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Kamis, 23 Juni 2011

Sales Note : Kalbe Farma potential two acquisition targets - CIMB Indo

Good morning,

Sales Note
The market likely to turn positive due to positive development in Greece. Rupiah strengthens to below Rp8,600 and 10 year bond yield stays at 7.68%. Like other consumer companies, pharmaceutical companies also show strong revenue growth this year. We visited Kalbe Farma and please have on the note. We plan to visit Kimia Farma later this afternoon.

Kalbe Farma (KLBF IJ, N, Rp3,800) - potential two acquisition targets. Our observation of a shift in its treasury-stock holding (worth Rp2.6tn or 7.7%) from Kalbe to a nominee in Singapore suggests that an acquisition may happen sooner than later, likely to be in 3Q11. The company has around Rp2.3tn and is in net cash position. Short term, this would be dilutive, unless valuations (of M&A) are attractive. The company indicated strong 2Q11 sales growth, but margin was under pressure on increasing competition (higher selling expense). The price increase is scheduled in 3Q11, which would be a key to a re-rating, if happens. The stock trades on P/E of 18x for FY12, higher than the sector average of 17x.

We are to meet up with the management of Kimia Farma (KAEF IJ, market cap US$128mn) this afternoon. Kimia Farma is a state owned pharmaceutical company with the government holding a 90% stake in the company. According to Bloomberg, it trades on P/E of 7.3x and P/B of 0.98x, much lower than other consumer stocks (Kalbe at P/E 18x and P/B of 6x). The ROE was about 14% (compared to Kalbe at 26%) in 2010, which seemed to growing. The company is in net cash position, with cash as of Mar 11 was Rp104bn and total debt of around Rp45bn.

Bumi Resources (BUMI IJ, O, Rp4,000) - de-leveraging continues. During the analyst meeting yesterday, Bumi reiterated its plan to prepay the first tranche of its CIC loan in Oct 11 (amounting US$600mn, we estimate US$730mn including penalty and late charges). This indicates that de-leveraging continues which would cut interest from 19% to around 6%, despite negative perception on Vallar's latest plan to transfer a 75% stake in BRMS in exchange for US$2.07bn CB. Bumi currently trades at 12x forward P/E after the recent price correction, with upside on earnings and further de-leveraging. I would prefer other coal stocks: Harum Energy (HRUM IJ, O, Rp12,000) and Indo Tambang Raya (ITMG IJ, O, Rp60,900).

Today's market - what our sales trader says
Still on Greece, confidence in the government has spilled some optimism and boosted equity market across the globe. Regional off to strong kick. Expect JCI to go inline with other markets and trade steady around 3800 level. However, beware of profit taking as index has already jumped 1.7% yesterday.

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