Company update:
Indofood CBP (ICBP IJ, BUY, TP: IDR10,200),
Earnings Likely To Improve In 2H16
Indofood CBP (ICBP IJ, BUY, TP: IDR10,200),
Earnings Likely To Improve In 2H16
We expect Indofood CBP’s earnings to improve
in 2H16, driven by:
1. Consumer spending growth, ie better
noodles and dairy product sales;
2. Lower input costs (especially flour)
lifting earnings of its noodles unit;
3. Lower operating losses from its
beverage segment.
2Q16 earnings came above expectations. We
lift our FY17F-18F earnings by 9-7%, respectively. Rolling over our valuation
to FY17F (based on cashflow), we raise our DCF-based TP to IDR10,200 (from
IDR8,400, 13% upside), implying 27x/21x FY17F-18F P/Es. Maintain BUY.
♦ More premium noodle
and dairy products.
We think consumer spending is likely to grow in 2H16, driven by more stable
inflation as well as an improvement in the income levels of Indonesians –
especially those outside Java islands – on the back of higher coal and CPO
prices, which are among their main income sources. Given this expected
improvement, by mid-2Q16, Indofood CBP (Indofood) started launching new premium
products, ie Indomie Real Meat, Chitato Foodie snacks,
banana-flavoured dairy Indomilk, and coconut water Coco Bit.
According to Indofood, sales of these premium packaged foods are strong and are
growing faster than that of ordinary Indofood products. Thus, we are more
optimistic on its sales outlook.
♦ Input costs likely to
decline.
In August, the average price of flour (a raw material to make noodles) declined
by 3%. Since noodles accounted for 65% of 1H16 sales and flour contributed
around 30% of production costs, lower flour prices are likely to reduce
Indofood’s production costs significantly. In addition, a strengthening IDR
should further lower costs since around 70% production costs are directly and
indirectly related to USD, while sales are mostly in IDR terms. On the flip
side, based on our calculation, the average selling price (ASP) of its noodle
products increased 6% YTD. Lower input costs and a higher ASP should boost the
company’s gross profit margin.
♦ Positive development
on beverages.
After Indofood shifted the duties of distributing and marketing beverages to
its own distribution unit (vs a third party previously), we expect its beverage
sales to increase significantly as it should find it easier to identify
potential markets (which would lead to higher sales). Management indicated that
the demand for its Club mineral water – which has improved packaging
with a polyethylene terephthalate (PET) bottle – is high. However, its sales
were capped by a shortage in PET bottle supply. Indofood plans to increase the
production capacity of its Club mineral water.
♦
BUY,
with an upgraded TP.
We raised our FY17F-18F earnings by 9-7%, respectively, driven by
higher-than-expected dairy earnings. Indofood raised its earning guidance on
FY16F EBIT, thanks to its robust 1H16 earnings that were above our and
consensus expectations, at 56% of our/consensus full-year estimates. We also
raise our DCF-based TP to TP to IDR10,200 (from IDR8,400, 13% upside), implying
27x/21x FY17F-18F P/Es.
Best regards,
Andrey Wijaya
Senior Vice President
Research Analyst – Auto,
Consumer, Cement
PT. RHB Securities
Indonesia
