Kalbe Farma (KLBF) today announced a tender offer plan to acquire 31.8% stake in Enseval Putra Megatrading (EPMT), which will bring KLBF’s ownership at EPMT to 90.0% post-tender offer. We believe this is a good move as EPMT’s performance has been improving and around 90% of KLBF’s minority interest was derived from EPMT’s bottom-line. Yet, the impact on KLBF for this year will be minimal as only maximum 5 months of EPMT’s net profit will be taken into account. We maintain our buy recommendation on the counter.
Around 90% of KLBF’s minority interest was derived from EPMT… Our recent talk with KLBF’s management revealed that around 90% of KLBF’s minority interest was derived from EPMT’s bottom line. In 1Q09 for instance, of the total Rp77.2bn net profit recorded by EPMT, KLBF could only recognize 58.2% of it, in line with its ownership. While the remaining belongs to minority shareholders. This was equivalent to Rp32.2bn of net profit or representing 93% of KLBF’s minority interest for the quarter.
.. whose performance has been consistently improving. In 1Q09, EPMT recorded a 17.7% yoy increase in sales and 37.0% yoy in net profit, higher than KLBF’s 14.1% yoy and 24.0% yoy, respectively. At KLBF, revenue from distribution division accounted for 25% of the company’s total revenue and its gross margin has showed a significant improvement in 1Q09 due to increasing contribution from trading (from 12.5% in 1Q08 to 17.3% in 1Q09). We expect such margin to continue improving to 17.8% for FY0! 9.
Additional EPS of Rp4/share for FY09. Even though we view positively this acquisition, the impact would be minimal for KLBF’s performance this year. Based on consensus estimates for EPMT’s net profit of Rp305 bn this year, we estimate a Rp41bn reduction in minority interest for KLBF (assuming only 5 months effective impact), thus translating into additional EPS of Rp4/share. At the current price, KLBF offers 14.3% potential upside based on the new target price. Mai! ntain buy
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