At Rp1,860/share, INDF is trading undemandingly 13.4x-10.3x 2009F-2010F PER and 4.9x-4.6x 2009F-2010F EV/EBITDA, and 28% Discount to SoTP Rp2,600/share, while about 40% discounts to Asian Food 2010F PERs and 20% discounts to Indonesian Plantation 2010F PERs! I continue to recommend BUY INDF under CEO Anthony Salim and its attractive Valuation!
· Arief Wana (Daily): We believe that Indofood is an attractive leverage growth stock, which should do well in a rising market. Our target price is Rp2,600, implying 40% upside, therefore we maintain OUTPERFORM. Indofood is one of our top picks in the market, given its high operating and financial leverage (improving debt mismatch despite1.8x net gearing). We also believe that the company’s more balanced earnings from the key three businesses – consumer branded, agribusiness and flour – would provide more balanced earnings drivers.
· A stronger volume-driven earnings momentum should be the key catalyst. Given the aggressive acquisitions in the past three years, we believe that Indofood’s earnings capacity has grown more than double in volume size (three times in agribusiness and a 40% increase in consumer branded). As volumes are expected to recover, especially in the mass-market segment (please refer to our strategy note with regard to the consumption outlook), we expect Indofood’s earnings to be able to mitigate the impact of lower commodity prices. The ability to address the debt maturity mismatch and the recovery in commodity prices are other catalysts.
· In on our five-day trip to Europe, we found strong interests on the stock especially on the leverage argument. The question most frequently asked was the potential for further acquisition, for which our answer is the risk is low over the next 12-18 months, given its balance sheet constraints.
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