Indopremier Pharmaceutical Industry - Downgraded By A New Tax Rule

On Tuesday, the government released Ministry of Finance Decree no. 104/PMK.03/2009 that capped the amount of promotion and sales cost for tobacco and pharmaceutical industry. For the later, the promotion cost can be deducted for tax purpose is no more than 2 percent from sales or maximum a total of Rp. 25 billion. Clearly, this limitation would increase the taxable income, hence lower the bottom line. As the result, the two pharmaceutical company's bottom line under our coverage will be threatened. We see that KLBF will be more affected than TSPC since their premium product require more advertising cost than TSPC's me too product. Finally, we suggest KLBF with SELL (TP-730) recommendation, implying 1.98 X PBV FY10 and 10.78X PER FY10. Meanwhile, we also downgrade our recommendation on TSPC with HOLD (TP-620), implying 7.46X PER FY10 and 1.06X PBV FY10. Thank You.