Just last week, I had the privilege of stepping inside the TBLA factory in Lampung, an experience that left me truly astounded.
As I roamed through the expansive facility, I couldn't help but be captivated by their impressive operations and unwavering dedication to quality.
Source: Sucor Sekuritas
TBLA is undeniably a consumer company, with approximately 70% of its revenue derived from its iconic brand, "Rosebrand". From the sugar cane fields to the cooking oil production facilities, nearly 100% of TBLA's resources are dedicated to the production of Rosebrand goods.
TBLA's commitment to excellence in the Rosebrand line is evident through its meticulous control over the entire production process. From sourcing raw materials to processing and packaging, TBLA ensures top-quality products, which have earned the trust of consumers.
While sugar and cooking oil have been the cornerstones of TBLA's consumer-focused strategy, the company is not content to rest on its laurels. This brings us to an exhilarating TBLA's upstream business: biodiesel.
Currently, TBLA boasts a biodiesel production capacity of 315,000 tons per annum, and they have ambitious plans for the future. In the 1Q24, they will inaugurate a second biodiesel plant in Way Lunik with a whopping 450,000 tons per annum capacity, bringing the total to an impressive 765,000 tons per annum, marking a remarkable 143% increase!
Several factors make TBLA's biodiesel expansion a smart move. Firstly, the full implementation of B35 standards and the anticipation of the shift to B40 standards will significantly increase demand to even greater heights, potentially an additional 2-3 million kiloliters of biodiesel.
Secondly, TBLA's location near Pertamina's fuel terminal in Jambi provides a logistical advantage that enhances their position in the biodiesel market. The simplified transportation process eliminates the need for interisland shipping, reducing costs and complexity.
Pertamina's preference for the FOB (Free On Board) delivery system aligns perfectly with TBLA's proximity, resulting in larger contracts. In fact, their contracts with Pertamina have already surged to 350,000 tons per annum, representing a notable 14.5% yoy increase.
Source: Google Maps
Lastly, TBLA's policy of not imposing demurrage charges, combined with their private port facilities, enhances their attractiveness to buyers.
Furthermore, TBLA's expansion is not limited to their biodiesel only; it also extends to cooking oil capacity. Currently, they produce 1,110,000 tons per annum, and they are adding an additional 750,000 tons per annum. This will bring the total cooking oil production capacity to an impressive 1,860,000 tons per annum, all set to be operational in 1Q24.
With a Free Cash Flow of Rp2.5 trillion and an interest expense of Rp1 trillion (2.5x coverage), TBLA has ample resources for capital expenditures, reinvestment, and even dividend distributions. Importantly, TBLA's capex are winding down, allowing new revenue to stream directly to the bottom line.
Our analyst, Niko, even with his conservative projections, estimating 2024F capex at Rp1.2 trillion (higher than the company's guidance), has set a TP of 1,375. With more aggressive projections, we believe the upside will be even more enticing.
Additionally, TBLA is currently trading at a remarkably attractive P/E ratio of 5.3x, a stark contrast to the consumer peer average P/E of 18.8x and its sister company BUDI's P/E of 10.8x, making it a compelling prospect for investors.
In conclusion, TBLA's commitment to consumer excellence, strategic expansion plans, strong financial foundation, and attractive valuation make it a captivating company to watch in the consumer industry.