PT. Gudang Garam Tbk (GGRM)

COMPANY PROFILE

PT Gudang Garam Tbk is one of the leading cigarette producers that secures the largest market share in Indonesia, produced more than 70 billions sticks in the year 2001 and well-known as the high quality kretek cigarette producer. Measured by assets controlled, product sales, duties and taxes paid to the Indonesian Government and by total number of employees.

Mr. Surya Wonowidjojo began the business as a 'home industry' selling the kretek cigarette product under the brand Gudang Garam on 26th June 1958. Using traditional tools, the company initially hired about 50 people only to make the initial production of Kretek Klobot Cigarettes (SKL), kretek cigarettes using dried corn husks as the cigarette wrapper and Hand Made Cigarette (SKT) in the first factory Kediri, East Java. Gudang Garam initially produced about 50 millions cigarettes in 1959. In the beginning, the products were sold locally in the immediate Kediri area, but the Gudang Garam fame was soon to spread.

Within 10 years the popularity of the Gudang Garam brand led the founder to consider expansion. In 1969, the company changed its status from a sole proprietorship to a formal partnership. Bank Negara Indonesia (BNI) became Gudang Garam's strong financial partner providing capital support, first in millions of rupiah and later in the billions as the company grew.

In 1971, the status of the company became a Limited Liability Company (PT) and obtained Domestic Capital Investment facilities. The new status allowed PT Gudang Garam to become more progressive in terms of production quality, management and technology. Then, in 1979, PT Gudang Garam began to produce Machine Made Cigarette.

In 1985, the cigarette industry was becoming more competitive that caused the company to work hard in order to maintain its growth and its employees' welfare the objectives of Mr. Surya Wonowidjojo.

In order to strengthen its capital structure and its financial position, PT Gudang Garam offered and sold a part of its shares to the public through the stock exchanges in Indonesia in 1990.

Now they have three subsidiaries: PT Surya Pamenang, which is engaged in the paper industry; PT Surya Madistrindo, which is engaged in the cigarette trading activities, and PT Graha Surya Media, which is engaged in entertainment and media rights development services.

PRODUCTS

Since the Asian economy crisis in 1998, Gudang Garam has lost half of its market share from nearly 50% to nowadays at only less than 25%.

Despite being a relative latecomer to the game of kretek, Gudang Garam was now clearly one of the top three producer of kretek in Indonesia and one of the top ten largest cigarette manufacturers in the world.

Their most popular brand is Gudang Garam Merah, an unfiltered kretek, with 35 mg of tar per cigarette. They also sell a premium filtered brand, Gudang Garam Surya, as well as some other less popular brands.

ANALYSIS of COMPANY STOCK RISK and MARKET RISK

Stock Risk

o Average of Stock Return

Average of Stock Return

0.002119346

o Standard Deviation of Stock Return

Standar Deviation of Stock Return

0.041261183

o Coefficient Variance

Coefficient Variance

19.4688251

Analysis:

The average stock market return is 0.21%. This is meant the investment will give return by 0.21%. In this fluctuate time, Gudang Garam shows a better return than market as a whole stock in IDX( Indonesian Stock Exchange) that shows -0.24%. While Gudang Garam stock shows a better return than the market, it stills a risky investment. It also below than the inflation rate so it better to prefer the other stock.

The standard deviation is often used by investors to measure the risk of a stock or a stock portfolio. The basic idea is that the standard deviation is a measure of volatility: the more a stock's returns vary from the stock's average return, the more volatile the stock. The stock risk of the company is 0.041261183 means that the company has facing the risk 4.13%. In risk there are two possibility which are loss and gain, means that the company has 4.13% possibility to loss and 4.13% to gain.

From standard deviation and average we can calculate CV to determine how much volatility (risk) in comparison to the amount of return you can expect from your investment or in other word, the lower the ratio of standard deviation to mean return, the better your risk-return tradeoff.

