CLSA initiating coverage on Indofood CBP, OWT, TP 6000

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.

CLSA Indo Malaysian plantation, OWT

Wilianto looks at the CPO sector and he continues to advise clients to overweight Indo plantation and re-initiates Malaysian plantation sector with an overweight. Yes, Wili now has extra responsibility to cover Malaysian CPO sector.

We suspect that Wili wants to spend more time for his 3 true loves: (1) Wili’s wife is Malaysian and he wants to explore the side of his wife’s family further (2) Wili’s love for plantation (3) his love for Malaysian FOOD, including durian and Malaysian-style kwe tiaw (I like it too…)

The key points from his report:
Both CPO and soybean supplies are tight. CPO supply remains tight (poor harvest + bad weather) supply is just as tight after poor harvest in Argentina.
Strong production in 2H09 is priced in. Any sign of supply disruption will send CPO price even higher.
Palm oil production needs to pick up by 25% to replenish Malaysian inventory to 2m tons. This might not happen as farmers cut down fertiliser usage last year (impact is 12 month lagging).
Risk: US soybean planting exceeding intention to plant (flat acreage yoy). However, as inventory is low.
In Indonesia, Wili has BUY calls on Lonsum (LSIP IJ) and Sampoerna Agro (SGRO IJ).