Deutsche Bank - Resilient operating performance

Indofood {Ticker: INDF.JK, Closing Price: 1,250 IDR, Target Price: 1,300 IDR, Recommendation: Buy}

1Q09 operating results were above our estimates, net profit was below due to fx losses. Interesting to flag out, operating profit exceeded our estimates by 8% although DB had highest estimates on the street (7% above consensus). 1Q09 sales in increased by 1% yoy (5% ahead of DB's) but operating profit saw a decline of -10% on lower CPO prices.

Below the line, fx losses were substantial which contributed to the divergence in our net profit estimate. Going forward, with Rupiah stabilizing, we expect fx losses to reverse. Interest expense increased markedly by 64% on the back of higher re-priced interest rate and loan for Indolakto acquisition, this is largely within our expectation. Divisional earnings will be out shortly. (Finc. summary attached below)

we believe it is one of the most undervalued large cap in Indo. Although concerns on corporate governance and high debt exposure mean it should trade at discount, we believe the current discount appears too steep. Indeed we believe these risks appear to have peaked and that operational improvement going forward, esp. from its instant
noodle business (c. 70% of net profit), could be a significant share price driver. At our recent meeting, CEO confirmed there will not be anymore acquisition this year since the debt ratio of 1.6X has peaked.Interestingly, on apple to apple basis, incl minority interests, its net debt to equity ratio is at a more palatable 1.0X.