RHB Indonesia - Indofood CBP - A Flat Price For Noodles, a Higher Price For Dairy (Indofood CBP, Plantation, Motorcycle Wholesale) Unknown Selasa, 12 September 2017




Good morning,

Indofood CBP – A Flat Price For Noodles, a Higher Price For Dairy

Our ground checks suggest the retail selling price for instant noodles remained stable, while the selling price for dairy increased, probably as a result of a higher skimmed milk price. While the cost of flour remains manageable, which is positive for instant noodles, we see increased competition in the RTD-tea, indicated by its lower selling price YTD. A main challenge on input costs is the potentially higher refined sugar price after the implementation of a new regulation by the Ministry of Trade. The impact of the new policy is still unclear thus we maintain our forecasts and BUY recommendation on Indofood with an IDR10,300 TP (18% upside) which implies 21x FY18F P/E.

¨ Retail selling prices for instant noodles were relatively flat. Our ground checks during August suggest that the retail selling prices for Indofood’s instant noodles Indomie Kari Ayam and Goreng Special were relatively flat MoM. For premium instant noodles, the sales volume of Indomie Real Meat is likely to increase, as its retail selling price is below that of its competitors. On the cost side, over the past two months the international wheat price was in a declining trend. As there is a timelag between the international selling price of wheat to that of the domestic flour (the main raw material of noodles) the input costs of instant noodles should remain manageable over the next two-three months. Noodles accounted for c.62% of Indofood’s total sales in 1H17 (Figure 1).
¨ Due to higher raw material costs, a higher retail selling price for dairy. Indofood’s dairy price for Indomilk in small pack (190ml) began to increase in August following Indomilk’s price increase for its large pack (1ltr). In our view, this is likely due to a higher cost of its raw material (ie skimmed milk). Dairy products accounted for c.19% of Indofood’s total sales in 1H17 (Figure 1).
¨ Our ground checks suggest that competition in the ready to drink (RTD) tea market remains intense which is indicated by a declining retail selling price of the major RTD-tea brands which include Indofood’s Ichi Ocha, Sinar Sosro’s Teh Sosro, ABC President’s Nu Tea and Coca Cola’s Frestea.
¨ New policy impacting the refined sugar. Following the implementation by the Government of a new Trade Regulation (No. 16/2017) the main challenge going forward on RTD-teas and dairy products is the potentially higher cost of refined sugar. However, the impact is still unclear. The Vice Chairman of Indonesian Farmers Concern Association (HKTI) said this policy may increase the cost of refined sugar by c.2%. The Association of Soft Drinks Industry estimates the price of refined sugar may increase instead by 15%-30%.
¨ Maintain BUY with an IDR10,300 TP (18% upside) which implies a 21x FY18F reported P/E. We maintain our forecast on Indofood for now as the impact of the new policy is still unclear. The main risk to our call is the magnitude of the increase in the cost of refined sugar which may result in added pressure on the earnings of dairy and beverage products. Beverages accounted for c.5% of Indofood’s total sales in 1H17 (Figure 1). (Andrey Wijaya)

Link to report: Indofood CBP : A Flat Price For Noodles, a Higher Price For Dairy
Link to daily report: Indonesia Morning Cuppa 120917

Sector Update:

Plantation – Is The Current CPO Price Strength Sustainable?
Malaysian inventory levels are now at 1.94m tonnes, translating to an annualised stock/usage ratio of 10.3%. This is above the historical average of 9.5%, signalling that stock levels are officially in a surplus. With demand continuing to disappoint, with most of the main markets in negative territory YTD, we do not expect the current strength in CPO prices to persist. This would coincide with an anticipated softening of soybean prices once the initial impact of hurricanes in the US wear off and weather normalises. No change to our UNDERWEIGHT stance on the sector.

¨ Malaysia’s CPO production rose 13.6% YoY in YTD-Aug, although August’s output was down by a slight 0.9% MoM from July. We believe production would pick up in the next couple of months, as most planters are expecting peak output to be in September/October. For the whole of 2017, we expect Malaysia’s CPO output growth to moderate to 10-12% YoY.
¨ Exports rose by 6.4% MoM in August, bringing YTD exports to a 2% increase YoY. In YTD-Aug, exports saw a rise to Pakistan (+14% YoY) and Philippines (+6%). This was offset by a decline in exports to China (-4% YoY) India (-29%) and the US (- 20.5%), while exports to the EU was flat YoY.
¨ Inventory rose 8.8% MoM to 1.94m tonnes in August, despite a dip in output. Annualised stock/usage ratio for August is now at 10.3% (up from 9.5% in July), which is now above the 15-year historical average of 9.5%. This means that stock levels are now officially in a surplus situation. We expect to see a continuation of rising inventory levels, as production resumes its recovery during the peak seasonal period.
¨ 2Q17 results disappointed, as six companies (IOI Corp, Genting Plantations, TSH Resources, Kuala Lumpur Kepong, IJM Plantations and Felda Global Ventures) reported results that were below expectations. Two (Sime Darby and Sawarak Oil Palms) reported results above expectations, with only CB Industrial Product in line. We continue to see strong YoY FFB output growth in 2Q17, although most companies saw lower QoQ production growth. We observe Indonesia continuing to drive this growth, despite most companies guiding for growth to start moderating in 2H17. In Malaysia, while the growth recovery has not been consistent throughout the country, most companies are guiding for output to pick up more strongly in 2H17, with the peak output slated to be in September/October for Malaysia. Most companies continued to guide for strong double-digit FFB growth in 2017, coming from a low base in 2016. For those with downstream operations, we saw stronger QoQ margins, as feedstock prices fell. Most companies continue to guide for stronger margins at their downstream divisions, as selling prices have risen, while feedstock prices continue to weaken.
¨ We maintain our UNDERWEIGHT rating on the sector, on the back of a strong output recovery and weak demand dynamics. Catalysts include a positive change to global demand and any extreme weather occurrences that would have an impact on global vegetable oil output. Our Top BUY is Sarawak Oil Palms while our Top SELL is London Sumatra. (Hoe Lee Leng)
Link to report: Is The Current CPO Price Strength Sustainable?  

August domestic motorcycle wholesale grows 5.2% YoY
August domestic motorcycle wholesale came in at 555,000 units (+3.1% MoM, +5.2% YoY). YTD, 8M17 domestic motorcycles wholesale was flat at 3,8794,000 units (-0.1% YoY). Indonesia Motorcycle Industry Association said that on a monthly basis, there is an improvement on motorcycles sales with sales at the start of 2H17 being much better than 1H17 (1H17 motorcycle wholesale declined by 9% YoY). (Andrey Wijaya)
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Best regards,

Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT RHB Sekuritas Indonesia
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