20140414-Maybank_KERPL-Handset_Distributors_50页_3mb

Summary of Document Content: Handset Distributors in Indonesia

Core Content

The document provides an analysis of the Indonesian handset distribution industry, highlighting the structural growth opportunities and investment potential in the sector. It focuses on the market dynamics, consumer trends, and the performance of key players such as Erajaya Swasembada and Tiphone Mobile.

Main Points

• Market Growth: The Indonesian market is expected to see significant growth in smartphone adoption, driven by a large and young population, rapid economic development, and the lack of fixed-line infrastructure.
• Smartphone Penetration: In 2013, smartphones accounted for 24% of mobile phone users and 17% of total mobile phone sales. The document predicts this will rise to 34% by 2014E and 53% by 2017E.
• Price Trends: Smartphone prices are expected to fall to the USD200 sweet spot, with some models priced below USD100. This will lead to shorter replacement cycles and increased demand.
• Brand Shifts: While BlackBerry experienced a decline in 2013, its market share has stabilised. The document suggests that a similar brand shift is unlikely in 2014, which is beneficial for distributors.
• Investment Recommendations: The analysts recommend a BUY on both Erajaya Swasembada and Tiphone Mobile, with a preference for Tiphone due to its growth potential and diversification into handset distribution.
• Target Prices and Upside:
  • Erajaya Swasembada: Target price of IDR1,632 (25% upside).
  • Tiphone Mobile: Target price of IDR1,003 (25% upside).
• Market Structure: Indonesia is the fourth-largest mobile market globally and the third-largest in Asia, with over 300 million mobile subscriptions, more than the total population.
• Feature Phones Still Dominant: Feature phones still make up 80% of the market, but their share is expected to decline as smartphones become more accessible and affordable.
• Market Share Trends:
  • Samsung is the dominant brand in Indonesia, with a strong presence in the lower-end market.
  • Nokia is also expected to gain some market share with its budget Android smartphones.
• Distributor Performance:
  • Erajaya Swasembada is expected to recover from the BlackBerry decline and benefit from its expansion into retail.
  • Tiphone Mobile, a newcomer to the sector, is transforming from a prepaid voucher business to a handset distributor and is expected to grow faster than the industry average.

Key Information

• Population and Workforce: Indonesia has a population of 250 million, with a young and tech-savvy workforce.
• Smartphone Users: As of end-2013, there were 42 million smartphone users, and this is expected to grow to 61 million by 2014E.
• Economic Factors: The market is poised for growth due to increasing disposable income and the popularity of social media.
• Challenges: Risks include economic slowdown and regulatory changes that could impact market dynamics.
• Competitive Landscape:
  • Erajaya Swasembada and Tiphone Mobile are the main focus.
  • Other brands include Samsung, Lenovo, LG, and local brands such as Cross (Evercoss), MITO, and Advan.
• Valuation Metrics:
  • Erajaya is undervalued compared to its historical mean.
  • Tiphone is expected to benefit from its brand acquisitions and diversification.
• Retail Expansion: Distributors are expected to benefit from expansion into retail, which can increase profit margins through the sale of accessories and IT products.

Analysts

• Gregory Yap: (65) 6432 1450 | gyap@maybank-ke.com.sg
• John Cheong: (65) 6432 1461 | johncheong@maybank-ke.com.sg
• Adi N. Wicaksono: (62) 21 2557 1130 | anwicaksono@maybank-ke.co.id

Investment Thesis

• Overweight on the Sector: The Indonesian handset distribution sector is viewed as a structural growth opportunity.
• Growth Drivers:
  • Increasing smartphone adoption.
  • Lower prices and more affordable models.
  • Expansion into retail and accessories.
• Recommendations:
  • BUY on Erajaya Swasembada and Tiphone Mobile.
  • Preference for Tiphone due to its growth potential and diversification.

Conclusion

The Indonesian handset distribution market is expected to experience renewed growth in 2014, driven by the increasing adoption of smartphones and the availability of low-cost models. Erajaya and Tiphone are both recommended as BUYs, with Tiphone showing stronger growth potential due to its strategic shift and brand acquisitions. The market is expected to remain stable with a focus on affordable smartphones, particularly those priced below USD200, which will boost demand and sales.