Credit Suisse Indofood Sukses Makmur - Reinstating coverage with an OUTPERFORM - bad news is mostly priced-in; valuations are attractive

● We are reinstating coverage on Indofood parent with an OUTPERFORM rating and target price of Rp6,400/share, implying 36% upside from the current level.
● Indofood’s share price has underperformed the market both in the past three and 12 months, driven by rising commodity prices and some impact from the listing of its consumer branded division. We believe
that this underperformance provides a good entry level.
● In our view, rising prices of commodities (CPO and wheat) are actually positive for Indofood, as these two commodities contribute around 57% of earnings. We note however regarding the rising trend, there is always some lagging impact towards margins, as prices are only gradually adjusted, instead of immediately.
● In addition, given our view that competition in the instant noodle market has stabilised, Indofood’s pricing strategy is to maintain reasonably strategic and sustainable margins. Therefore, should input costs pressure margins, we would not be surprised if prices would also be adjusted.