Thu, Oct 17, 2013 - Page 14 News List

Cheng Shin to build plant in Indonesia

By Kevin Chen  /  Staff reporter

Taiwanese tire maker Cheng Shin Rubber Industry Co (正新橡膠) is planning to invest in Indonesia as part of its efforts to increase its presence in the ASEAN market.

The board of the world’s ninth-largest tire maker on Tuesday approved the NT$2.36 billion (US$80.1 million) investment proposal to build the company’s 11th plant in Indonesia.

The Indonesian plant is to be the company’s third operation in Southeast Asia after Thailand and Vietnam, according to information posted on its Web site.

The new investment plan, made public in a filing to the Taiwan Stock Exchange on Tuesday, comes as more Taiwanese manufacturers are fine-tuning their foreign investment strategy as production costs rise in China.

Changhua County-based Cheng Shin had about 65 percent sales exposure to the Chinese market in the first half of the year.

Indonesia, the largest of the fast-growing ASEAN countries, has a promising outlook, with its economy forecast to expand by between 5.5 percent and 5.9 percent this year, and between 5.8 and 6.2 percent next year, Bank Indonesia said last month.

“We like the investment for several reasons,” Credit Suisse Securities analyst Jeremy Chen (陳建名) yesterday said in a note. “First, Indonesia is a vast, growing market for tires and, second, motorcycle tires are one of Cheng Shin’s strongest products, with a gross margin of more than 30 percent.”

Chen said he also welcomes the investment plan because it will allow Cheng Shin to lessen its investment risk in China, while taking advantage of the natural rubber supply in Indonesia, which is the world’s second-largest rubber producer after Thailand.

The company is expected to begin building the plant by the end of next year on a 27-hectare plot of land outside Jakarta. Production will initially focus on motorcycle tires and gradually shift to tire products for passenger vehicles, according to the company.

However, Credit Suisse said Cheng Shin faces competition from global tire makers that have already established manufacturing facilities there, including South Korean tire makers Hankook Tire Co and Kumho Tire Co; Pirelli Tire LLC of Italy; British tire maker Dunlop Inc; Japan’s Bridgestone Corp and Gajah Tunggal — the largest tire maker in Indonesia and Southeast Asia.

Yuanta Securities Co (元大證券) analyst Leslie Kuo (郭建華) said in a note yesterday that the Taiwanese firm is unlikely to see material sales or earnings contribution from the Indonesian plant in the near future, as its construction will take up to two years to complete.

Given this, Yuanta maintained its forecasts of the company’s earnings per share at NT$5.93 this year and NT$6.37 next year.

During the first six months of the year, Cheng Shin’s net profit increased 89.4 percent annually to NT$11.41 billion, or NT$2.74 per share, while revenue in the first nine months rose 1.72 percent to NT$100.56 billion from a year earlier, company data showed.

Credit Suisse yesterday retained its “outperform” rating on Cheng Shin shares, with a target price of NT$100, while Yuanta kept its target price at NT$84, along with a “hold-outperform” rating.

Cheng Shin closed 0.88 percent lower at NT$79.3 yesterday on the local bourse.

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