Company
update:
Nippon Indosari Corpindo (ROTI IJ, BUY, TP: IDR1,870)
Nippon Indosari Corpindo (ROTI IJ, BUY, TP: IDR1,870)
New
SKU Launches, More Sales Force
In
anticipation of improved consumer spending, Nippon is accelerating new SKU
launches. The company is also boosting its sales force headcount to ensure
availability of its products in every store in Greater Jakarta. We see huge
room for a sales price increase, since it has not increased selling prices for
more than two years. Given lower equity-financing costs, we raise our DCF-based
TP to IDR1,870 (from IDR1,670, 17% upside), implying 25x FY17F P/E. Upgrade to
BUY.
¨ More aggressive
product launches. Nippon
Indosari Corpindo (Nippon) aims to maintain and increase its domination in the
local bread market by launching more aggressive product variants next year. It
targets to launch 45 new stock keeping units (SKUs) and aims to have 100 SKUs
by end-2017. Nippon only launched 15 new SKUs in 2016 and four new SKUs pa in
2012-2015.
By having more product variants, it is
looking to ensure that it has first-mover status on new bread types and
flavours. Nippon is also refreshing the Sari Roti brand and product line.
This would allow it to have more flexibility in serving local market demand –
in line with local demand specialities. Hence, Nippon’s market penetration
should increase going forward, in our view.
¨ Higher sales
headcount. Nippon
has strengthened its marketing arm by recruiting ~42new merchandisers to ensure
its products are available in modern trade stores in the Greater Jakarta area.
Each merchandiser is responsible for a respective sales territory and has to
ensure product availability (and not empty shelves) in stores. They would
proactively fill Sari Roti products before such products on the shelves
run out. We believe this can increase sales volume and lower sales returns.
This is because Nippon is now able to more actively monitor product movements
at each store. It would also have better knowledge on specific local market
trends.
¨ Room to increase
selling price. Nippon
has not been increasing its selling prices for 28 months. During this same
period, other domestic consumer food products like biscuits, snacks and instant
noodles have seen selling prices increase by 5-6% pa. The price gap between
bread and other consumer food products has widened, and we believe Nippon has
huge room to increase its prices. This should help the company improve its EBIT
margins.
¨ New distribution
network. Sari
Roti
is now available at all 176 national railway routes across Java and Sumatera.
This first-mover availability in trains across Indonesia is booked under
general trade. We see this as a positive growth driver for general trade sales.
¨ Upgrade to BUY. Given lower equity-financing costs, we raise our DCF-based TP to IDR1,870 (from IDR1,670, 17% upside). This implies 25x FY17F P/E, ie near to its 5-year average forward P/E. Key risks to our call include rising competition, higher sales returns and weakened consumer spending.
¨ Upgrade to BUY. Given lower equity-financing costs, we raise our DCF-based TP to IDR1,870 (from IDR1,670, 17% upside). This implies 25x FY17F P/E, ie near to its 5-year average forward P/E. Key risks to our call include rising competition, higher sales returns and weakened consumer spending.
Kindly click the following link for the full report: Nippon Indosari Corpindo : New SKU Launches, More Sales Force
Andrey Wijaya
Senior Vice President
Research Analyst – Auto,
Consumer, Cement
PT. RHB Securities Indonesia
