BUY, TP raised to Rp6,000
While we believe some of the positives are already in the price, we continue to like INDF for its exposure to domestic consumption and because of potential recovery in commodity prices; hence our BUY recommendation. The stock has done well of late – gaining 11% in just 2 weeks – moving higher on account of the recent IPO price indication of ICBP. Indeed, the premium valuation of ICBP – at around 22.9-20.9x P/E 10-11F would create scope for trading arbitrage. The valuation gap, we think, should be narrowing further. Our TP already takes into consideration the imminent ICBP listing, which in a way also leads to a 2-3% dilution in our FY10-11F EPS estimates. Higher minority interest, although largely offset by greater royalty income received and lower interest expenses, explains our lower EPS. Valuation upside, however, still exists with INDF’s PE/ROE ratio still around 0.5x for FY11F, below the industry’s average of 0.7x.
ICBP: nearing the top-end
ICBP, the company’s branded consumer subsidiary, is priced at Rp5,395/share, near the top range of its fair value. It is about 22.9-20.9x FY10-11F, above INDF’s current valuation and also that of the consumer sector (excluding Unilever), which is currently trading at 18.4-16.2x and 19.7-17.0x P/E10-11F. ICBP’s IPO will basically raise some Rp6.3trn, of which around Rp4.1trn shall be used to repay shareholder loans – due at YE10, with the balance for expansion purposes. Net cash will be maintained, as a consequence. The expansion, which will cost the company around Rp1.8trn, could easily be financed, should there be any additional costs incurred. In fact, with the current net cash, we may see some potential acquisitions take place going forward. The imminent listing of ICBP will lower INDF’s net gearing to 0.5x this year from currently 1.0x (excluding the minority).
Minimal earnings dilution in 2010-11F
Earnings dilution due to the ICBP listing would be around 2-3% for FY10-11F, according to our estimates. The minority interest increase shall largely be offset by royalty fees and a reduction in interest expenses. Note that ICBP should pay royalty fees to Indofood for brands usage (except dairy) – amounting to 1.5% of sales, aside from a management fee of 0.25% from ICBP’s net sales. For FY10F, we estimate royalty and management fees of around Rp175bn, hence additional minority interest of around Rp70bn – or 1.7% earnings dilution. While for FY11F, we estimate a reduction in interest expenses of some Rp300bn, translating into 2.9% dilution. This assumes the full amount of Rp4.1tn obtained by Indofood will be used for de-leveraging purposes.
Flour price may surge 10-15% in 4Q10
While ICBP is remarkably profitable, margins may be squeezed slightly in the following quarters as: 1) Bogasari has indicated 10-15% selling price increases after the Idul Fitri celebrations, according to our channel check, 2) cost pressures still persist as wheat production remains low. The production forecast dropped significantly for the EU-27 and Russia, albeit partly offset by increases for Canada, Morocco, and Moldova. The wheat price, according to USDA, is projected at US$4.95-5.65/bushel, up from US$4.70-5.50/bushel last month. As such, the noodle operating margin would be around 13.6% as of YE10, according to our estimates, down from 15.5% in 1H10. The flour division, on the other hand, could deliver an operating margin of 13.5% in YE10, or above its historical range of 8-11%.
Tampilkan postingan dengan label Indofood Sukses Makmur (INDF IJ. Tampilkan semua postingan
Tampilkan postingan dengan label Indofood Sukses Makmur (INDF IJ. Tampilkan semua postingan
Minggu, 26 September 2010
Minggu, 12 September 2010
Danareksa Indofood Sukses Makmur (INDF IJ, Rp4,475 BUY) A new future
BUY, TP of Rp5,100
We have raised our 2010F EPS estimates by 24% to take into account: 1) the stronger pricing power and 2) the firmer rupiah exchange rate which ultimately leads to better margins. Stronger pricing power is evident in the company’s decision to hike noodle prices by Rp50/pack in early Aug. While, a record-high gross margin should provide a buffer against increasing input cost pressures in 2H10. Also worth to note, imminent ICBP listing indicates a premium valuation (around 17-21x P/E10F and 15-19x P/E11F) – or above the current valuations for Indofood and the consumer sector. Yet, any upside from the IPO should lead to greater value for Indofood. All in all, we remain upbeat on the stock given its defensive attributes, meaning that the company should benefit from both burgeoning domestic consumption and commodity price recovery. BUY maintained with a TP of Rp5,100/share, implying 17.1-15.9x P/E10-11F.
