This weekly newsletter chronicles top digital themes and trends playing out in SE Asia, especially Indonesia. We will decode policy and regulatory changes affecting digital economy sectors, crunch earnings data of top players, track developments related to gig economy workers and attempt to piece together ecosystem buildouts in some of the fastest-growing, venture-backed plays. You can access the previous editions of the Vantage Point weekly posts here.
Executive Summary
- Saratoga Investama — Look beyond the headline, it’s all about the assets
- How Bukalapak stands out from its e-commerce peers
- Merdeka Battery Materials — All eyes on the IPO
- Hulu Energi IPO — Boosting Indonesia’s energy security
Saratoga Investama — Look beyond the headline, it’s all about the assets
Saratoga Investama Sedaya is one of Indonesia’s most interesting investment holding companies, with exposure across several key growth areas of the domestic economy as well as some new ones, including solar and other forms of sustainable power.
The company provides a great platform to gain exposure to some of Indonesia’s highest growth areas through its investments in leading players in their respective sectors. For example, it has stakes in listed companies such as Adaro Energy, one of Indonesia’s leading coal miners but an increasingly sustainable energy player; and Merdeka Copper Gold Tbk PT, which other than copper and gold has an investment in one of Indonesia’s largest nickel assets which plays into the EV battery space.
Among its earliest investments was Tower Bersama Infrastructure, which is one of the largest mobile tower operators in Indonesia, supporting the passage of mobile data for the digital economy. It is also starting to go regional with an initial push into the Philippines.
Besides these blue-chip investments, Saratoga has holdings in a number of growth companies including Mitra Pinasthika Mustika, which has an interesting exposure across the auto space; Samator Gas, which is the country’s largest producer and distributor of industrial gases; and hospital operator Primaya Hospital.
Source: Saratoga Investama Sedaya
It has also invested in a number of other interesting growth stories across logistics, herbal medicine, solar energy through Xurya, digital advertising through City Vision, data centres through Aytria DC, and carbon offset developer Forest Carbon.
Saratoga Investama has also made several direct investments in players within Indonesia’s burgeoning digital economy, including e-commerce enabler Sirclo, insurtech player Fuse, and fintech player Julo.
The commentary on Saratoga Investama’s FY2022 results seems to be focused on the headline decline in net profit, which is slightly sensationalising the number, given that FY2021 had a high base due to asset disposals.
In FY2021, the company booked an investment gain of 24.4 trillion rupiah from disposal of assets, which fell to only 3.72 trillion rupiah in FY2022 due to lower disposal gains.
Countering this headline is the fact that the company’s interest and investment income increased by 57.7% YoY to 2.6 trillion rupiah, reflecting strong dividend payouts across its portfolio of investments.
The company’s net asset value (NAV) also jumped by 8% YoY to 60.9 trillion rupiah in FY2022 from 56.3 trillion in FY2021. This highlights the solid fundamentals of its portfolio of assets, which have held up despite a volatile investment climate in the backdrop of higher inflation and slowing growth as well as geopolitical uncertainty.
Saratoga Investama Sedaya also managed to reduce its debt by 60% over FY2022, which leaves significant room to execute its future investment strategies.
As a result of the company’s focus on investing in early-stage or growth-stage companies, as well as special situation opportunities, the company’s earnings may be volatile as disposals may be lumpy over time.
Further, Saratoga aims to engage with its investee companies’ management to unlock value and enhance their growth over time.
Finally, the real value is in the company’s ability to grow its NAV over time and to generate consistent dividend income. This will create both capital appreciation and yield, and when disposals are made, investors will benefit.
How Bukalapak stands out from its e-commerce peers
Bukalapak is probably one of Indonesia’s least understood, but in some ways most successful, e-commerce players.
Last week, the IDX-listed company announced a net profit of 1.97 trillion rupiah ($130 million) for 2022, which was mostly driven by investment gains and finance income. However, on an adjusted EBITDA basis, the company is still in the red. For the full year 2022, adjusted EBITDA losses came in at 1.23 trillion rupiah, compared with 1.41 trillion in 2021.
