BNP Paribas Indofood's 1H10 results: in line operationally, but bottom line boosted by lower minority income.

Key highlights:
· Indofood posted a 1H10 results that are operationally in line with ours (48% of FY10 operating profits) but way ahead of consensus (56% of FY10 operating profits) as the market has been slower to take into account the margins expansion as a result of lower input prices and a stronger currency that are beneficial for the Consumer Branded Products (CBP) . This of course came at the cost to their agribusiness operations, who despite realising an average of 3% price increase vs. 1H09 reported flat margins (based on financials of Salim Ivomas Pratama).

· In the bottom line, the discrepancy with our forecasts came in at the minority interest level, boosting the 1H10 net profit to account for as much as 58% of our FY estimate and 63% of consensus. We suspect that this is due to under performance in the agribusiness segment which recorded a decline in earnings of 30% y-y.

· Q-q the improvement in margins we expect came purely from CBP and this has boosted the driver for earnings growth as overall top line was flat at -1% y-y.
· We expect consensus will need to revise their numbers, at least at the operating line to reflect the better margins.

· The listing of the Indofood CBP (ICBP) next month will be the short term catalyst for the stock especially since it it priced on a range of 16-19x 2011 earnings. Based on our calculation using the underwriter's earnings for ICBP's 2011 earnings of around IDR1.6t (albeit this is based on an instant noodle EBIT margins of 15%), this implies that the market is currently only valuing ICBP within Indofood on a P/E of 13x, so definitely there is an arbitrage opportunity here. BUY, TP IDR 4,475.