Even though its contribution to overall sales is expected to be insignificant this year, KLBF’s new joint venture in the Phillipines and the introduction of powdered milk product to the market are considered a good move to advance the company’s position in the industry as well as in the region. At our TP of Rp1,900/share, the stock still offers 11.8% potential upside. Maintain buy.
New flagship for powder milk has been launched. KLBF is currently penetrating the powdered-milk market with its flagship brand name Zee. This product is targeted for the middle class segment and has some variants depending on the age groups, starting from 5 years to 19 years. The management estimated the market size for powdered milk for this age group is around Rp4tn (please note that nutritional products used to have high margin at around 50-55%). Even though the contribution to sales ! will be m inimal this year (the management said that it usually needs around 3 years to build brand awareness on the new product), we believe it is a good move given that the company has no presence yet in the middle class market (note that its Morinaga brand is basically targeted to middle-up class segment).
Expanding market share in the Philippines. Through its subsidiary, Kalbe International Pte, Ltd, KLBF is setting up a joint venture company in the Philippines called Asiawide Kalbe Philippines Inc, to market ready-to-drink product, Extra Joss. This is the third JV overseas after Innogene Kalbiotech in Singapore and Orange Drug Ltd in Nigeria. KLBF has been in the Philippines market since 2003 through Extra Joss (sachet) and is now the market leader for energy drink in the country. Sales from the Philippines represented around 15% of total export sales (export accounted for 3.7% of total sales in 9M09). Management expects export sales to grow by 20% yoy this year, higher than the projected total sales of 1! 5-16% yoy.
Maintain a buy. Even though the impact of its venture in the Philippines and the introduction of the new powdered milk product to the company’s perfomance would be insignificant this year, we like the company’s idea to remain innovative to defend its strong position in the market. Management indicated that the first 2 months sales have been moderate (only 11-12% yoy), however we! remain o ptimistic that the company will be able to meet our projected sales of 14.5% yoy this year. We therefore re-iterate our buy recommendation on the counter. At the current price, the stock offers 11.8% upside potential from our target price. Maintain buy.
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