Even as it is yet to achieve profitability, Bukalapak stands out from its peers in a number of ways.
First and foremost, it raised $1.5 billion in its 2021 IPO, eclipsing both BliBli ($530 million) and more significantly GoTo ($1.3 billion). This has given the company an estimated runway of 50 years — something its peers could only dream about.
The standout features of Bukalapak are that it does not rely significantly on promotional spending to drive its marketplace but more on providing a wide array of products it sells to its Mitra clients, as well as niche products, such as gadgets, mobile phone components and bicycles.
More importantly, around 75% of its sales are from outside tier 1 and tier 2 cities, where there is less competition from peers Tokopedia, Shopee, Lazada, or BliBli.
The other key differentiating factor is Bukalapak’s focus on the Mitra business, which supplies mom & pop stores (warungs) with FMCG goods, virtual products such as phone vouchers and also an increasing array of other products.
Bukalapak now has more than 16 million Mitra clients on its platform, which not only provides a source of demand for its marketplace sellers but also helps it in its more recent push into building online specialty stores.
The Mitra business early on was a low take rate business, given that Bukalapak was helping Mitra partners source goods online to be sold offline.
But more recently this has been changing, with Mitras being offered products that generate a higher take rate such as gaming vouchers and groceries. Buka has also been shifting its sourcing of FMCG goods to local merchants versus multinationals, which, too, generates higher take rates.
Mitra partners have started to sell gaming vouchers from its Itemku specialty store, which generates high single-digit take rates. It is also giving access to these products to consumers who do not have a credit card but are playing users but not yet paying users. These players can now buy gaming vouchers with cash through Mitras.
Bukalapak also has a stake in AlloFresh, which is a JV with Transmart Group. This gives it access to potentially 150,000 SKUs at 3-5% lower prices than through the middlemen that warungs traditionally use to source goods.
AlloFresh has only just started to ramp up but should also have a positive influence on take rates going forward, given its ability to provide warungs with a wide range of products from one source.
Bukalapak is more focused on the supply side where it sources cheaper, more curated goods and shifts towards products with higher take rates, hence growing revenues faster.
The latest earnings showed that there was some shortfall in TPV at 153 trillion rupiah versus the FY2022 guidance of 170 trillion rupiah at the bottom of the guidance. But in the management’s words, “not all TPV is created equal” with the real focus on areas that generate higher take rates rather than chasing TPV alone.
Over 75% of Bukalapak’s TPV came from outside the Tier 1 regions of Indonesia, where the company continues to see strong growth in its all-commerce penetration and ongoing digitizing trends among offline micro-retail stores or warungs.
The competitive environment for Mitra Bukalapak has been easing with several players, including Tokopedia, scaling back as they were reliant on providing promotional subsidies.
Bukalapak does not rely on subsidies but assists warungs to solve supply issues, providing them with cheaper FMCG products, as well as giving them the choice of a broader range of goods all in one place rather than having to deal with multiple suppliers.
The company’s FY2022 results saw the company fall short on TPV but beat significantly on revenues for both its marketplace and Mitra businesses.
Bukalapak’s overall take rates improved from 1.52% to 2.35% for FY2022 but for Q4 2022 it improved to 2.46%. Mitra take rates in FY2022 improved to 2.67% in FY2022 versus 1.5% in FY2021, while marketplace take rates improved from 0.9% in Q4 2021 to 2.3% in Q4 2022.
In terms of profitability, Bukalapak’s overall contribution margin, calculated as gross profit after sales & marketing costs, improved from -0.1% of TPV in Q4 2021 to a positive 0.2% of TPV in Q4 2022.
The next stage is for the company to be adjusted EBITDA positive by Q4 2023, which makes the runway projection slightly academic but a comfort all the same. The company admitted that it could become profitable very quickly but is still in the building process for some of its businesses, which requires spending to realise the full growth potential.
