M2 Growth Pick Up
Indonesia’s money supply (M2) growth edged up to 10% YoY in August (July: +9.5%) due to a pick-up in net domestic claims. Going forward, we expect broad money supply to grow at a faster pace of 11% in 2017 (2016: +10%), underpinned by stronger economic growth.

¨ Private credit picked up. Total loan growth, likewise, picked up in August, due to stronger growth in investment loans. Going forward, we expect demand for private credit to pick up to 10% in 2017 (2016: +7.8%), aided by:
i. A more accommodative policy environment following monetary policy easing in 2016 and 2017;
ii. Stronger projected economic growth.
¨ Meanwhile, consumer credit was sustained while working capital moderated in August after a pick-up in July due to normalisation of working days after Aidil Fitri festivities.
¨ Deposit growth also stabilised, as a pick-up in time deposits was offset by a slowdown in savings and demand deposits in August.
¨ The key policy rate would likely be maintained. We expect Bank Indonesia (BI) to maintain its key policy rate at 4.25%, as inflation is likely to remain manageable while external uncertainties linger.
¨ The IDR weakened slightly against the USD. The domestic currency weakened slightly against its US counterpart. This was after holding stable in August due to steady inflow in bonds market after Standard & Poor’s (S&P) upgrade of Indonesia’s credit rating. Going forward, we expect the IDR to remain steady and trade towards 13,300 per USD by end-2017. (Rizki Fajar)

Link to report to be sent out later
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Best regards,

Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT RHB Sekuritas Indonesia

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