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Jumat, 04 Maret 2011

INAF:Enough of bad business - Mandiri Sekuritas

Indofarma (INAF) is the second largest listed state-owned pharmaceutical company in Indonesia with FY09A revenue of Rp1.1tn. The company, since 2007, has low profit margin of less than 1% due to regulation that caps its average selling price (ASP). Based on our meeting with the company’s management, there are 3 short-to-long term catalysts for the company’s profitability: (1) ASP increase starting on 2Q10, (2) new product launching by 4Q10, and (3) synergy f rom prop osed restructuring between 3 state-owned pharmaceutical companies. If it meets its targeted FY11 5% net profit margin and Rp1.4tn revenue, the stock valuation could equivalent to 3.2x PER11F.

Higher ASP may boost net margin from 1% to 5%. Half of INAF’s sales are generated from generic products which have low margin as the government regulates ASP. Since 2004, the government has reduced the ASP by 3 times so that most of generic products have less than 12% gross margin while the company expects it to have a normal 30% gross margin. The company expects ASP increase approval this month. We view the ASP increase is fair as other sectors that involve in the public service obligation, such as oil & gas and telecommunication, also get subsidy. In addition, changes in the company’s KPI from cost focus to profit focus, as mandated by the Ministe r of SOE, may support the ASP increase proposal. If it is approved, the company expects net margin to improve from 1% to 5% in FY11F.

New product launch should boost sales. INAF plans to launch new herbal product by 4Q10 after approval from Indonesian Food and Drug Administration (BPOM) authority. Note that the drug’s main chemical content has been approved by USA FDA. Based on the company, the product is effective to enhance immunity and rapidly cures dengue and herpes. The company believes the product could be a breakthrough in dengue medication; it has attracted demand from Brazil, Vietnam, Thailand, and Korea. INAF expects the product will be a key growth catalyst; one of the reasons is huge number of dengue patients in Indonesia that could reach 150k persons annually. Main risk is a delay in BPOM approval.

Synergy from ownership restructuring. The government resumes its plan to make a holding company for the 3 state-owned pharmaceutical companies. The latest update is the government has chosen a restructuring advisory firm. Current discussion is to possibly make Biofarma as the holding company which owns Indofarma and Kimia Farma. One of the visible synergy is cost saving from better production assignment as currently Indofarma and Kimia Farma compete in several product lines. In addition, being a bigger group could increase bargaining power.
Posted by Saham Pilihan at 10.28

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