Merdeka Battery Materials – All eyes on the IPO
Indonesian nickel mining company PT Merdeka Battery Materials Tbk (MBM) is looking to raise an estimated $580 million through an IPO on the Indonesian stock exchange (IDX) to support its strategic plans in the future.
The company aims to become one of the leading vertically-integrated global players in the strategic materials and EV battery value chain, providing downstream support for the industry.
The IPO funds will be used to finance the construction of a nickel processing plant besides strengthening the working capital of its subsidiary, PT Sulawesi Cahaya Mineral (SCM).
According to Wood Mackenzie, the company’s Konawe Nickel Mine (SCM Mine) has the second largest nickel reserves globally and the largest in the world outside Russia.
SCM Mine has one of the world’s largest undeveloped nickel resources, with Joint Ore Reserve Committee (JORC) nickel resources of more than 1.1 billion DMT, at 1.22% nickel containing 13.8 mt nickel and 0.08% cobalt containing 1.0 mt cobalt.
It has rich limonite nickel resources, with a mix composition between nickel limonite (77%) and saprolite (23%). The limonite nickel ore is specifically suitable for the production of mixed hydroxide precipitate (MHP) through HPAL (High Pressure Acid Leachplant). This can then be converted into nickel sulfate for use in the production of EV batteries.
The mine is undergoing a short-term production ramp-up at an accelerated pace. Initial mining activities have already commenced with all necessary permits, and funding has been secured, underlining the company’s ability to move things forward in Indonesia.
MBM has a limited operating history, providing financials for only 9M 2022 and 11M 2022. In 11M 2022, MBM booked revenues of $394.1 million, solely from sale of nickel pig iron (NPI) produced by its CSI and BSI RKEF smelters to the Tsingshan Group. This followed the consolidation of CSI and BSI into MBM’s results of operations from April 2022 onwards.
For 11M 2022, the company booked a gross profit of $42.1 million; adjusted EBITDA of $46.1 million (adjusted for gains on changes in fair value of equity holdings and gains on acquisition of subsidiaries); an operating profit of $29 million; and profit after tax and minority interests of $23 million.
The fact that the company is profitable at this early stage is a reassuring signal for investors looking at its IPO, given that this is a relatively new industry in Indonesia but MBM represents a vital part of the EV ecosystem.
MBM plans to issue 11 billion shares, or 10.24% of the company’s total issued share capital, in the IPO. If there is an oversubscription on the initial allotment, the company will issue a maximum of 1.1 billion, or 1.01% additional shares. MBM has launched the IPO with an offer price in the range of 780-795 rupiah per share.
The bookbuilding period is from March 28 to April 4, 2023, with the public offering process to be carried out between April 12-14. The allotment process is scheduled to take place on April 14, with the distribution of shares on April 17 and listing on IDX on April 18.
MBM has a rich shareholder register consisting of PT Merdeka Energi Nusantara with 54.82%, Garibaldi ‘Boy’ Thohir with 12.41%, Huayong International (Hong Kong) Limited with 8.45%, Winato Kartono (founder of Provident Capital Indonesia) with 7.05%, and PT Prima Langit Nusantara with 4.64%.
In addition, PT Prima Puncak Mulia holds a 4.22% stake, Hardi Wijaya Lion 3.02%, Philip Suwardi Purnama 2.69%, Edwin Soeryadjaya (founder of PT Saratoga Investama Sedaya Tbk) 2.38%, Agus Superiadi 0.24%, and Tryphene 0.08%.
MBM is supported by sponsors consisting of the Provident Group, Saratoga Group, and Garibaldi Thohir. These investors have a multi-year history of co-investing, with a distinguished track record of attracting blue-chip international institutional investors and building value through multi-billion-dollar companies
These include Merdeka Copper Gold Tbk PT and GoTo, both of which are joint investments by three sponsors of the MBM Group.