Best year for noodles since 2003
Despite mounting raw material cost pressures – particularly wheat – we believe Indofood can sustain the noodles operating margin at around 14% this year. The company has already hiked noodle selling prices by Rp50/pack in early Aug 2010 – about a 4% price increase. This more than offsets the 7% ytd increase in the wheat price that currently hovers around US$6.3/bushel. A rough calculation suggests that the company needs to raise selling prices by around 3% for every 10% increase in the wheat price to maintain its margins. Hence, if the average wheat price surpasses US$5/bushel, Indofood will have to make further price hikes – else the 1Q11 margin will be sacrificed. Note also that we align our average exchange rate assumption with our economists’ estimate, reflecting the stronger rupiah. This, coupled with the company’s stronger pricing power, bodes well for Indofood’s non-agri business.
Stronger contribution from agribusiness
Many parts of Indonesia have experienced poor weather conditions this year. As a result, inflation may exceed 6% in 2010, in our view, since the bad weather - which has raised supply concerns - is forecast to persist. This may mean higher input prices. As such, margins may be lower in the non-agri division: we forecast 13.0-11.5% EBIT margins in FY11F for the noodles and flour segments, respectively. Overall, the EBIT contribution from the CBP division is expected to decline to 35% in FY11F from 40% this year. On the flip side, however, Indofood’s agribusiness division stands to make a stronger contribution – due to firm CPO prices - and we believe this division will contribute around 35% of EBIT, or up from 30% in FY10F.
What’s next after the ICBP listing?
Well, we think ICBP will leverage further - be it for organic expansion or to make acquisitions. Note that its balance sheet is strong with a net cash position of around Rp140bn, after paying down the shareholder loan. Therefore, ICBP will have greater flexibility compared to its holding in raising more debts. With a debt covenant of 3x debt-to-EBITDA ratio, Indofood could only add another Rp4tn debt, while ICBP could raise as much as Rp8tn or twice of Indofood. Factoring this, ICBP has a huge opportunity to acquire new business in order to create more synergy, a beverage company perhaps.
We have raised our 2010F EPS estimates by 24% to take into account: 1) the stronger pricing power and 2) the firmer rupiah exchange rate which ultimately leads to better margins. Stronger pricing power is evident in the company’s decision to hike noodle prices by Rp50/pack in early Aug. While, a record-high gross margin should provide a buffer against increasing input cost pressures in 2H10. Also worth to note, imminent ICBP listing indicates a premium valuation (around 17-21x P/E10F and 15-19x P/E11F) – or above the current valuations for Indofood and the consumer sector. Yet, any upside from the IPO should lead to greater value for Indofood. All in all, we remain upbeat on the stock given its defensive attributes, meaning that the company should benefit from both burgeoning domestic consumption and commodity price recovery. BUY maintained with a TP of Rp5,100/share, implying 17.1-15.9x P/E10-11F.
Best year for noodles since 2003
Despite mounting raw material cost pressures – particularly wheat – we believe Indofood can sustain the noodles operating margin at around 14% this year. The company has already hiked noodle selling prices by Rp50/pack in early Aug 2010 – about a 4% price increase. This more than offsets the 7% ytd increase in the wheat price that currently hovers around US$6.3/bushel. A rough calculation suggests that the company needs to raise selling prices by around 3% for every 10% increase in the wheat price to maintain its margins. Hence, if the average wheat price surpasses US$5/bushel, Indofood will have to make further price hikes – else the 1Q11 margin will be sacrificed. Note also that we align our average exchange rate assumption with our economists’ estimate, reflecting the stronger rupiah. This, coupled with the company’s stronger pricing power, bodes well for Indofood’s non-agri business.
