DBS Kalbe Farma (Rp1,220; Buy; TP Rp1,585; KLBF IJ)

3Q09 within expectation

At a Glance
• 3Q09 result was within our expectation. Net profit grew 16.8% q-o-q due to lower FX losses and additional stakes in Enseval Putera Megatrading
• Outlook remains bright with an improving economy
• Maintain BUY and Rp1,585 TP.

Comment on Result
3Q09 net profit grew 16.8% q-o-q to Rp217.0bn, mainly attributed to lower FX losses of Rp28.0bn (vs. Rp86.6bn in 2Q09) and its 25.5% additional stake in Enseval Putera Megatrading (EPMT). Revenue was relatively flat, growing 2.2% q-o-q to 2,276.5bn, while gross profit only inched up 0.8% due to lower gross margin. We believe this was due to higher raw material prices as a result of higher oil prices. Meanwhile, operating profit fell 9.1% q-o-q to Rp354.6bn due to 8.4% higher selling expenses.

YTD-9M09 revenue and net profit grew 13.6% and 22.2% y-o-y to Rp6,494.0bn and Rp615.7bn, respectively, and account for 73% and 76% of our full year forecasts. We believe growth was driven more by volume growth as the company launched several new products this year, including new variants of energy drinks; as well as wider distribution coverage.

KLBF’s balance sheet remained strong, and it remained in net cash position despite the EPMT tender offer. Cash conversion cycle has improved to c.135 days (from c.141 days in 2Q09) as a result of better inventory and payable turnover.

Recommendation
We are retaining our forecasts as we expect 4Q09 result to meet our expectation. Given its strong competitive advantage, KLBF should be the main beneficiary of Indonesia ’s improving economic outlook. KLBF is also in the process of expanding production capacity to cater for higher volume growth. We maintain our Buy call and Rp1,585 target price for the counter.