Indofood Sukses Makmur; 1Q11 results slightly ahead; Buy; Rp5,550; TP Rp6,125 prev Rp6,050; INDF - DBS Vickers

· 1Q11 earnings came in at Rp681bn (-3% q-o-q, +8% y-o-y) – slightly above expectations on strong Agribusiness
· Noodle vol was 2.89bn packs (-1% y-o-y, +7% q-o-q); Bogasari vol rose 5% q-o-q and 10% y-o-y to 592k MT
· Expect resilient margins going forward on ASP adjustments and easing feedstock prices
· Buy for 10% upside to revised TP of Rp6,125

1Q11 results slightly ahead. Indofood Sukses Makmur (INDF) booked 1Q11 bottom line of Rp681bn (-3.4% q-o-q, +7.8% y-o-y), representing 21% of our full year forecast – ahead of forecast on annualized basis due to strong Agribusiness. Gross profit rose slightly to Rp3,322bn (+0.2% q-o-q,18.9% y-o-y), as ASP hikes in CBP were offset by rising raw material costs. Agribusiness was the highest contributor (49%) of EBIT, followed by CBP (34%), and Bogasari (16%). INDF reported lower interest cost, as total debt declined to Rp13,486bn from Rp14,326bn at end-Dec10.

Segment results. INDF’s noodle sales volume increased by 7.4% q-o-q, while EBIT margin slowed to 14.5% from 15.7% q-o-q but expanded from 13.9% y-o-y– thanks to 7-8% increase in ASP in Jan11. We understand that product switching was limited to the group’s lower end noodle brands in 1Q11, and we expect margins to stabilize at the current level for the remainder of the year. Bogasari booked 4.7% q-o-q and10.4% y-o-y volume growth, but EBIT margin dropped faster than expected to 8.0% - mainly on the back of higher raw material prices (which we understand have yet to peak)- in the absence of any ASP hike. We expect Bogasari sales volume growth to decelerate for the remainder of the year, on expectations of ASP adjustments to maintain margin amidst rising competition. Agribusiness revenue accelerated to Rp4,257bn (-2.6% q-o-q, 50.6% y-o-y), thanks to higher CPO prices – offsetting weaker Bogasari. Food seasonings division booked q-o-q and y-o-y growths of 48% and 53% respectively, contributing 2.8% (vs.2.4% in 1Q10) to CBP sales.

Buy call reiterated. Imputing higher CPO price assumptions and revisions on noodle and Bogasari EBIT margins, we revised our FY11F-13F EPS by 4-15%. Our TP is likewise adjusted to Rp6,125. We continue to expect strong earnings growth in 2H11, backed by lower feedstock costs, higher volumes for both the group’s noodle and flour segments. Reiterate Buy for 10% upside to our revised TP.