CIMB Indofood Cut Rating from Neutral to Underperform

Indofood’s debt level shot up to about Rp18tr at end-2008 from some Rp16tr in Sep 08, with US$ debt amounting to US$750m, pushing its net gearing to over 160%, in our calculation, a significant jump from the 107% at end-2007. Consequently, interest burden to sales should rise to 4% this year, a full 1% increase from 2008. Further, goodwill amortisation for Lonsum and the recent Indolakto acquisition should amount to 0.8% of our FY09 sales estimate. All these would drag down net margins. Additionally, while refinancing pressure has subsided for now, risks remain as most of the debt has been rolled over by over a year but less than two years. We cut our earnings estimates by 3-15%, which reduces our sum-of-the-parts target price to Rp925 from Rp1,150, and cut our rating from Neutral to Underperform.