Market Risk

o Average of Market Return

Average of Market Return

-0.0023773

o Standar Deviation of Market Return

Standard Deviation of Market Return

0.053407661

Analysis:

The average of market return is -0.24%. It shows a bearish condition. For the stock that has return rate above market return, it already shows a good sign. Investment in this market, will give us a very high risk because of the minus return. In an investor point of view, they won’t invest their money in this market. They will invest in this market when there is some recovery. But in the fact, IHSG has shows a recovery.

As the definition of risk and two condition of risk, standard deviation 0.053407661 or 5.34% means that the company market has chance to loss 5.34% and gain 5.34%.

Beta of Company Stock

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.0012733
R Square	1.621E-06
Adjusted R Square	-0.002385
Standard Error	0.0413104
Observations	421
ANOVA
	df	SS	MS	F	Significance F
Regression	1	1.159E-06	1.1593E-06	0.0006793	0.9792188
Residual	419	0.7150426	0.00170655
Total	420	0.7150438
	Coefficients	S. Error	t Stat	P-value	Lower 95%
Intercept	0.0021217	0.0020153	1.0527667	0.2930547	-0.0018398
X Variable 1	0.0009837	0.0377425	0.02606387	0.9792188	-0.0732045

Upper 95%	Lower 95.0%	Upper 95.0%
0.0060831	-0.0018398	0.006083125
0.075172	-0.0732045	0.075171965

Analysis:

Beta is a calculation or measurement of volatility or risk of a stock trading on the stock market. It is the fluctuation in stock prices and the market in general. Some stocks have greater risk than others, and thus carry higher Stock Betas. Stock betas are measured using regression analysis.

· A Beta of 1 show the stock is moving in proportion with the market in general.

· A Beta Greater than 1 shows the stock is more volatile than the market in general (examples include many high-tech stocks).

· A Beta Less than 1 shows the stock is less volatile than the market in general (examples include many utility company stocks).

Beta is the middle line between minimizing the risk of undertaking investment activities and maximizing the returns gained.

From table above we can see that the beta is 0.0009837, means that beta less than 1. Stocks with beta less than 1 have less price volatility than the market in general and are considered to have less risk. It should be a safer investment, assume that define risk as volatility. So we should expect a lower return.

ANALYSIS of COMPANY BUSINESS PORTFOLIO USING BCG MATRIX

The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. It has 2 dimensions: market share and market growth. The basic idea behind it is that the bigger the market share a product has or the faster the product's market grows the better it is for the company.

Placing products in the BCG matrix results in 4 categories in a portfolio of a company:

1. Stars (high growth, high market share)

· Use large amounts of cash and are leaders in the business so they should also generate large amounts of cash.

· Frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold share, because the rewards will be a cash cow if market share is kept.

2. Cash Cows (low growth, high market share)

· Profits and cash generation should be high , and because of the low growth, investments needed should be low. Keep profits high.

· Foundation of a company

3. Dogs (low growth, low market share)

· Avoid and minimize the number of dogs in a company.

· Beware of expensive ‘turn around plans’.

· Deliver cash, otherwise liquidate

4. Question Marks (high growth, low market share)

· Have the worst cash characteristics of all, because high demands and low returns due to low market share.

· If nothing is done to change the market share, question marks will simply absorb great amounts of cash and later, as the growth stops, a dog.

· Either invest heavily or sell off or invest nothing and generate whatever cash it can. Increase market share or deliver cash

Products:

· Gudang Garam Merah

Hand Made Kretek Cigarette Product:
It contains 10 cigarettes in February 2003, to supplement the previously GUDANG GARAM MERAH products in 12 and 16-cigarette packs.
Gudang Garam Merah with its theme:
(Try Gudang Garam Merah....be Joyful!) is a non-filter clove cigarette with remarkably taste and aroma: (Aromatic, Tasteful, Enjoyable).

