Homepage
PR Newswire
30-11-2021, 01:43 PM
COMPANY BACKGROUND.
Indonesia Kendaraan Terminal is a car terminal operator in Indonesia operating mainly in Tanjung Priok Port (The main Port for Car transfer and handling in Indonesia) . Their operation consisted of 1.Terminal cargo handling for automotive, heavy equipment and spareparts 2.Value added services such as Vehicle Processing Service, Equipment Processing Service and Road Freight Services. The Income Statement of the business had deteriorated since Covid-19 Outbreak last year. However, the operating cash flow had been positive that whole time. This is mainly caused by the huge depreciation due to a change in accounting regulation.
STRONG BALANCE SHEET AND FCF.
The cash and cash equivalent balance of the company as of Sep2021 (3Q2021) is at 700B ($49M ), the market cap of the company is at 1 Trillion ($70M) and it carries zero debt. So the EV = 300B ($21M). The market cap is 70% liquid cash.
LTM free cash flow is 185B ($13M) , while 2020FY FCF= 140B ($9.7M). Assuming the normalised FCF of 150B ($10.5M), P/FCF equals 6.7X and ex-net cash P/FCF of 2X.
RISKS.
Some might ask why it is still trading at such a low price if it is that cheap. The main risk might be that IPCC is a state-owned enterprise which is notorious for their sub-par management and employees. There might also be some politics involved in the decision-making process. So, there is a potential risk that all those cash might be used to fund unproductive acquisitions and investments. It looked very cheap based on ex-net cash P/FCF of 2X (50% return on investment). If we assume the worst case scenario, however, in which the management spend the cash on unproductive asset instead of returning it to shareholders in form of dividends, then the multiple become 6.7X or 15% return per annum. For the worst possible outcome, it is still an acceptable return on investment for a monopolistic business with no competition.
POSSIBLE SCENARIO.
Historically, Management had paid out 100B ($7M) in dividends in 2018 and 2019. For 2020, management postpones the payment of dividends due to booking a loss on the income statement although generating FCF of 150B ($9.7M). This explained the swelling of the cash account. Management had pledged to distribute dividends this year and this is also in the best interest of the country. It is most likely that 100B ($7M) will be paid out (same as 2018 and 2019), although there is also the possibility of a special dividend because they postponed dividend in 2020.
CONCLUSION.
Considering all possible scenarios, the outcome of each scenario will still be favourable to investors. For the worst possible outcome where 700B($49M) cash is spent in an unproductive way, we still had a business returning 15% on our 1T($70M) investment. The most likely outcome would be management paying the usual 100B ($7M) which implies dividend yield of 10% at current price with a possibility of special dividend. Furthermore, with the EV of only 300B ($21M) we had business returning 150B ($10.5M) FCF per year ( 2X multiple). So, at the current price there is a limited downside (enough margin of safety) and a huge potential upside.
SHORT-TERM CATALYSTS.
1. Payment of special dividend
2. The parent company of IPPC called Pelindo II recently merged with Pelindo I, III, and IV.After the merger, the whole organisation will be structured based on the line of business instead of the region of operation. As IPCC is a car terminal operator, there is a high possibility of IPCC taking over the operation of other Ports in Indonesia which were currently operated by sister companies. This will further contribute to the income statement of the company
Indonesia Kendaraan Terminal is a car terminal operator in Indonesia operating mainly in Tanjung Priok Port (The main Port for Car transfer and handling in Indonesia) . Their operation consisted of 1.Terminal cargo handling for automotive, heavy equipment and spareparts 2.Value added services such as Vehicle Processing Service, Equipment Processing Service and Road Freight Services. The Income Statement of the business had deteriorated since Covid-19 Outbreak last year. However, the operating cash flow had been positive that whole time. This is mainly caused by the huge depreciation due to a change in accounting regulation.
STRONG BALANCE SHEET AND FCF.
The cash and cash equivalent balance of the company as of Sep2021 (3Q2021) is at 700B ($49M ), the market cap of the company is at 1 Trillion ($70M) and it carries zero debt. So the EV = 300B ($21M). The market cap is 70% liquid cash.
LTM free cash flow is 185B ($13M) , while 2020FY FCF= 140B ($9.7M). Assuming the normalised FCF of 150B ($10.5M), P/FCF equals 6.7X and ex-net cash P/FCF of 2X.
RISKS.
Some might ask why it is still trading at such a low price if it is that cheap. The main risk might be that IPCC is a state-owned enterprise which is notorious for their sub-par management and employees. There might also be some politics involved in the decision-making process. So, there is a potential risk that all those cash might be used to fund unproductive acquisitions and investments. It looked very cheap based on ex-net cash P/FCF of 2X (50% return on investment). If we assume the worst case scenario, however, in which the management spend the cash on unproductive asset instead of returning it to shareholders in form of dividends, then the multiple become 6.7X or 15% return per annum. For the worst possible outcome, it is still an acceptable return on investment for a monopolistic business with no competition.
POSSIBLE SCENARIO.
Historically, Management had paid out 100B ($7M) in dividends in 2018 and 2019. For 2020, management postpones the payment of dividends due to booking a loss on the income statement although generating FCF of 150B ($9.7M). This explained the swelling of the cash account. Management had pledged to distribute dividends this year and this is also in the best interest of the country. It is most likely that 100B ($7M) will be paid out (same as 2018 and 2019), although there is also the possibility of a special dividend because they postponed dividend in 2020.
CONCLUSION.
Considering all possible scenarios, the outcome of each scenario will still be favourable to investors. For the worst possible outcome where 700B($49M) cash is spent in an unproductive way, we still had a business returning 15% on our 1T($70M) investment. The most likely outcome would be management paying the usual 100B ($7M) which implies dividend yield of 10% at current price with a possibility of special dividend. Furthermore, with the EV of only 300B ($21M) we had business returning 150B ($10.5M) FCF per year ( 2X multiple). So, at the current price there is a limited downside (enough margin of safety) and a huge potential upside.
SHORT-TERM CATALYSTS.
1. Payment of special dividend
2. The parent company of IPPC called Pelindo II recently merged with Pelindo I, III, and IV.After the merger, the whole organisation will be structured based on the line of business instead of the region of operation. As IPCC is a car terminal operator, there is a high possibility of IPCC taking over the operation of other Ports in Indonesia which were currently operated by sister companies. This will further contribute to the income statement of the company