JP Morgan - Indofood: FY09 net income is above expectations Overweight

· FY09 net income above expectations: Indofood reported FY09 net income of Rp2.08 trillion, up 100.7% Y/Y. The reported income came in above both our (105.6%) and consensus (116.6%) estimates of Rp1.97 trillion and Rp1.78 trillion, respectively. Operating and core net income were up 15.3% and 19.2%, respectively, indicating a strong performance Y/Y.

· 4Q09 net income above expectations: Subtracting the 9M09 net income, 4Q09 net income was Rp500B, up strongly from the Rp80B loss recorded in 4Q08 but down 35.6% Q/Q due to seasonality after the Moslem New Year and higher tax rate in 4Q09. 4Q09 net income of Rp500B is significantly above both our (128.4%) and consensus (244.5%) estimates of Rp389.3B and Rp205B, respectively.

· Strong contribution from Bogasari and plantation in 4Q09: Analyzing the segmental analysis, we found that Bogasari’s margin recovered from 9.2% in 9M09 to 12.5% in 4Q09. On top of that the contribution from the plantation division in 4Q09 continued to improve as the CPO price rose from M$2,258 in 9M09 to M$2,309 in 4Q09. The noodle EBIT margin was stable, at 11.8% in 9M09 and 11.6% in 4Q09. Other consumer divisions (seasoning, snack, nutrition) recorded a weak performance in 4Q09 due to seasonality following the Moslem New Year. Finally, the dairy division EBIT improved from 7.5% in 9M09 to 10.6% in 4Q09.

· Maintain OW and Dec-10 PT of Rp4,250: In view of the better-than-expected result and the consumer division oil spin-off acting as a catalyst, we maintain our OW rating and our Dec-10 PT of Rp4,250 on Indofood. The key risks to our view and price target include margin pressure on Bogasari and weakness in CPO.