Stronger contribution from agribusiness
Many parts of Indonesia have experienced poor weather conditions this year. As a result, inflation may exceed 6% in 2010, in our view, since the bad weather - which has raised supply concerns - is forecast to persist. This may mean higher input prices. As such, margins may be lower in the non-agri division: we forecast 13.0-11.5% EBIT margins in FY11F for the noodles and flour segments, respectively. Overall, the EBIT contribution from the CBP division is expected to decline to 35% in FY11F from 40% this year. On the flip side, however, Indofood’s agribusiness division stands to make a stronger contribution – due to firm CPO prices - and we believe this division will contribute around 35% of EBIT, or up from 30% in FY10F.
What’s next after the ICBP listing?
Well, we think ICBP will leverage further - be it for organic expansion or to make acquisitions. Note that its balance sheet is strong with a net cash position of around Rp140bn, after paying down the shareholder loan. Therefore, ICBP will have greater flexibility compared to its holding in raising more debts. With a debt covenant of 3x debt-to-EBITDA ratio, Indofood could only add another Rp4tn debt, while ICBP could raise as much as Rp8tn or twice of Indofood. Factoring this, ICBP has a huge opportunity to acquire new business in order to create more synergy, a beverage company perhaps.
Minggu, 29 Agustus 2010
Danareksa Indofood Sukses Makmur (INDF IJ, Rp4,350 BUY) 1H10 result
Headlines
Revenues were flat in 1H10 at Rp18.1tn (up 0.2% yoy). Much better, however, were the operating profits and earnings which soared 40.3% and 76.4% yoy to Rp3.1tn and Rp1.4tn, respectively mainly thanks to lower input costs and lower interest expenses.
The profitability margins were much better. The gross margin widened 630bps to 32.5% and the operating margin widened 490bps to 17.2%. This is an excellent result as the gross and operating margins are at their highest levels since 2001.
Overall, the top-line figure is in line with our (and the consensus) expectation. The net profits, however, comfortably beat our expectation as they are 67% of our full-year forecast.
Comments
In our view, the better-than-expected result is largely due to: 1) lower wheat costs (US$4.4/bushel in 1H10 vs. US$4.6/bushel in 1H09), and 2) the application of less fertilizer in the company’s plantation division. At the same time, the substantial reduction in the company’s debts - by around Rp2.3tn in 1H10 – slashed the company’s interest expenses by Rp175bn, helping to lift the bottom-line.
How about the 2H10 outlook? Well, we believe Indofood’s margins will likely soften due to higher wheat costs (currently around US$6.2/bushel, US$4.7/bushel ytd). Additionally, the plantation division has little choice but to apply more fertilizer in 2H10 else the yield would be sacrificed. Baring any further price increase, we therefore estimate operating margin of 13.6% for FY10F.
However, we believe the downside risk to margins in noodle division is limited. The company has some pricing power and hiked noodle selling prices by Rp50/pack in early Aug 2010 – a 4% price increase to anticipate higher input cost. This time, impact to volume may not be that much, as: 1) competitors will likely to follow Indofood’s strategy by raising the ASPs (note that Indofood has started to advertise Bu Krim – soap product – to pressure their main rival, Wings), and 2) the timing is close to the Moslem’s festival. Our rough calculation suggests that the company needs to raise selling prices by around 3% for every 10% increase in the wheat price to maintain their margins.
As for Bogasari division, Indofood has yet to increase flour selling prices in their premium products, factoring tougher competition in this category. While for low-end products, the price increase would probably around 10%, taking opportunity from the reduction in Turki imported flour as drought strains Russian wheat supply. Therefore, as market share is company’s main concern, we expect lower EBIT margin in 2H10 compared to 15.2% in 1H10. Note that Bogasari market share has grown to around 55% presently, from 53% in 1Q10.
