UOB KLBF 1H10: Further improvement in 2Q10, Buy TP IDR 2850

Results
1H10 results in line with our expectations. Kalbe Farma (KLBF) reported 1H10 net profit of Rp572b (+43.5% yoy), translating into 2Q10net profit of Rp316b (+23.3% qoq).

Net profit growth driven by better margins and lower minorityinterests. 1H10 revenue increased 11.6% yoy, but net profit growthwas significantly higher at 43.5%. The drivers were: a) better marginson stronger Rupiah against US$, and b) higher contributions fromEnseval Putera Megatrading (EPMT) and Saka Farma Laboratories dueto increased ownership in these two subsidiaries.

Recovery within consumer health segment.Consumer healthrevenue growth improved to 7.7% qoq (+3.6% yoy) from 5.5% qoq (-2.2% yoy) in 1Q10. We think the improvement was driven by betterenergy drink performance, particularly as new products, such as E-JussMango and Orange, focus on natural and healthy energy drink concept, and were met with good response so far.

Positive response on Zee powdered milk. Revenue from nutritionalsegment booked the highest segmental growth of 31.2% qoq in 2Q10,or 19.8% yoy in 1H10. This is a significant improvement from -23.3%qoq (+0.3% yoy) in 1Q10. The growth was partly driven by its new “Zee”powdered milk that targets kids, teens and tweens. We expect revenuefrom nutritional segment to grow 13% yoy in 2010, driven by a 10% volume growth and 3% increase in average selling price