DBS Kalbe Farma: Strong outlook priced in (Reinitiate Cover.; Hold; Rp2,450; TP Rp2,585; KLBF IJ)

* Sustainable dominance in the branded prescription and OTC pharmaceutical industry
* Expect strong 1H10 results
* Price catalysts from successful execution of potential acquisitions
* Re-initiate coverage with a HOLD recommendation, TP of Rp2,585 and upside potential of 5%

Market leader with sustainable dominance. In a fragmented industry with more than 200 players, Kalbe Farma dominates with a 14% market share, which we think is sustainable. Kalbe Farma's portfolio of leading brands, high market penetration and extensive distribution network are key attributes. FY09 results were commendable with sales rising 15% y-o-y to Rp9trn.

Strong 1H10 widely expected. 1Q10 sales increased 10% y-o-y to Rp2.19bn with sustained gross margins of 50%. 1Q10 net profit accounted for 20% of our full year forecast, and growth momentum is sustainable in 2Q10 in line with strong domestic economic conditions and industry outlook.

Re-initiate with HOLD recommendation on valuations. We re-initiate Kalbe Farma with a HOLD rating and TP of Rp2,585, with upside potential of only 5%. KLBF is trading at 18x FY11F PE, well above its 3-year average of 13.7x. In our view, catalysts from strong 1H10 results are priced in. There have been impediments in the materialization of acquisition plans; hence, successful and significant acquisitions would be potential catalysts.