For the time being, we remain positive on the company given its defensiveness, which should well benefit from Indonesia ’s burgeoning consumer market as well as commodity. The imminent listing of ICBP (expected late Sep-early Oct) will provide a further impetus to the share price. BUY maintained with a TP of Rp5,100, implying 18.8-16.6x PER10F-11F.
Revenues were flat in 1H10 at Rp18.1tn (up 0.2% yoy). Much better, however, were the operating profits and earnings which soared 40.3% and 76.4% yoy to Rp3.1tn and Rp1.4tn, respectively mainly thanks to lower input costs and lower interest expenses.
The profitability margins were much better. The gross margin widened 630bps to 32.5% and the operating margin widened 490bps to 17.2%. This is an excellent result as the gross and operating margins are at their highest levels since 2001.
Overall, the top-line figure is in line with our (and the consensus) expectation. The net profits, however, comfortably beat our expectation as they are 67% of our full-year forecast.
Comments
In our view, the better-than-expected result is largely due to: 1) lower wheat costs (US$4.4/bushel in 1H10 vs. US$4.6/bushel in 1H09), and 2) the application of less fertilizer in the company’s plantation division. At the same time, the substantial reduction in the company’s debts - by around Rp2.3tn in 1H10 – slashed the company’s interest expenses by Rp175bn, helping to lift the bottom-line.
How about the 2H10 outlook? Well, we believe Indofood’s margins will likely soften due to higher wheat costs (currently around US$6.2/bushel, US$4.7/bushel ytd). Additionally, the plantation division has little choice but to apply more fertilizer in 2H10 else the yield would be sacrificed. Baring any further price increase, we therefore estimate operating margin of 13.6% for FY10F.
However, we believe the downside risk to margins in noodle division is limited. The company has some pricing power and hiked noodle selling prices by Rp50/pack in early Aug 2010 – a 4% price increase to anticipate higher input cost. This time, impact to volume may not be that much, as: 1) competitors will likely to follow Indofood’s strategy by raising the ASPs (note that Indofood has started to advertise Bu Krim – soap product – to pressure their main rival, Wings), and 2) the timing is close to the Moslem’s festival. Our rough calculation suggests that the company needs to raise selling prices by around 3% for every 10% increase in the wheat price to maintain their margins.
As for Bogasari division, Indofood has yet to increase flour selling prices in their premium products, factoring tougher competition in this category. While for low-end products, the price increase would probably around 10%, taking opportunity from the reduction in Turki imported flour as drought strains Russian wheat supply. Therefore, as market share is company’s main concern, we expect lower EBIT margin in 2H10 compared to 15.2% in 1H10. Note that Bogasari market share has grown to around 55% presently, from 53% in 1Q10.
For the time being, we remain positive on the company given its defensiveness, which should well benefit from Indonesia ’s burgeoning consumer market as well as commodity. The imminent listing of ICBP (expected late Sep-early Oct) will provide a further impetus to the share price. BUY maintained with a TP of Rp5,100, implying 18.8-16.6x PER10F-11F.
Selasa, 04 Mei 2010
Danareksa Indofood Sukses Makmur (INDF IJ, Rp3,900 BUY) Counting on noodles
Headlines
l On the back of a 4.8% yoy increase in revenues to Rp9.3tn in 1Q10, operating profits jumped 25.2% to Rp1.4tn, reflecting excellent operating performance in the quarter.
l There was a big improvement in margins. Gross margin widened by some 480 basis points. This and lower interest costs helped push up core profits by 78.3% yoy (+37.0% qoq) to Rp562bn.
l The sales volume of consumer branded products (CBP) saw a significant improvement across the board (see exhibit 2). The largest contributor, the noodles division, registered volume growth of 4.0% yoy and 11.0% qoq. On a yearly basis, this is the strongest growth since 2007
Comments:
l Bottom-line, it was a good result and broadly in line with our forecast. The slight difference owes to the forex gain of Rp97bn vs. our forex loss assumption of Rp95bn. This mainly owes to our conservative exchange rate assumption of Rp9,649/US$ for YE10 vs. Rp9,115 in 1Q10.
