Indopremier INDF (BUY TP Rp 4450) The Best Has Yet To Come

INDF reported FY09 results inline with our forecast. This year, persisting low wheat price, stronger Rupiah and higher CPO, should boost the company’s EBIT margin to 15.7% (from 13.5% in FY09). Below the line, we expect INDF to register more than Rp200 bn forex gain and lower interest expense, also due to Rupiah strength. As such, EPS should swell 29% YoY to Rp305/share, in our view. Currently it is trading at 12.6x PE 2010F, a staggering 21% discount to average PE 06-09! BUY.

Noodles and Bogasari to increase margin
In FY09, noodles and Bogasari booked 11.8% and 10% EBIT margin respectively on the back of stable wheat price. Provided bearish wheat price to prevail in FY10F, we expect noodles to book even higher margin, 12%. Bogasari should also continue to post higher profitability, as it registered 13% margin in 2H09, even higher than FY04-08 period!

…and so will plantations
Ever since January, CPO has been hovering between USD700-800 level and this should translate to 35% EBIT margin for FY10F, in our view. In FY09, plantations only booked 9.4% margin. We believe the company should be able to secure our target given bullish CPO outlook this year.

Indolakto is catching up
In 4Q09, dairy registered 10.6% EBIT margin, exactly on management’s target on its acquisition. We expect Indolakto to defend this margin on Rupiah strength and weaker sugar price. Despite dairy only accounts for 5% of total EBIT, it’s contribution still superior than other CBP.

BUY with higher TP
We upgrade our forecast on strong margin and derived new TP at Rp4450/share. Our TP implies 14.6x PE 2010F, offering 17% upside potential. Aside from that, we expect investors to reap 2.1% dividend yield, assuming 30% dividend pay out of FY09 net profit.