DBS Kalbe Farma: Hold; Rp2,325; TP Rp2,585; KLBF IJ

Kalbe Farma International Expansion Plan

After Extra Joss’s successful penetration to Philippine, KLBF is also planning to penetrate Vietnam and Nigeria markets. KLBF will establish a Joint Venture (JV) with local Vietnamese counterparty to market Extra Joss. KLBF hopes to realize this plan by 2011 and prepare US$5m for this expansion. KLBF will also spend US$5m to establish JV with local Nigeria counterparty to market Extra Joss by this year. This Nigeria plan is a further expansion plan after the development of pharmaceuticals factory in Lagos under the Orange Kalbe Limited JV. Although current export sales only contribute approximately 5% of KLBF total revenue, it is expected that Extra Joss international sales could offset the loss of domestic market share to Kuku Bima. The US$10m (Rp90bn) funds required will be internally financed as KLBF cash reserve at 30 June 2010 was at Rp1.47tn.

KLBF has revised this year’s net profit forecast up to Rp1.3tn from Rp1.1tn as it will launch 15 new products this year. Despite this launching plan, KLBF will not increase its 2010 capex budget of Rp450bn. KLBF will spend more than budgeted capex if its acquisition plan materialized. This acquisition plan is still very much on its KLBF agenda.

We maintain our hold call with TP 2585 as we have taken into account this news in the valuation. Strong potential catalyst would come from materialization of KLBF’s acquisition plan.