CIMB Kalbe Farma Result note - Working for cash

(KLBF IJ / KLBF.JK, OUTPERFORM - Upgraded, Rp2,025 - Tgt. Rp2,375, Healthcare)

In line; upgrade to OUTPERFORM. At 2-5% below FY10 forecasts, Kalbe Farma's annualised 1Q10 core net profit was broadly in line with our and consensus expectations. Operational performance was slightly below our expectations as the company saw lower revenue growth in 1Q10. At this juncture, we remain less concerned about the company's FY10 performance as it has achieved an EBIT margin of 17.7% in 1Q10. We also expect a stronger rupiah to boost its margin in the remaining quarters of the year. We switch our valuation method from DCF to P/E to align with other consumer stocks. This raises our target price from Rp2,000 to Rp2,375, which implies 14.6x FY11 earnings, a slight premium over the JCI target. This is considerably conservative given the company's historical premium to JCI and our view that domestic consumers are the driver of economy growth. We upgrade our recommendation to OUTPERFORM. Potential catalysts include stable cash generation, target margin expansion achieved earlier than expected and value-accretive M&As.