Falling Rupiah Hits Indonesian Firms

Falling Rupiah Hits Indonesian Firms

By Francezka Nangoy on 8:54 am August 6, 2013.
The weak rupiah might be a boon to exporters keen to get their products to foreign markets cheaply, but for some local firms it is eroding profit margins and leaving them with foreign exchange losses.

After tumbling 2.7 percent against the US dollar in the first six months of the year, the rupiah underwent a sharp depreciation in July, leaving it 6.4 percent weaker for the year so far, according Bank Indonesia. That makes the rupiah one of the worst-performing currencies in the Asia Pacific region.Vidjongtius, the finance director of state-controlled pharmaceuticals company Kalbe Farma, said he was alert.

“We remain cautious on rupiah movements and expect some volatility to persist in the near term and its impact towards the company’s profitability,” Vidjongtius said in a statement last week.

The company is hurt by a weak rupiah because it relies on imported ingredients for its products. The company’s gross margin fell to 48.8 percent in the first six months this year from 49.1 percent in the same period in 2012.

Maria Renata, an analyst with Trimegah Securities, described the margin as “flat,” suggesting that Kalbe may have “passed on the increasing costs to the consumer.”

Kalbe posted a Rp 3.34 billion ($325,000) foreign exchange loss in the first half, a swing from a Rp 16.4 billion net foreign exchange gain in the same period last year.

Japfa Comfeed Indonesia, one of the country’s largest poultry companies, posted a Rp 15.5 billion net foreign exchange loss in the first half, compared to a Rp 14.1 billion foreign exchange gain a year earlier. Japfa feels the crunch because it imports all of the soybeans it buys for animal feed.

While Japfa reported a 22 percent increase in revenue to Rp 10.3 trillion in the January-June period, its foreign exchange loss combined with increasing sales and administrative costs resulted in a 16 percent decline in net income to Rp 489 billion for the first-half period.

But some companies have prepared themselves for the weaker rupiah, such as mobile-phone handset retailer Erajaya Swasembada, which has hedged its rupiah position.

Djatmiko Wardoyo, the marketing director, said the company has deals with handset manufacturers to minimize the currency risk, including an agreement to buy handsets in rupiah. “These [measures] are done so we don’t need to increase our selling price,” he told reporters last week.

But other companies benefit from the weak local currency.

Garment manufacturer and retailer Trisula International posted a Rp 183 million foreign exchange gain in the first half, bouncing from a Rp 336 million foreign exchange loss a year earlier. The company exports 80 percent of production to retailers including Perry Ellis, Hart Schaffner Marx, Hush Puppies and Mizuno.

Helmi Arman, an economist with Citigroup, said industries would benefit from the currency drop if they have a high ratio of exports to imports.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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