Indonesia“s PT Asahimas Flat Glass expects profit growth in 2005 to be flat as production costs grew more quickly than sales due to the drastic rise in fuel prices, head of investor relations Rusli P…
Indonesia“s PT Asahimas Flat Glass expects profit growth in 2005 to be flat as production costs grew more quickly than sales due to the drastic rise in fuel prices, head of investor relations Rusli Pranada said. “We should be reporting some sales growth but costs have risen at a faster pace,” he said. The flat glass producer saw net profit increase 27% in 2004 to IDR 206.79 billion on sales of IDR 1.46 trillion. Net profit in the nine months to September 2005 continued to be strong, rising 47% year-on-year to IDR 199.54 billion on sales of IDR 1.31 trillion. “There is no doubt our profit margins have been squeezed. But it is still unclear to what extent margins have fallen,” Pranada said. In July 2005, the government abolished its fuel subsidy for industrial consumption. Fuel prices have since been adjusted every month to 100% of the market price. The government also raised fuel prices for transportation and household consumption twice in 2005 by an average 29% in March and by another 126% in October. “There were four fuel price increases for the industry during the year. The total increase added up to 127%,” Pranada said. The rise in vehicle fuel prices also increased delivery costs. “That“s why we predict that the impact (from the fuel price rise) should be huge,” he said. Furthermore, as a result of the fuel price rises in 2005, the cost of energy including that of electricity and gas now accounts for about 35-40% of the company“s total production cost compared to less than 30% previously, he said. Insnaputra Iskandar, an analyst with state brokerage Danareksa, said in a research note that over 90% of Asahimas“ energy costs comes from the cost of fuel oil, specifically industrial diesel fuel, while electricity and gas account for only 6% and 2-3% respectively. Pranada said the company was unable to pass on the rising costs to its customers because of weak demand. “We raised our selling prices by less than 10% because we realized that demand was not that strong,” he said. He also predicts that demand in 2006 will grow by only a modest 5-6%, in line with the forecast headline GDP growth. For that reason, although Asahimas had been running its plants at near their full capacity of 570,000 tons per annum in 2005, it has no plans to raise capacity in 2006. “Judging from the pace of demand, which is parallel to GDP growth, there“s no economy of scale in building a new plant,” he said. He said building one new plant would add another 150,000 tons per annum to its capacity which, under current circumstances, would only be surplus to requirements. Danareksa“s Iskandar said in his note that Asahimas exported 60% of its flat glass and some 20% its auto glass production 2005. He predicts domestic glass demand would be around 450,000 metric tons per annum compared to production capacity of 1.3 million metric tons currently. Another large producer is Mulia Glass, with a capacity of 600,000 metric tonnes per annum. Asahimas is 43.95%-owned by Asahi Glass Co of Japan and 40.62% by PT Rodamas. The investing public holds the remaining shares. The company has not yet announced when it plans to release its 2005 financial results.