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Company profits take a battering
Jakarta Post - July 31, 2015
Diversified group PT Astra International, state-run Bank Negara Indonesia (BNI), state toll road operator PT Jasa Marga, high-end supermarket operator PT Supra Boga Lestari, state-owned cement producer PT Semen Gresik and precast concrete firm PT Wika Beton, to name a few, all posted profit drops of more than 15 percent.
Astra, whose car and motorcycle business serves as a benchmark for public purchasing power, and whose plantation and mining business is an indicator of commodity demand, booked an 18 percent drop in its bottom line.
"Astra's earnings in the first half were lower in the face of reduced domestic consumption, competition in the car sector and lower commodity prices in Indonesia," president director Prijono Sugiarto said on Thursday.
BNI's books support Prijono's diagnosis, the bank suffering a 50.8 percent drop in profits between January and June this year.
The country's fourth-largest lender allocated hefty provisions to anticipate non-performing loans (NPL), particularly among small businesses engaged in trading and medium-size firms, particularly in manufacturing.
"Demand has slowed, and thus firms have difficulties paying their debts," said BNI president director Achmad Baiquni.
BNI's peers, state-run Bank Mandiri, Indonesia's largest, and Bank Central Asia, the third-biggest, reaped meager 3 percent and 8.8 percent increases in profits, respectively, from the usual double-digit gains.
High-income consumers are apparently not exempt from the slow demand, with the profits of Supra Boga, which operates high-end grocery stores Ranch Market, Farmers Market and Ministop falling 34 percent.
Jasa Marga meanwhile booked a rare 40 percent drop in profit as growth in the inflow of vehicles could not outpace surging costs from higher interest rates after heavy expansion in new road projects.
"We still expect higher traffic in the second half, with daily traffic to reach 3.76 million vehicles full year, translating into modest 5 percent growth," said Joko Sogie from Danareksa Sekuritas.
Heavily dependent on consumption, Indonesia posted 4.7 percent economic growth in the first quarter of the year, the lowest in six years, with many analysts predicting a similar figure for the second quarter.
Second and third quarter growth is expected to hinge on government spending given the fading power of private consumption and exports to boost growth. However, disbursement of government money on infrastructure projects continues to dawdle, as evident in weak demand for cement and concrete.
Semen Gresik, the main supplier of cement for government projects, suffered an unusual 20.6 percent drop in profits, while those of Wika Beton, the main supplier of concrete, plunged 68 percent.
Optimism abounds, though, that the government will finally start spending in the third quarter of the year to help kick-start the economy through infrastructure development.
"The only source of growth during this slowdown is government spending. I believe it will start to kick in in the third quarter," said Bank Danamon chief economist Anton Hendranata.
First-half earnings, Anton said, suggested the economy had reached a nadir from which it could rebound in the fourth quarter.
However, the government's ability to spend has been brought into question after tax collection in the first half reached less than 38 percent of the year's target. Tax revenues account for more than 70 percent of state income.
According to Danareksa Research Institute's Kahlil Rowter, things will not worsen in the coming quarters, despite the lack of signs of recovery in the manufacturing, plantation and mining sectors.
Government spending, Kahlil said, would create demand in the second half. "[The situation] has reached rock bottom. I don't think it will get any worse." (saf/fsu)
Source: http://www.thejakartapost.com/news/2015/07/31/company-profits-take-a-battering.html.
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