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Minggu, 12 Juni 2011

PT Indofood Sukses Makmur Tbk STeady Growth - AAA

We start the coverage of PT Indofood Sukses Makmur Tbk (INDF) with BUY recommendation at TP of Rp6,700, as we find INDF a fascinating company with its integrated businesses and many well-positioned brands in the market. Although competition is becoming more intense, we believe INDF will still be able to benefit from robust economic growth in Indonesia.

± Performance Improved Despite Declining Market Share
Despite declining (ICBP) noodles’ market share to 73.2% from around 90% previously, INDF is still leading the market in noodle and wheat flour. The 1Q11 results are solid proofs of INDF’s ability to maneuver its businesses amid stiffer competition. Its consolidated revenue was up by 15.6% to Rp10.7 tn while net profit rose by 45.8% to Rp1.2 tn. ICBP still took the biggest portion of total sales with 43% and followed by Bogasari with 26.2%. The sales from agribusiness were getting more portions with 22.7% while the distribution sales portion recorded 8.1%. The overall satisfactory performance was due to both higher selling prices as well as higher volume. With lower COGS, operating expenses, amortization and interest expenses, the higher sales found its way to increase net profit by 45.8% in 1Q11 yoy. Net profit margin in 1Q11 improved to double digit 11.4% from 9% yoy.

± Rp5.2 Trillion Capex For 2011 Expansions
INDF plans to expand its businesses in 2011. Agribusiness sector receives the most of Rp2.2 tn where Rp1.7 tn is devoted for replanting. Together, ICBP and Bogasari obtain Rp1.8 tn for the expansion of food seasoning and the construction of milk plant in East Java and the expansion in wheat flour division. The remainder is used to finance the construction of new ship where it will be used to transport INDF products. The source of fund for the capex is from the IPO of ICBP and the retained profit in FY10.

± Valuation: Inexpensive
We are using Sum of the Parts (SOTP) to calculate our DCF and through blended valuation method (DCF, PE multiple, EV/EBITDA multiple) we arrive at a target price is Rp6,700 per share, implying PE of 15.3x. This is still below the historical PE of 17.9x. Currently, INDF is traded at 12.6x PE, at 37% discount from the peers PE of 19.9x. Our TP provides 23% potential upside from the current price. Other positive is the low net debt to equity (0.22) and attractive ROE (22%). Hence, we assign BUY recommendation. Risks: Stiffer competition and unfavorable economic conditions could be factors in preventing INDF achieving the TP. The strong mitigations are, among others, the economies of scale arising from INDF large size, long time tested business experience, good management and well established brands in Indonesian market.

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