Indonesia’s Plastic Packaging Industry: Demand, Supply, and Financial Insights (Part 2)

Welcome back to our exploration of the plastic packaging industry in Indonesia! In part one, we laid the groundwork by introducing the sector and using PBID as a case study. Now, we delve deeper into the intricacies of demand and supply dynamics, and dissect PBID’s financial performance to uncover key insights for investors and industry observers.

Indonesia’s growing population, increasing urbanization, and evolving consumption patterns all play a vital role in shaping the plastic packaging landscape. Understanding these factors, along with the challenges of waste management and the nuances of market share, is crucial for anyone looking to navigate this dynamic industry. This article provides a comprehensive analysis, drawing on data and reports to offer a clear picture of the current state and future potential of the plastic packaging sector in Indonesia.

Indonesia’s Growing Population and Plastic Waste

Plastic bags and packaging are ubiquitous in Indonesia, making population growth a key indicator of potential demand. From 2013 to 2023, Indonesia’s population grew from 248.8 million to 278.8 million, suggesting a rising demand for plastic packaging. However, this growth also contributes to the country’s waste problem.

Waste generation is concentrated in major cities due to uneven population distribution. In 2023, Indonesia generated 38,264,345.55 tonnes of waste, with plastic accounting for 19.18%. Urbanization, increasing by 5-6% in the last decade, further drives plastic consumption. While the global average urbanization rate is 57%, high-income countries often exceed 80%, highlighting Indonesia’s growth potential.

Plastic Consumption Patterns in Indonesia

China and the United States lead in plastic waste generation but also have more advanced management systems. Indonesia’s per capita plastic consumption is low at 20 kg per person, compared to over 100 kg in South Korea, Singapore, and Japan. Despite this, Indonesia is among the top 12 countries responsible for 60% of the world’s mismanaged plastic waste.

The main challenge lies in waste management infrastructure. Of the 7.8 million tons of plastic waste generated annually, 4.9 million tons are inadequately managed, with 83% ending up in the ocean. The government’s focus on encouraging consumption over improving waste management, coupled with lenient penalties for littering, exacerbates the issue.

Dominant Plastic Consumption Categories

In 2019, PP, PE, and PET constituted 77% of plastic products, primarily used for food and beverage packaging. Plastic packaging alone accounts for 57% of the plastic used in containers and packaging in Indonesia. This highlights the food and beverage industry as a major driver of plastic consumption.

Market Share Dynamics in the Plastic Bag Industry

The Indonesian plastic bag industry in the traditional retail market has grown at a CAGR of 7% from 2014 to 2023. However, imports continue to meet a significant portion of the country’s demand, with exports accounting for only one-third of consumption.

In 2015, PBID held a 47% market share, making it the largest player, with the top four companies controlling 75% of the market. By 2023, PBID’s market share reportedly decreased to 33%, but volume sales grew at a CAGR of 6.38%, mirroring the industry’s overall growth rate.

PBID’s Profitability and Cost Structure

PBID has consistently grown its revenue, with plastic packaging contributing 56-70% over the past seven years, followed by plastic resin trading at 24-37%. The decline in plastic resin sales, from 37% to 24% in 2023, is likely due to cheaper imports of PE and PP, potentially incentivizing plastic producers to favor imported resin over local sources.

The company’s reliance on imported raw materials is evident from its purchases from Chevron Phillips Singapore Chemicals and GC Marketing Solution (Thailand), which accounted for 50% of raw material purchases in 2020-2021. Despite market challenges, plastic packaging volumes have increased, while average selling prices have remained stable, reflecting the competitive nature of the market.

PBID’s net profit margin typically ranges from 5-10%, influenced by oil prices. The company demonstrated prudent management during the COVID-19 pandemic, increasing raw material inventory from 171 billion Rupiah in 2019 to 539 billion in 2021 when oil prices plummeted.

Raw materials account for 70-80% of PBID’s revenue, making them a critical factor in the company’s performance. Other costs, such as overhead, labor, and operational expenses, remain relatively stable.

Management and Financial Decisions

PBID is controlled by the Taslim family, with Djonny Taslim as President Director and his sons in key positions. While related party transactions appear normal, management compensation was notably high in 2020-2022, accounting for up to 20% of total salary costs.

PBID has consistently paid dividends to shareholders, distributing 35-50% of net income, with the remainder reinvested for expansion. This consistent dividend payout makes PBID an attractive stock for investors seeking stable income.

Key Takeaways and Future Outlook

In conclusion, the Indonesian plastic packaging industry is shaped by population growth, urbanization, and consumption patterns. PBID, a major player in the sector, has shown resilience in growing revenue, despite challenges in waste management and competition from imports. The company’s prudent management and consistent dividend payouts make it an interesting case study for investors.

To thrive in the future, PBID should focus on capturing the East Indonesia market, increasing volume sales, and closely monitoring oil prices. The company’s ability to maintain its market share and manage costs effectively will be crucial for its continued success. Despite not analyzing the latest nine months’ performance, PBID is expected to perform well in 2024.