DBS Indofood Sukses Makmur Further share price upside; BUY

(Reinstated from Under Review) Rp3,900; Price Target : 12-Month Rp 4,750 (Prev Rp 4,125)

* 1Q10 earnings beat expectations, FY10F-12F earnings raised by 4.1%-4.7%

* Strong showing in noodle, plantations and flour offset by cooking oil and
nutrition foods

* Bogasari may rebalance margins to boost volumes

* Buy call reinstated, TP raised to Rp4,750

1Q10 beat expectations; FY10F-12F EPS raised 4.1-4.7%.
Better-than-expected
net profit of Rp631.9b (+472% y-o-y, +26% q-o-q) is 34% of our full year forecast. The stronger result was mainly due to larger agribusiness contribution and stronger rupiah (reported Rp96.9b FX gain). We have updated our forecasts to account for our recent revisions to IndoAgri and change in different segments' strategies. As a result, FY10F-12F EPS are raised by 4.1%-4.7%.

Increased competition clipped cooking oil. Margins improved in 1Q10 for noodles, Bogasari, dairy, snack food, and plantations. But they were weak in cooking oil and fats, food seasonings, and nutrition and special foods. Cooking oil division operating profit accounted for less than 1% of Indofood group profit in 1Q10.

Bogasari to rebalance margins for volume. Bogasari's strong 11.4% margin in 1Q10 was at the expense of 6% y-o-y drop in volume. Cheaper imported flour provided stiff competition, and we understand that the group might move to rebalance its margins to gain volume.

Still ample upside. Post-revisions, we raised TP by 15% to Rp4,750 (SOP). This mainly reflects valuation upgrades for IndoAgri (22 Apr 10) and Indofood CBP (higher noodle margins), although the impact was offset by slightly weaker Bogasari contribution (cuts in ASP). We reinstate our Buy call for Indofood because we believe the recovering noodle division and jumps in sugar and rubber prices have not been priced in. Its improving noodle and snack food units and possible expansion into other area could be further catalysts