Other examples include Adaro Energy, an investment by the Saratoga Group and Garibaldi Thohir; and Tower Bersama Infrastructure, which has investments from both the Provident Group and Saratoga Group.
Post the IPO, MBM plans to build a nickel factory for Phase I EV batteries with a capacity of 60,000 tonnes per year and an investment of $1.28 billion due to be completed in 2025.
MBM also plans to build two more HPAL factories with a total capacity of 240,000 tonnes per year. In the EV battery business chain, MHP is further processed into nickel and cobalt sulfate, cathode precursors, or positive poles of battery cells.
The HPAL project is the focus of MBM’s work because it is forecast to contribute 25% of the company’s 2025 EBITDA. This form of nickel downstream is projected to be the biggest contributor to MBM’s performance based on current projections.
MBM’s future performance is highly dependent on the operation of its SCM Mine as its current revenues come from manufacturing activities at its CSI and BSI smelters, and it has almost no track record to rely on till the SCM Mine becomes operational.
The company remains highly reliant on its JVs with Tsingshan Group, and its future earnings potential is dependent on the commercialisation of the SCM Mine. According to industry reports, this seems to be facing some delays, with nickel prices trending downwards on the back of increased supply in the global market.
However, MBM’s IPO should still attract significant investor interest given Indonesia’s strategic advantage in the EV battery value chain due to an abundance of nickel, copper, and other relevant raw materials. This advantage has been sharpened by the government’s ban on the export of these raw materials and emphasis on processing and construction of smelters onshore, which continues at a fast pace.
Hulu Energi IPO – Boosting Indonesia’s energy security
PT Pertamina Hulu Energi (PHE), the upstream business of the Indonesian state-owned enterprise of PT Pertamina, plans to launch an IPO on the Indonesia Stock Exchange (IDX) in the first half of 2023. The offering is set to be larger than the recent $600-million IPO of Pertamina Geothermal.
PHE will potentially offer as much as 10-15% of its shares to the public, reportedly eyeing a $2-billion IPO. The target would make it the largest IPO in Southeast Asia in 2023, exceeding Harita Nickel’s public offering of $647 million and that of Pertamina Geothermal Energy.
PHE manages 39 domestic oil & gas blocks and 25 such assets across 13 countries. In the majority of blocks, PHE acts as the main operator, while it holds a participating interest in the remainder.
The SOE has been able to maintain a strong track record by pursuing both organic and inorganic growth. Its oil and gas blocks have had an average reserve replacement ratio (RRR) of over 128% in the last three years.
PHE is committed to supporting increased production and maintaining national energy security in Indonesia, and as such is looking to ramp up production to reduce the country’s reliance on imported oil.
The country, which is rich in oil & gas reserves, has fallen behind in exploration due to issues with global operators. Indonesia came out of OPEC in January 2009 mainly due to dwindling production and became a net importer of oil. Its membership was reactivated in 2016 but quickly suspended as OPEC policy was seen to be against the national interest given the need to cut oil output by 5%.
Hulu Energi will use the IPO proceeds to boost oil production domestically to reduce imports. The increased exploration and production will be targeted to meet the growing domestic demand for oil. The proceeds will also be reportedly channelled to oil & gas field acquisitions, the drilling of new wells and the redevelopment of existing assets.
During the first two months of 2023, PHE recorded a production increase of 2% from the target of 576,000 barrels per day (bpd). In terms of gas production, it managed to produce 6% more than its target of 2,785 million standard cubic feet per day (MMSCFD).
PHE seeks to tap new reserves to support growth in the long term. It will also enter partnerships in exploration activities through sharing risks, costs and application of technology.
Given the size and importance of this IPO, PHE is bound to attract a lot of investor attention especially given the fact that the oil and gas sector is somewhat under-represented in the IDX.
Angus Mackintosh, a consulting editor with DealStreetAsia, is responsible for the publication’s Southeast Asia digital economy weekly newsletter and its monthly research reports. Angus is also the founder of CrossASEAN Research and publishes on Smartkarma.