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Indonesia Trip Sep-26

  • trips
  • indonesia

Sitting by the pool reflecting on my first ten days in Indonesia. The first five days spent in Jakarta, full of meetings, and last five days off to explore Java.

Jakarta/Business

Indonesia has gone from an EM darling with extreme valuations, consumer names >30 x earnings and banks >4x book to well, less of a darling. Likely because of high starting valuations, disappointing growth and EM investor getting other alternatives with growth (ai). The consensus view of Prabowo as a is true, but how much damage he can, seems overstated. The country has its problems but on the ground the vibe is still positive. On the fiscal front it seems unlikely they’ll breach the 3% to GDP budget deficit law, and worse case, GOV debt to GDP is healthy at 42%. Prabowo’s ability to hurt the economy is self-correcting: all his policies has led to investor concerns -> IDR weakness -> low polling. And all politicians hate bad polling. Thus, there’re signs that he is listening.

While consumers haven’t yet recovered since the pandemic, the country is still growing c 5% - not that bad. The banks say they see early positive signs from corporates, if that continues that will eventually filter through down the economy. Top-down I come away positive, especially since c 5% growth seems like a bottom where the optionality remains on the upside.

We met the blue-chip names leveraged to the domestic consumer. The standout quality, long-term growth names were BBCA, CMRY and potentially AMRT. Special situation wise GOTO was very interesting. MAPI/MAPA got added to the watchlist.

There’s a reason BBCA gets called SEA’s best bank, even BMRI which is the #1 bank in terms of assets said that their internal goal is to remain the #2 bank… The deposit franchise moat seems credible and durable confirming what we see in other markets – the importance of being customers main transaction bank is key. ROE should probably stay above 20% with a margin, if NIMs where to fall, they’ll just increase leverage. The main risk is valuation and what growth rate one should assume.

CMRY is the fastest growing consumer name. They think they’ve a moat in:

All three are credible. The key thing is how durable they are.

On innovation they should probably continue to be the first to bring new products to market but competitors copy fast and are likely to get better and copying. Just looking at the shelves in UHT RTD where CMRY where the first to launch chocolate milk one sees all their competitors: ULTJ, Frisian, Greenfield, Indomilk and Vidoran. The positive is that ALL stores in Indonesia (both MT and GT) have limited shelf space today so it probably takes relatively longer for copy-cats to enter vs other markets.

Distribution seems durable for now. They’re the ONLY player in Indo with a proprietary cold chain, an essential for fresh which is where most of the incremental growth should come from. UTLJ when asked, have no plans to invest in that. Miss Cimory (c 20% of sales) is completely proprietary and costly to replicate. It also helps with innovation as it acts as a quick customer feedback loop.

Marketing and brand building is always hard to measure. Tangent to being innovative, CMRY was also innovative in pioneering digital marketing. Now they’re one of the largest domestic marketing spenders on social media in the country. Probably conservative to put little value in this except that marketing to sales could fall as they keep growing.

The growth investment case is straightforward. They target c 15% growth p.a. with some margin expansion.

Diary consumption is low at 1/3 of regional peers and let’s see if habits change with Prabowo’s free meal program. RTE/RTD and frozen consumption seems incredibly low and that’s probably because of availability rather than preference. Anecdotally the Indonesian food consists of a lot of rice and noodles with small amount of protein, more often than not, fried protein. The option to eat “clean high protein” with “salad” has been very limited… During my ten-day trip I’ve done two full 24h fasting windows because the options are just not there. Nothing seems to suggest consumers won’t like good options of RTE/RTD products at a fair price if available. The most positive thing is that the base is low.

AMRT are sleepy compared to BHX in Vietnam. GT penetration is c 50% (ex cigarettes and c 40% including cigarettes) and is split among Indomaret and Alfamart. Targets HSD growth with LSD store expansion and MSD SSSG which seems fair. At 15x PE one probably could expect a c 15% local CCY IRR: HSD growth + 7% earnings yield. Interesting but I’m not rushing to buy.

