Exploring Growth Potential

Last week, we had the privilege of catching up with Saratoga Investama (SRTG), the renowned investment company founded by Edwin Soeryadjaya and Sandiaga Uno. With the commodity cycle experiencing a downturn, we were keen to gain insights into SRTG's perspective. Notably, SRTG's investment portfolio leans heavily toward commodities, with MDKA, BDIA , and ADRO as their top three holdings, accounting for 32%, 27%, and 25% respectively.

Source: Company

Our conversation leads to the highlight of the company's strategic vision to bridge the gap in Indonesia's digital ecosystem investments and consumer markets . This presents a unique opportunity for SRTG to expand and diversify its portfolio with assets that possess substantial growth potential.

Armed with extensive expertise in the local investment landscape, SRTG has orchestrated a captivating advancement. They have successfully forged a partnership between Atria DC and TBIG, giving rise to an innovative joint digital data center named Bersama Digital Center (BDDC). This collaboration boasts an impressive total potential capacity of 60 MW, with the existing capacity currently reaching 6.5 MW. Anticipated capital expenditure of USD10 mn per MW is projected to be executed over the next 2-3 years, setting the stage for remarkable growth.

Source: IDN Financials

Like the saying goes, great minds think alike...

In the past few years, investments in data centers in Indonesia have witnessed significant growth. For instance, notable companies in the data center services sector owned by entrepreneur Toto Sugiri, with partial ownership by Indofood's Anthoni Salim, include PT DCI Indonesia Tbk (DCII) and PT Indointernet Tbk (EDGE). Additionally, PT Telkom Indonesia Tbk (TLKM) and the Lippo Group, which entered through PT Multipolar Technology Tbk (MLPT), have also made substantial contributions to this expanding industry.

The Tiktok Impact Forum held in Jakarta last week, also made waves as Shou Zi Chew, CEO of Tiktok, unveiled plans to invest USD10 bn in Indonesia over the next 2-5 years. Chew's decision stems from recognizing Indonesia as the third-largest user of Tiktok globally, indicating significant growth potential in the country's digital sphere.

The data center market in Indonesia reached a value of US$2.06 bn in 2023. According to market research, the sector is projected to experience a CAGR of 14.09% from 2023- 2028, with its tier 4 segment set to experience an impressive 25.85% CAGR. Despite 73.7% of the Indonesian population being internet users, the country's total data center capacity remains significantly lower at 12.7%. This translates to a mere 0.6 watt per capita, highlighting a substantial disparity between internet usage and data center infrastructure.

Source: Mordor Intelligence

As for SRTG's strategy to increase their exposure in consumer sector, it was materialized as it doubled-down its ownership stake in MBM Logistics, their cold chain logistics company, from 32% to 63%. This move has positioned them as the second-largest player in terms of fleet size. Furthermore, they have plans to increase their capacity by adding new warehouse in Palembang. It is currently running at almost its full capacity, supported with the rapid growth of e commerce and the FnB industry back to its former glory pre-covid.

The global cold chain logistics market size was valued at USD 245 bn in 2021 and is expected to surpass around USD 801.26 bn by 2030, at a CAGR of 14.07% during the forecast period 2022-2030.The Indonesia cold chain logistics market was valued at $4.97 bn in 2021, and is projected to reach $12.59 bn in 2031, registering a CAGR of 10.2%.

Source: Precedence Research

Lastly, SRTG made a strategic move into the thriving beauty market by investing in ZAP Clinic, which currently holds the position of being the third largest beauty clinic in Indonesia with an impressive network comprising 73 outlets.

According to the ZAP Beauty Index, an annual research publication based on a survey conducted with 9,010 Indonesian women who are consumers in the beauty industry, it turns out that local skincare brands are highly popular and favored by Indonesian women today. Based on the survey, turns out a 96.8% of Indonesian women already use local skincare brands, with 19.0% exclusively relying on local skincare products.

Source: Company

ZAP Clinic is currently making strides with their own skincare brand called Juva, offering a range of products such as facial wash, serum, acne spot treatment, and more. With a robust distribution network across Indonesia, a strong team, and well-executed research, they are optimistic about witnessing a surge in their skincare revenue.

Source: Company

While these investments may not carry the same weight as their listed companies in terms of portfolio size, they hold great potential in their early growth stages. With SRTG's expertise, these companies can be nurtured into established enterprises and explore possibilities of collaboration with other companies in SRTG's portfolio, creating synergistic benefits.

Source: Company

SRTG also has plans to distribute a 4% dividend yield, an increase compared to the 2% of the past two years. Additionally, their debt structure remains well below Rp. 700 mn, reaching its lowest point in five years. This showcases their ability to maintain a strong balance sheet and operate with low costs. Moreover, SRTG's cost ratio is expected to decrease even further.

Source: Sucor Sekuritas, Company

SRTG employs a target to NAV approach for valuation, and at present, their valuation is marked by a substantial 56% discount to NAV. However, we firmly believe that SRTG merits a higher valuation given their consistent track record of successful investment choice and their proactive efforts to expand into the consumer, beauty and digital ecosystem sectors position them well for future growth.

See here for a full company update report!