l It’s the noodles business that counts. The superlative 4.0% yoy growth in noodles sales volume to 2.9bn packs in 1Q10 despite the 1% industry decline overall is a clear indication of Indofood’s strong brand equity and relatively weak competition. We share the management’s view that packaging changes in early 2010 - in addition to the improving economic conditions - helped spur volume growth. The 14.7% increase in operating profits to Rp416bn was also helped by lower wheat costs, while the full impact of last year’s price hikes helped lift the EBIT margin to 13.3%. For FY10F, we forecast noodle’s EBIT margin of 10.9%.
l The Bogasari and cooking oil divisions had to face relatively stiff competition, limiting and even lowering margins. Whilst Bogasari faces competition from imported flour (with a 15% price differential), its cooking oil competes against Wilmar’s products. As a result, the company has to sacrifice either volume or margins – and the company’s indication is that it places a higher emphasis on maintaining volume sales rather than margins. We estimate a decline in Bogasari’s operating margin to 9.6% in FY10F from 11.4% in 1Q10.
l We remain positive on Indofood for the following reasons: 1) potential de-leveraging following the imminent ICBP listing, and 2) stable noodle margins underpinned by the firm rupiah, lower wheat costs, and improving purchasing power. Our forecast is intact for the time being and we reiterate our BUY call on the stock with a TP of Rp4,500, implying 18.8-16.6x PER10F-11F, still a 20% discount to its regional peers.
l On the back of a 4.8% yoy increase in revenues to Rp9.3tn in 1Q10, operating profits jumped 25.2% to Rp1.4tn, reflecting excellent operating performance in the quarter.
l There was a big improvement in margins. Gross margin widened by some 480 basis points. This and lower interest costs helped push up core profits by 78.3% yoy (+37.0% qoq) to Rp562bn.
l The sales volume of consumer branded products (CBP) saw a significant improvement across the board (see exhibit 2). The largest contributor, the noodles division, registered volume growth of 4.0% yoy and 11.0% qoq. On a yearly basis, this is the strongest growth since 2007
Comments:
l Bottom-line, it was a good result and broadly in line with our forecast. The slight difference owes to the forex gain of Rp97bn vs. our forex loss assumption of Rp95bn. This mainly owes to our conservative exchange rate assumption of Rp9,649/US$ for YE10 vs. Rp9,115 in 1Q10.
l It’s the noodles business that counts. The superlative 4.0% yoy growth in noodles sales volume to 2.9bn packs in 1Q10 despite the 1% industry decline overall is a clear indication of Indofood’s strong brand equity and relatively weak competition. We share the management’s view that packaging changes in early 2010 - in addition to the improving economic conditions - helped spur volume growth. The 14.7% increase in operating profits to Rp416bn was also helped by lower wheat costs, while the full impact of last year’s price hikes helped lift the EBIT margin to 13.3%. For FY10F, we forecast noodle’s EBIT margin of 10.9%.
l The Bogasari and cooking oil divisions had to face relatively stiff competition, limiting and even lowering margins. Whilst Bogasari faces competition from imported flour (with a 15% price differential), its cooking oil competes against Wilmar’s products. As a result, the company has to sacrifice either volume or margins – and the company’s indication is that it places a higher emphasis on maintaining volume sales rather than margins. We estimate a decline in Bogasari’s operating margin to 9.6% in FY10F from 11.4% in 1Q10.
l We remain positive on Indofood for the following reasons: 1) potential de-leveraging following the imminent ICBP listing, and 2) stable noodle margins underpinned by the firm rupiah, lower wheat costs, and improving purchasing power. Our forecast is intact for the time being and we reiterate our BUY call on the stock with a TP of Rp4,500, implying 18.8-16.6x PER10F-11F, still a 20% discount to its regional peers.