GOTO is currently a victim of 50/share floor price that’s expected to be removed in Sep. Index funds that are forced to sell have done blocks at 25-30 a share. It’s rare to see valuations like this.

12x for the royalty income which is 40-20bps of TTS/Tokopedia GMV in Indonesia is crazy low. It operates in a duopoly market with Shopee growing >25% p.a. and e-com penetration remains low at 15-17%. Closer to 20-25x would seem reasonable, 21-26/share.

Ride hailing and fintech is profitable. They’ve a 50/50 ride hailing share with Grab in a 270m population country. Fintech wallet businesses in Indonesia won’t become a monopoly market like we see in other countries, its competitive with Grabpay, OVO, Shopeepay and the banks wallets but still a growing business – GoPay is the second largest with c 30m MTU and 2-3m lending customers. One currently gets this for FREE!

Pleasure

On Friday we were done with our meetings. I wanted to explore Java thinking I can save Bali, Lombok, Gili- and Komodo Island for future trips. So, on I went taking the train 6h Jakarta to Yogyakarta. The train had good standards, AC and friendly service staff. 6h went by pretty fast watching rice fields out the window, thinking about the past week, reading Thinking Fast and Slow, answering emails and trying to find flows in GOTO.

It was dark when I arrived and the station was full of locals and backpackers. After a 20 min Grab ride I arrived at my fairly simple hotel. Far from The Langham where we stayed in Jakarta but, a bed is a bed and I’m wary of “increasing my standards”. After a quick shower I went for a walk to look for dinner. The Jakarta-based locals had prepared me for that Yogyakarta is quiet, it was. Surprisingly few backpackers and after 2-3h I got back home after unsuccessfully having found a fitting dinner. The hotel offered pizza but nah, didn’t feel like consuming no protein/only carbs. At least I got some steps in and the hunger feeling had disappeared since my only meal had been breakfast (in Jakarta).

Saturday was packed. Picked up early I got on my first tour bus with a few fellow backpackers. A Dutch couple and a few Frenchmen. On the agenda was the two main attractions of Yogyakarta, the Buddist temple Borobudur and Hindu temple Prambanan. We begun with Borobudur, a c 2h drive from central Yogya. A lot of people recommend seeing the sunset but I was too lazy to get up that early. Borobudur was cool, apparently the world’s largest Buddhist temple. I did my best to get a few pictures with as few tourists in the background as possible (hard task), luckily Apple a decent photoshop software to remove them. The guide was nice, one learning is to hire guides more often.

After Borobudur we made a quick coffee stop. I’ve done my best to take every opportunity to consume caffeine, so I gladly ordered one. They only had the “poop-coffee” I’ve had in Vietnam but that had to do. Then we went to a lunch place, pretty sketchy and I got the standard Nasi Goreng (staple, fried rice with chicken) hoping it wouldn’t mess up my stomach too much. I’m still learning “solo-traveling” so this was the first time I broke the silence with my fellow backpackers sitting with the Dutch couple. As the trip progressed, I became better and better talking to strangers. It’s actually pretty easy and all I’ve spoken to have been very friendly but, reluctant to take the first step, so over the trip that’s what I’ve tried to do. One takeaway is that I should talk more to strangers, for me it makes solo-traveling much more enjoyable.

After lunch it was off to Prambanan. If one where to do the trip according to the backpacker’s manual one should’ve visited it for sunfall. It was less crowded, probably because of the larger area so easier to get good photos. Cool as well but when it was time for leave, I was more than ready to get home. There’s only so many temples one can see until the “new-impression” bank is full. For this evening I did more research to find a restaurant, ending up at a place known for its Rendang, a dish that looked to contain a decent amount of meat. It ended up a success and Rendang is now my favourite Indonesian dish. After a long day and since it was Saturday evening, I felt for a beer. As the restaurant was halal, I went looking for something like a “bar-street” with good vibes, surprisingly hard apparently. By luck I found a bar with live music where I ended up speaking with another Spanish solo-traveller, we where the only foreigners there. I can definitely say that tattoos and nose piercings correlate with being a solo-traveller. Odd (but interesting) types. I ended the evening early at around 20.

