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Hexindo Adiperkasa
14-03-2020, 08:52 PM. (This post was last modified: 14-03-2020, 08:57 PM by karlmarx.)
Post: #1
Hexindo Adiperkasa
Hexindo Adiperkasa is a dealer of Hitachi Excavators in Indonesia. 

The business isn't exciting, but the operating performance is high, and it is currently selling at a very cheap price. 

The thesis is a little lengthy, so I've placed it in a pdf.

P.S. There isn't an 'Indonesia Listed Companies' thread, so I'm placing this here.

Attached Files
.pdf   Hexindo Adiperkasa.pdf (Size: 180.48 KB / Downloads: 24)

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15-03-2020, 05:38 PM.
Post: #2
RE: Hexindo Adiperkasa
(14-03-2020, 08:52 PM)karlmarx Wrote: Hexindo Adiperkasa is a dealer of Hitachi Excavators in Indonesia. 

The business isn't exciting, but the operating performance is high, and it is currently selling at a very cheap price. 

The thesis is a little lengthy, so I've placed it in a pdf.

P.S. There isn't an 'Indonesia Listed Companies' thread, so I'm placing this here.

Thank you for sharing.

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15-03-2020, 08:55 PM.
Post: #3
RE: Hexindo Adiperkasa
Thanks for the article. But demand and supply of excavators in indonesia is definitely something i know nothing about. So i guess i will have to pass

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16-03-2020, 07:11 AM.
Post: #4
RE: Hexindo Adiperkasa
How will you value the company?

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16-03-2020, 07:37 AM.
Post: #5
Hexindo Adiperkasa
Nice catch.
For those interested in Indo shares, there are quite a fair bit of companies with net cash, good potential and selling at low PE, below are somes that I personally vested in:
Prodia (PRDA)
Tempo Scan (TSPC)
Roda Vivatex (RDTX)
Total Bangun (TOTL)

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My views are your Gilbert & Sullivan's:
"The flowers that bloom in the spring, have nothing to do with the case".

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16-03-2020, 08:44 AM.
Post: #6
RE: Hexindo Adiperkasa
(16-03-2020, 07:11 AM)buddy Wrote: How will you value the company?

The same way you value other companies.

Look at the factors which have allowed them to earn money in the past. Then look at whether those factors will be stronger or weaker, in the future. 

An investor who bought Hexindo about more than a year ago would have had a dividend yield of about 20% last year, and looks likely to be receiving another 20% yield this year. If the company can maintain its profits for FY20, then an investor may receive another 20% yield next year.

Since it is exposed to commodity prices -- which go up and down, and hence affect the purchasing decision of heavy equipment/excavators --  I think the company will have some good years, and some bad years.

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16-03-2020, 09:22 AM.
Post: #7
RE: Hexindo Adiperkasa
(15-03-2020, 08:55 PM)money Wrote: Thanks for the article. But demand and supply of excavators in indonesia is definitely something i know nothing about. So i guess i will have to pass

It was the same for me.

WB has this very good advice about staying within your 'circle of competence.'

But what is not apparent to most people is that it is very likely that they do not have any circle of competence at all, with the exception of those in a particular trade or industry.

So people tend to put their money in where they hear most other people put their money in, or in companies which they know as a consumer. REITs is a very good example. Money can be made this way. But because the majority has the same knowledge/understanding of these companies/REITs, you can be sure that there is little/no undervaluation of them.

But there are some people who are smarter, and they say, "Look, this company/REIT is fairly priced, I'm not going to buy it. I'm going to wait for the prices to come down." So the very attractive securities seldom trade at very attractive prices. 

Caught in this situation, after a few months/years, and possibly after said securities have further risen in price, the investor may think, "Okay, I'm done waiting. What if prices don't ever come down? I'll just buy now. This is a quality company. Didn't they say time in the market is more important than timing the market?"

The solution to this predicament is to prospect companies that are new to you. But doing so will require the acquisition and understanding of new knowledge, which will require effort. And so WB has this thing about reading widely; his circle of competence did not just 'come to him,' he did so deliberately.

Even if your newfound knowledge does not immediately land you new investment ideas, it will at least give you new perspectives on the companies/businesses you were already familiar with. And that is one way you may get an edge over other investors.

