Swati initiates coverage on ICBP, the largest noodle producer in the country. We in the middle of a frenzy for consumer stocks and parent company Indofood (INDF IJ) has been a good beneficiary as the company has strong brand name, executes well and is one of the most liquid consumer names, trading around US$10m per day.
Today is ICBP’s first day of trading and the continued strong foreign inflows may very well boost its share performance. However, at 20x earnings, EBIT margins dropping off next year, and small EPS growth of 2% and 9% in 2011-12, ICBP looks on the rich side of valuation.
Other issues include sales to related party (70% of sales), management fee of 0.25% sales + royalty of 1.5% sales to parent company Indofood.
Key points from the report:
We initiate coverage of Indofood CBP, Indonesia’s largest listed branded food products company with an Outperform.
Indonesia is at the inflection point of multi-year growth in consumer products driven by surge in middle class, hockey stick growth in modern trade and rising incomes.
ICBP is a key beneficiary of stronger rupiah as 10% stronger currency could impact earnings by as much as 50%. That said, higher inflation and related party transactions remains a key risk.
We assign a target multiple of 22.3x P/E matching regional peers.
The stock is currently at 20.1x 2011CL P/E and will list today.
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