Our consumer analyst Swati, who is now splitting her time between Jakarta and Singapore, downgrades Kalbe Farma (KLBF IJ) to Outperform from previously a BUY. The stock price has gone up by 13% in the past week alone. The stock is trading at 19.3x 2010CL and 16.6x 2011CL P/E.
Swati upgrades her earnings forecasts for Kalbe Farma (KLBF IJ) by 6.6-8% on cost savings due to stronger currency. Swati also raised the TP to Rp2700 (from Rp2000).
The Rp2700 TP is based on 1x PEG. It’s been a while since we have heard this PEG ratio. PEG ratio makes an appearance when more widely used PER looks stretched. PEG ratio is more the area of the growth rather than the value investors. This might highlight that it is becoming harder and harder to find values in Indonesia.
The key concern here is that despite a strong operating performance, KLBF’s top line growth is low double digit (11-12%).
This morning, KLBF’s distribution arm Enseval (EPMT IJ) reported a top line growth of 10.6% for 1H10 reflecting a weak top line growth for KLBF as well. The operating margins are down from 5.2% in 1H09 to 3.2% in 1H10. Swati still gives KLBF the benefit of the doubt, expecting 15-16% sales growth in 2011-12CL as the company takes corrective steps.
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