Sunday, I got picked up early and spend most of the day on a bus ride to a small town that acted as the base for the coming days activities. Apparently, I had booked the premium tour so instead of a shaggy hostel I ended up at a decent three-star hotel. In hindsight a good mistake, I took the opportunity to get a good workout in.

Monday kicked off early with pickup at 3 AM. Packed mini-bus of ten backpackers, it was hard to get much sleep on the five-hour drive to the Tempak Sewu waterfalls. The ride was quiet with only the boys-group of Americans in the front chatting. Learning from my few days of solo-travelling I quickly decided I would later chat with the Americans.

When we arrived (in the middle of nowhere) we got greeted by a few local guides, friendly energetic guys my age. Most of them had been doing tours like this (1-3 per day depending on season) for their whole “working life”, we all live different lives, but they seemed to enjoy their work. The waterfalls were impressive, but it was probably experiencing it with the group (and the Americans) that was the main highlight. Feelings are contagious and singing Adele loudly in a waterfilled cave is something I’ll remember.

When the tour was done, we went for lunch at a local restaurant serving mostly tourists. Soaked, we waited what felt like hours for it to be served. Thinking about dishes with a high turnover (to avoid old ingredients) I went, once again, for the staple Nasi Goreng. After our cave singing experience, the vibe was good and we started talking about what songs we would play on the bus ride home. No karaoke without beer I thought and left the table early once I had finished my meal. Google translating my way with the store nearby (which didn’t have beer) they called on a local kid offering to drive me down to the village where I could get beer. Great experience lifting with a kid down a mountain in the middle of Java. Looking back, it’ll probably be the journey to get the beer more than the beer itself I’ll remember, like most things in life, I guess. After haggling with the local storeowner down in the town, I got my hands of ten (warm) bottles of beer to share with my fellow newly acquired, backpacker-friends for our 5h trip home. Well home I was exhausted so there was no problem falling asleep early in anticipation of my early pickup 01:30 next “morning”.

My tour experience was supposed to be three full days but because of “wildfires” my trip to the blue-fire volcano Ijen got cancelled. Thus, Tuesday was my last day and off we went to hike Mount Bromo to watch the sunrise. While I met my group from the day before on the mountain, I got a new group for the day. One Spanish- and two French couples and a local Indonesian. Surprisingly, half-way up the mountain after a jeep drive, coffee was included in the trip, much needed caffeine! All except me came prepared with jackets, long pants and hiking boots. I came in t-shirt (with a light jumper in my backpack), shorts and jogging shoes. It was chilly but far from freezing, especially when in motion. Me standing out in this way made for plenty of questions about the Nordic weather and my presumed Viking-heritage.

The sunrise itself was ordinary. Afterwards we took the jeep over a volcanic desert to walk up a volcano. My first time looking down an active volcano, it was cool. But, same as for the waterfall visit, the most rememberable parts are the jokes and conversations during the trip. I ended up vibing with the Spanish couple and the local Indonesian. Perhaps it is just me enjoying the social situations the most but that’s what I did. However, being social – talking to strangers, making jokes and relying on 3h of sleep is exhausting so once the trip and transport to Surabaya was done, falling asleep was easy.

What was supposed to be a nap before dinner ended up being 15h… Today (Wednesday) has been spent in the hotel. I deliberately choose a better hotel for my two final days (5 star Movenpick) aware that I would want to chill, and it was rather inexpensive at only c $50/night. Today has been spent working out, working and writing this, exactly what I felt for. Tomorrow I’m flying back home after what sums up as a superb first trip to Indonesia. A country I look forward visiting again.

Summarizing, some key takeaways are:

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