Foxconn to team up with Erajaya

Erajaya Swasembada: Foxconn to team up with Erajaya (ERAA, Buy, Rp3,300, TP: Rp3,875)

It is all over the news today, that the Ministry of Industry, Mr. MS Hidayat, revealed the plan of Taiwanese-based Foxconn’s, the world’s largest electronics contract manufacturer, in constructing factory in Indonesia in 2H13. The long-delayed plan finally is nearing its realization, as Foxconn reportedly has signed a partnership agreement with a local partner recently.

Under the agreement, Mr. Hidayat revealed that Foxconn would team up with ERAA to manufacture and sell cell phones and tablets worldwide. Official disclosures on the agreement is yet to be announced (possibly within months’ time), but the news mentioned that Foxconn might invest up to US$10bn for several development stages over a few years.

We are still unclear over the partnership arrangement, but it is clear that ERAA offers strong domestic distribution access for Foxconn to sell its products domestically. At this stage, we are still unsure if ERAA could take up some stakes at the manufacturing business, but if it does, we think that it could be just some minority stakes in stages (as development phases are in stages).

The potential revenues of this partnership could be huge, in our view, as Indonesia imports US$2.5bn of cell phones annually. Earlier last month, Foxconn also said that it would not produce Apple products in Indonesia, but only manufactured phones to serve the huge domestic market – giving us some hints that they may do low-end mass-market phones. The government’s stance towards localizing cell phones manufacturing is also very supportive, given the fast-rising cell phone imports growth that is contributing to the country’s trade deficit.

for Indonesia Market Summaries 22 May 2013