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16-03-2020, 02:00 PM.
Post: #8
RE: Hexindo Adiperkasa
Very nice thoughts Karlmarx.
Your thinking is currently very contrarian to most investor's interpretation of "circle of competence" and "market timing".

That is why in SGX, richly-valued stocks tend to be recession-proof or community-known names, such as F&B, Healthcare, REITs, SATS, ST Engineering, Vicom etc. In the US, it would be the FANNG.
Buffett's circle of competence doesn't come naturally to him because he is a genius, he built it over the years through research and study.

Regarding market timing, I was liquidating my cash gradually over the last few years as most stocks are overvalued and there are very obvious signs of a euphoria market, especially the US market. I shared my decision making and warned some friends. Unfortunately, I was accused of market timing and being arrogant by not following Buffett's teachings. I would like to ask, does the common saying, buy low sell high mean something? If things are expensive, why should I buy or even hold it, wouldn't it be more appropriate to hold onto cash and wait for an opportunity.

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16-03-2020, 02:34 PM.
Post: #9
RE: Hexindo Adiperkasa
I don't know much about this company and industry, but I can share some very universal thoughts.

Investing in developing countries, one of the main risk is currency risk.
In the case of Hexindo Adiperkasa, the company would be exposed to currency risk, I don't think Hitachi would accept IDR as the medium of exchange. Most likely it would be USD or JPY. So, the company would be selling in IDR while paying USD/JPY. What about its debt? From the investor point of view, he himself would be exposed to currency risk as well, selling SGD and receiving IDR.
Looking at the long-term trend of developing country currencies vs USD, it is always a downwards sloping trend, and there are good reasons for that.
A good SGX case study on currency risk would be Ascendas India Trust.

The company's valuation is indeed cheap from a normalised earnings point of view, but maybe just okay if currency risk is adjusted for.

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16-03-2020, 11:01 PM.
Post: #10
RE: Hexindo Adiperkasa
Since the IDR has a long history of devaluation against major currencies, an investor in IDR-denominated assets should be quite worried about possible future devaluation. While there are good reasons for why this was the case in the past, it need not be so for the future.

Like most South East Asian nation during the post-war years, there was a lot of inefficiency in the Indonesian economy due to politically-instituted rent-seeking activities, and nepotism. Bob Hasan, Liem Sioe Liong, and the children and numerous other associates of Suharto collected plenty of 'tax' through economic activities which they monopolised. This 'tax' allowed them to build their private wealth, and develop mostly noncompetitive manufacturing industries. All these 'wasted/misused resources' resulted in high inflation.

Throughout this time, Indonesia did not see foreign investors as a long-term source of their economic development, but tended to treat them as short-term patsies to be exploited. Foreign investors who bought the bonds of Bentoel (a cigarette manufacturer) were given the runaround by the judiciary, when they found that the company's accounting was fraudulent. They never got their money back, and Bentoel was never punished.

A very strong nationalistic/anti-foreigner attitude was cultured since its desire to be free of the Dutch colonial yoke. They were, after all, exploited by the 'white men' for their natural resources, for a few hundred years.

Even so, the USD/IDR throughout Suharto's 30 years was mostly fine, as the country had strong export earnings as an (ex-opec) oil producer. It wasn't until the devaluation of the Thai Bhat in 1997 -- which resulted in the fear of other USD-pegged Asian currencies not being able to hold the peg -- led to the self-fulfilling devaluation of the IDR, and the subsequent ousting of Suharto the following year. The attempt by, and initial failure of, IMF to institute free-market policies in exchange of its rescue package revealed the depth of corruption and nepotism to an international audience.

The subsequent presidents -- Wahid, Megawati, and Yudhoyono -- were from various political factions vying for power towards the final days of Suharto's rule. So it was pretty much business as usual. But since Jokowi won the election in 2014, the old problems of the nation seems to at least not be as prevalent. If not for the recent covid-19 which caused capital outflow, the USD/IDR would only have appreciated slightly, while the SGD/IDR would have been flat, since Jokowi's inauguration.

Thankfully, Jokowi won his second term last year. So we may possibly see greater elimination of inefficiencies in the economy, and more fruitful investments from the government budget. So far, inflation has been lower than the previous decade. If Prabowo had won instead, I think the country will return to its old ways.

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