ICBP:Feeding more - Mandiri Sekuritas

ICBP posted FY10 net income of Rp1.7tn (+58.0%yoy, -18.0%qoq), which was in line with our and consensus estimates. YoY growth was due to margin improvement and volume growth, while QoQ contraction was due to seasonality effect. The company claimed market share improvement from 73% in FY08-09 to 77% in FY10. However, we prefer to wait for 1Q11 performance data to confirm the sustainability of its market share, considering its higher- than- usual ASP adjustment in Jan 2011. Cost pressure risk remains; we maintained our Neutral stance on ICBP, which is trading at PER11-12F of 15.6x-14.1x, some 20% premium to its parent company.

FY10 results were in line with our and consensus estimates. ICBP booked FY10F revenue of Rp18.0tn (+10.0%yoy, -5.4%qoq), translating into net income of Rp1.7tn (+58.0%yoy, -18.0%qoq); both figures were in line with our and consensus estimates. For noodle segment, which accounted for 79% of total EBIT, YoY improvement was due to 3.8% sales volume growth, 4.2% ASP growth, and stable raw material costs. QoQ deterioration was mainly due to seasonality effect.

Bigger market share. In term of value, ICBP’s noodle market share was around 73% in 2008 and 2009, based on Euromonitor data. According to the company’s internal data, the figure rose to around 77% in 2010 in term of volume; it means that the market share should be higher than 77% in term of value as the company sells relatively premium instant noodle in Indonesia.

1Q11 results may reaffirm. As the company’s ASP increase in January 2011 was higher than usual, we prefer to wait and see for 1Q11 sales volume data to confirm whether the company’s market share improvement is sustainable or not. The company may be able to maintain market share if its competitors also raised their ASPs; however, it poses another problem: risk of industy size contraction. Rising wheat cost in 1Q11 by +13.9%qoq and +63.9%yoy may also limit profit margin.

Maintain Neutral recommendation. Our DCF valuation with 12.0% WACC and 5.0% TG rate results in ICBP’s fair value of Rp5,000/share. We maintain our Neutral recommendation while observing whether the company could maintain its sales volume. The stock is currently trading at PER11-12F of 15.6-14.1x, about 20% premium to its parent company valuation, which has a vertically integrated business with significant ownership on ICBP. Main risks is raw material cost increases, competitors’ behaviour, and related-party transaction risks.