Rabu, 27 Mei 2009
Danareksa Indofood Sukses Makmur (INDF IJ, Rp1,720 BUY) Undergoing a recovery
BUY with TP of Rp2,250
We make significant changes to our forecast. As a result, our FY09-10F net profit forecast is reduced by 41-27%. Nonetheless, since our new TP of Rp2,250 based on the SOTP valuation still offers 31% upside potential, we maintain our BUY recommendation. Our new TP implies 18.5-13.0x PE09-10F. We believe this valuation is justified given the company’s good growth prospects and also because INDF’s well diversified business activities reduce the downside risks posed by volatile commodity prices.
Increased sales and EBIT estimates for consumer based products
Lower commodity prices have led to higher margins for the company’s consumer based products (CBP). Moreover, the newly acquired dairy business (Indolakto) has added to the range of CBP sold by INDF. Going forward, we expect CBP to remain the backbone of INDF’s business with sales growth of 38.2% in FY09 and EBIT growth of a breakneck 228%. Given the better than expected 1Q09 results, and by incorporating the dairy business, we raise our sales and EBIT estimates for the CBP division by 29-31% and 309-280% in FY09-10F.
Higher valuation for IndoAgri due to the recovery in CPO prices
The share price of IndoAgri (IFAR) has surged 174% YTD on the back of the recent recovery in CPO prices. This has given a significant boost to our SOTP valuation for INDF. Based on the consensus FY09 earnings forecast for IFAR and a 16x PE assumption, Indofood’s agribusiness has an effective Enterprise Value of around Rp9.9 tn.
Bogasari’s margins should improve
Despite lower wheat costs over the last 6 months, Bogasari recorded an EBIT margin of only 4.4% in 1Q09. This stemmed from: 1) the stiffer competition posed by new entrants and imported flour 2) the end to 10% VAT government subsidies starting in early 2009. Nonetheless, we still expect Bogasari’s margins to improve going forward. In FY09 we expect an EBIT margin of 6%, increasing to the 9-10% level in FY10-11F on the back of hikes in selling prices and higher import taxes on imported flour.
We make significant changes to our forecast. As a result, our FY09-10F net profit forecast is reduced by 41-27%. Nonetheless, since our new TP of Rp2,250 based on the SOTP valuation still offers 31% upside potential, we maintain our BUY recommendation. Our new TP implies 18.5-13.0x PE09-10F. We believe this valuation is justified given the company’s good growth prospects and also because INDF’s well diversified business activities reduce the downside risks posed by volatile commodity prices.
Increased sales and EBIT estimates for consumer based products
Lower commodity prices have led to higher margins for the company’s consumer based products (CBP). Moreover, the newly acquired dairy business (Indolakto) has added to the range of CBP sold by INDF. Going forward, we expect CBP to remain the backbone of INDF’s business with sales growth of 38.2% in FY09 and EBIT growth of a breakneck 228%. Given the better than expected 1Q09 results, and by incorporating the dairy business, we raise our sales and EBIT estimates for the CBP division by 29-31% and 309-280% in FY09-10F.
Higher valuation for IndoAgri due to the recovery in CPO prices
The share price of IndoAgri (IFAR) has surged 174% YTD on the back of the recent recovery in CPO prices. This has given a significant boost to our SOTP valuation for INDF. Based on the consensus FY09 earnings forecast for IFAR and a 16x PE assumption, Indofood’s agribusiness has an effective Enterprise Value of around Rp9.9 tn.
Bogasari’s margins should improve
Despite lower wheat costs over the last 6 months, Bogasari recorded an EBIT margin of only 4.4% in 1Q09. This stemmed from: 1) the stiffer competition posed by new entrants and imported flour 2) the end to 10% VAT government subsidies starting in early 2009. Nonetheless, we still expect Bogasari’s margins to improve going forward. In FY09 we expect an EBIT margin of 6%, increasing to the 9-10% level in FY10-11F on the back of hikes in selling prices and higher import taxes on imported flour.
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