Credit Suisse KLBF FY08 results: net income in line and margin compression as expected

● Kalbe Farma (KLBF) reported an FY08A net income of Rp707 bn, in line with our forecast, but 7% ahead of consensus forecasts. Although KLBF’s 2008A net income came in flat on a YoY basis, 4Q08A achieved 101% YoY and 28% QoQ growths.
● KLBF experienced margin compression in FY08A. As we noted in our Asian Daily dated 15 October 2008, Threat of purchasing power and weakening IDR, with 80% of its raw material imported, a weakening Indonesian rupiah (IDR) should have a negative impact on KLBF’s earnings. Driven by a weaker IDR, KLBF’s gross margin dropped by 240 bp between FY07A and FY08A. We tweak our FY09E and FY10E earnings estimates of KLBF downward by 1.1% and 0.8%, respectively, to reflect the new data points reflected by KLBF’s FY08A results.
● We maintain our NEUTRAL rating on KLBF with a target price of Rp660. Our target price implies 9.5x a 2009E P/E, in line with the current market implied 2009E P/E of MSCI Indonesia.