CIMB KLBF Company Update – Kalbe Farma – Waiting for next catalyst

We upgrade our earnings forecasts for Kalbe by 1% for FY10-11 on the back of stronger currency assumptions. While Kalbe's margins could expand more from a stronger rupiah, we choose to remain conservative, on the view that inventory, coming off a high base, might still have left-over high-cost items. Further, Kalbe is coming off adjustments to stiff competition in the energy drinks section. Lacking catalysts for now, in particular after its share price more than doubled and its share buyback programme is taking a back seat, we downgrade the stock to Neutral from Outperform, although with a higher target price of Rp890 (from Rp825), still DCF-based but with a lower WACC assumption of 16.2% (17% previously).