Kalbe Farma (KLBF, N, PT Rp3,400): 1H11 Below Our Estimates, Margins Improved as Expected Due to Stronger Rupiah - Credit Suisse

We see the rupiah to remain firm until the end of the year, reaching Rp8,250/US$ vs Rp9,078/US$ at the end of 2010. This should provide some margins and earnings protection for KLBF for 2011, in our view. On the other hand, we are awaiting KLBF to announce a meaningful acquisition, which would serve as a positive catalyst for the stock.

· Analyst Ella Nusantoro maintains her Neutral rating on KLBF stock and DCF-based TP of Rp3,400/share – implying 20.8x 2011 PE and 19% 2011-13 EPS CAGR.
· KLBF 1H11 net income came-in at Rp675 bn (+14% QoQ, +18% YoY) – 41% of our 2011 forecast: below our expectation.
· KLBF 1H11 revenue came-in at Rp4.95 bn (+10% QoQ, +5% YoY) – 42% of our 2011 forecast: below our expectation.
· KLBF 1H11 gross, operating and net margins expanded to 52% (+1ppt YoY), 18% (flat YoY) and 14% (+1.4ppt YoY) respectively, supported by strong rupiah against the US dollar (90% of KLBF COGS is in US$).
· At the end of 1H11, KLBF has a net cash position of Rp2.3 tn, in addition to 781 mn T-stock worth Rp2.7 tn.