GUDANG GARAM (GGRM): FY2010 Strong in-line results – remain Inflation hedge - Credit Suisse

Within Consumer Sector our Top-Buy stocks are GGRM, INDF and then ASII, while recommending Take Profit UNVR and KLBF on valuation. At Rp42,700/share, GGRM is trading on justified premium 16.3x-14.6x PER with EPS Growth 21%-12% for 2011F-2012F, and implying 24% UPSIDE to Target Price Rp53,000, we reiterate BUY GGRM!

· Ella Nusantoro (Daily attached): Gudang Garam reported FY10 net profit of Rp4.15 tr (+20% YoY), in line with our estimates and consensus. Its revenue rose 14% YoY to Rp37.7 tr, on the back of 5% volume growth YoY (67 bn sticks) and 9% higher ASP YoY. Gross profit soared 24% YoY and margin expanded to 23.5% from 21.7% in FY09. With rising promotion cost, operating profit only rose 13% YoY, hence margin declined marginally to 15.5%. In 4Q10, revenue rose 7% QoQ (+8% YoY) to Rp10 tr, with gross margin stable at 24.4%. Opex rose 41% QoQ (+35% YoY) due to rising wages (2.5% of revenue), hence operating profit was down 6% QoQ (+24% YoY) and margin declined to 15.9%, from 18.1% in 3Q10. Net profit was Rp1.1 tr in 4Q10 (-8% QoQ, +16% YoY). We maintain our OUTPERFORM rating on the stock with Rp53,000 as a target price, implying 20.2x P/E 2011E with 16% estimated earnings growth over the next two years.