What’s New
Indofood’s 1Q10 net profit (+472% y/y, 26% q/q) was above our expectation, driven by margin expansion and foreign exchange gains.
The Indofood CBP IPO appears to be on track with listing slated for end‐3Q10. We expect investors to switch out of Indofood into CBP for direct exposure to the growing consumer branded products business.
Our View
Indofood’s 1Q10 net profit was largely underpinned a lower cost structure. COGS declined 2% y/y, versus revenue growth of 5% y/y, due to lower wheat costs and a stronger rupiah. The CBP division continued to perform strongly with 11% sales growth and 26% EBIT growth; the business is now the largest contributor to Indofood,
contributing 46% of revenue and 41% of EBIT. Agribusiness revenue grew 10%; nevertheless, its EBIT was lower at 6% due to intense competition in the cooking oil and fats segment (Agribusiness is the second‐largest EBIT generator). Bogasari revenue was down 15% but its EBIT was up 118% owing to a strong rupiah and lower wheat prices. Distribution revenue surged 32% and its EBIT soared 285% on higher
CBP volumes.
We expect Indofood to maintain its growth momentum owing to addition of new lines for cup noodles and building of a new dairy product factory, which would become operational by YE11.
Action & Recommendation
While we upgrade our earnings forecasts to account for higher margins from lower wheat costs, we anticipate that Indofood’s share performance will be capped in view of the Indofood CBP IPO. Our new target price is Rp4,100 (13.7x 2011F PER, 5.3x 2011F EV/EBITDA). We maintain our HOLD recommendation.
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