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Senin, 02 Mei 2011

Indofood CBP (Downgrade to Neutral) - Time to take profits - MACQUARIE RESEARCH

Event
§ ICBP has reported a 1Q11A adjusted NPAT of Rp453bn, which was up 14.4% YoY, but only against a relatively easy comp, and was materially (14.7%) below our Rp531bn forecast. The result was also largely flat QoQ (Rp452bn) against a seasonally-weak quarter. Key variances from our forecast were a combination of slightly weaker noodle margins, volumes, and ASPs relative to our expectations (ICBP's noodle division comprised 85% of 1Q11A earnings).
§ As a result, we have lowered our FY11E EPS estimates by 5.5%, reduced our valuation by 5.5% from Rp5,500 to Rp5,200, and also cut our price target to Rp5,700 (from Rp6,000). In conjunction with ICBP's relatively strong bounce off its January lows, we now believe the stock to be fully priced (15.8x FY11E PER), and downgrade our recommendation from Outperform to Neutral.

Impact
§ Revenue growth remains lacklustre: ICBP delivered 1Q11A revenue growth of just 8.6% YoY, which was below our 12.1% forecast, with noodle volumes slipping 0.7% YoY. QoQ ASP growth of 2.0% was also below our expectations (possibly due to negative brand substitution). We highlight that some of ICBP's volume softness could also be due to an incremental market share impact from smaller rivals such as Conscience Foods (CSF SP, Not Rated), which had 63% volume growth in FY10A (and c4% market share).
§ Noodle EBIT margins at 14.5% (post-royalty): Margins increased from 13.9% YoY but declined from 15.8% QoQ, despite the company's mid-January price increases and higher wheat flour prices being yet to be felt. We note that with margins having already expanded materially, and with smaller rivals now beginning to win some incremental share, we believe ICBP may struggle to increase margins materially further from here without triggering a slowing in volume growth. Stagnant margins would result in earnings growth reverting to levels on par with revenue growth (expected at only 10-12% pa).

Earnings and target price revision
§ FY11E EPS –5.5%, FY12E EPS –0.9%, FY13E EPS –0.8%. Price target lowered in line with our valuation (being a 12-month valuation roll-forward).
Price catalyst
§ 12-month price target: Rp5,700 based on a Sum of Parts methodology.
§ Catalyst: 2Q11E results (late July 2011); direction of spot wheat prices.

Action and recommendation
§ Downgrade to Neutral: Our initial investment case was premised on ICBP having been oversold on input cost concerns, and with confidence having returned and the stock up 23% from its January lows (back to its IPO price), we believe this aspect of our investment case has now played out. Moving forward, the spotlight will likely turn to how ICBP's organic earnings growth matches off against its multiples, and we believe the calculus looks full.
§ We believe an alternative such as ASII (Rp56,150, Outperform, Rp70,000 PT) offers investors better growth prospects and earnings diversification, and is currently available on lower multiples. We recommend investors switch.
Posted by Saham Pilihan at 12.52

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