Swati looked at INDF results. INDF’s 2009 net income doubled yoy to Rp2.07tn, EBIT up 15% yoy. Numbers broadly in line. We have TP under review since current price is above our target. Possible earnings upgrade. INDF is currently trading at 18.6x 2010 PER and could re-rate further if Indonesian consumers start to match up to Chindia peers. Plus, the stock should command liquidity premium as INDF is the most liquid consumer stock in Indonesia.
INDF plans to list the consumer branded business which contributes 32-33% to EBIT but more than 50% to net income. Expect the stock price to be well supported ahead of the IPO. Appreciating currency and stable commodity prices should also help the stock. 1Q10 results should be good as well.
Key points from the report:
· Dairy business posted double digit EBIT margins in 4Q09, first time since Indolakto was taken over. Volumes grew double digit.
· Higher promotional and ad spend reversed some of the cost savings for noodles and cooking oil. Margins peaked in 3Q09.
· We expect part of Bogasari margin expansion to also reverse next year
· Noodle margins were lower from 13.5% in 3Q09 to 11.6% as INDF passed on some costs saving to consumers inform of higher promotions.
· Possible earnings upgrade of 4-6% and expect strong 1Q10
· Valuation: the stock is trading at 18x 2010CL earnings.
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