· Gudang Garam Surya

Machine Made Kretek Cigarette Produc:
SURYA SIGNATURE in 20-cigarette pack was launched in September 2002 in three different types: Mild, Menthol Mild, and Red. To supplement the previously Surya Signature Series, the Company launched Surya Signature contains 12 and 16 cigarettes in May 2003.
The production of Surya Signature is facilitated with high technology and ultra modern equipments accompanied with perfect mixture of raw materials without reducing the remarkably fragrant and tasteful product: Aromatic, Tasteful, Enjoyable.
Its packaging, the "Smiling Pack" is very attractive and colorful to become the combination of art and high quality.

Analysis:

As according to examination technique with Boston Consulting Group matrix ( BCG) hence can be yielded by value of Industry Growth rate of ( IGR) Cigarette business unit of Kretek Machine ( obtained SKM) the growth level of unit equal to 6,14%. Value of IGR Cigarette business unit of Kretek Hand ( SKT) equal to 5,76% which is meant mount growth of business unit of SKT equal to 5,76%. According to result of calculation of BCG matrix hence can be concluded by PT.Gudang Garam with business unit of SKM and SKT both of the same is occupying of position of Cash cow. Stipulating of management strategy at Cash cow is strategy stability. At this stability strategy more flange to maintain position of Cash Cow Company because on course this is the company moment of profit crop. Need also innovate and extension as anticipation in order not to be downhill at cycling Product life Cycle ( PLC).

Conclusion

· Gudang Garam have three subsidiaries: PT Surya Pamenang, which is engaged in the paper industry; PT Surya Madistrindo, which is engaged in the cigarette trading activities, and PT Graha Surya Media, which is engaged in entertainment and media rights development services. It includes Cash Cow because they almost empower the entire market share. The growth is maintained well and the production can be stable. They try to inovate the product in order to make the market not be bored with the combination of quality and the price.

· Stock risk of Gudang Garam (GGRM) is 4.13%, means that the company market has chance to loss 4.13%and gain 4.13%.

· Market risk of Gudang Garam (GGRM) is 5.34% means that the company market has chance to loss 5.34% and gain 5.34%.

· Beta of company stock is 0.0009837, means that beta less than 1. Stocks with a beta less than 1 have less price volatility than the market as a general and are considered to have less risk.

BAKRIE TELECOM

BAKRIE TELECOM

Bakrie is actually a pretty old company. At that time they used Extended Time Division Multiple Access (ETDMA) technology and it is the second fixed line operator in Indonesia.

They re-branded their product and started calling it Esia in order to expand the customer base in the few years. But for this wireless limited mobility what they have done is basically with government license so that they are allowed to operate in every city. In 2006 they were awarded a nationwide license because of their success. It is still based on fixed wireless mobility but now they are able to operate in any city in Indonesia.

Their potential risks associated with the business environment have been identified and scenario planning undertaken to assess any possible adverse impact these might have on the company’s goals. They have also explored and studied internal control methods to mitigate risks. They are currently implementing a risk management procedure known as Control Self Assessment which assists the Company in evaluating risk exposures for each business process. Everyone involved in the business process has a role in deciding, evaluating and controlling risks to develop teamwork and cooperation with a strong commitment to manage risk and implement the business process.

Bakrie Telecom used budget telecom business model. Their position more to be like Air Asia, low budget carrier kind of company where people go in just to get from point A to point B. They put a lot of effort on branding and advertising. Focus on this target segment with low cost advantages and highly promoting expendable coverage area.

On the net pricing has stimulated loyalty because people are actually building their own community. They are selling their product to family, companies, school classes so that they can enjoy this very cheap on-net tariff that they have.

They used dual-phone which can use GSM card and CDMA card has also come into the market. The advantage is that they get a lot of asset productivity compared to GSM. People pay less to cover the same area at the same capacity and notice that they need about 75% less base station to provide the same coverage and capacity of GSM operator. They are also 30% more efficient and they don't need to constantly replace their network.

The business may be characterized as always offering something fresh, useful, enjoyable, simple and affordable. That creates stickiness. They strongly believe that telecommunication is a major driving force for efficiency and productivity. In time, these benefits will result in economic growth.