KLBF:In-line, but tougher outlook - Mandiri Sekuritas

The company’s unaudited net profit 2010 figure was in line with our expectation. This year, the company expects its sales to grow by 12-15% yoy and operating margin to be maintained at 17.5-18.5%. We prefer to take more conservative stance by having lower sales growth and operating margin projections. This supported our neutral call on the counter.

Better sales growth expected this year... KLBF posted sales of Rp10.2 tn in FY10F, an increase of 12.1% yoy. Sales from nutritional division posted the highest growth of 18.1% yoy to Rp2.3tn, representing 22.4% of total sales in 2010, followed by sales from prescribed pharmaceutical division (+16.1% yoy). On the contrary, sales from consumer health division declined by 1.8% yoy as a result of poor performance of energy drink. The company is still striving to revive the performance of its energy drink product, which still contributed around 22-25% of total sales for the consumer health. This year, the company targets sales to grow by 12-15% yoy, higher than our estimate of 11.7% yoy as we still have some concerns on rising inflationary pressures which might affect the company’s sales performance.

High net profit growth supported by lower tax rate. Since last year, KLBF’s corporate income tax was reduced to 20% as the company managed to increase its public share ownership to 40%. Coupled with lower tax rate applied to subsidiaries (from 28% in 2009 to 25% in 2010), the effective tax rate for the year is around 23-24%, much lower than that in 2009 of 28%-29%. Furthermore, the company also recorded lower minority interest in net earnings of subsidiaries to Rp62bn from Rp121bn in 2009 as the company increased its ownership in Enseval Putra Mega Trading (EPMT).

Skim milk prices have increased by 10% yoy. During the analyst meeting, the management highlighted the increase in skim milk prices by 10% yoy this year, yet believed that the impact of such increase will be manageable on the company’s performance. The management doesn’t expect a substantial high commodity prices which will pressure gross margin like what had happened in 2008 (gross margin dropped to 48.1% in 2008), hence an operating margin of 17.5-18.5% is expected this year.

Rp3,100/share TP is maintained. We maintained our TP at Rp3,100/share as we are still concerned with rising inflationary pressures that might affect the company’s performance this year. At the current price, the stock offers 6.9% upside potential. Maintain neutral.