RHB Indonesia Morning Cuppa - 05 April 2018 (Indofood Sukses Makmur, Regional Plantation, Today's News)

Indonesia Morning Cuppa

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Company Update

Indofood Sukses Makmur

Higher Input Costs May Pressure Earnings

The increase in the price of wheat – Indofood’s main input cost – may pressure its earnings ahead. Also, there would likely be a time lag between increased input costs and its ASP hikes. We trim our earnings estimates and SOP-based TP to IDR9,500 (from IDR10,300, 32% upside) which also implies 18x/16x FY18-19F P/Es respectively. As domestic consumer spending may remain robust in the long term, it should be a key beneficiary of this trend. The stock is attractively trading at 14-13x FY18-19F P/Es, ie at a ~40% discount to its subsidiary, Indofood CBP. Maintain BUY.

Analyst: Andrey Wijaya (6221) 2970 7058

Link to report: Indofood Sukses Makmur : Higher Input Costs May Pressure Earnings

Morning Cuppa Full Report: Indonesia Morning Cuppa 050418

Other Stories

Sector News Flash

Regional Plantation

China Imposes a 25% Tariff On US Soybeans

We believe China’s imposition of a 25% tariff on US soybeans would have a short-term impact of lowering soybean prices and raising CPO prices. China would need to switch its demand from soybeans to other oilseeds, which, in turn, is likely to push other oilseeds and vegetable oil prices higher. It also means the price gap between CPO and soybean oil would narrow further, likely resulting in other price-sensitive countries, ie India, switching over to buy more soybeans instead. In short, over time, an equilibrium would be reached and the net impact of these tariff hikes on CPO prices and export volumes are unlikely to be significant. We believe it would be difficult for China to replace US soybeans (which makes up 40% of its total soybean imports). As such, it would have to rely on its reserves in the immediate term. We remain NEUTRAL on the sector.

Analyst: Hoe Lee Leng (603) 9207 7605

Link to report: China Imposes a 25% Tariff On US Soybeans

Morning Cuppa Full Report: Indonesia Morning Cuppa 050418

Today’s News

Jasa Armada to expand services into offshore oil and gas sector

Delta Dunia: Signing new contract with PT Insani Baraperkasa

Association urges postponing new coal shipping rules

Vale Indonesia allocates USD95m capital expenditures in 2018

Garuda Maintenance Facility to build aircraft workshop in Batam and Papua

Kalbe Farma to expand in online sales

Top BUYs
		TP	Upside	Catalysts
		(IDR)	(%)	Catalysts
Astra International		9,500	13	Given the robust of the All New Toyota Rush and Daihatsu Terios sales orders, Astra has raised its monthly sales target. Its lowering of Daihatsu Terios’ selling price while positioning Toyota Rush at a higher class are seen as a good strategy to reclaim market share. We also see the company’s coal mining unit benefiting from higher coal prices. We raise its earnings estimates, and SOP-based TP to IDR9,500 (from IDR9,200, 13% upside), implying 16-15x FY18F-19F P/Es. Key risk is the intense competition in the auto industry. SAIC-GM Wuling just launched its 1.8-litre MPV – Wuling Cortez – with an attractive selling price. Maintain BUY.
BSD City		2,650	44	Expectations of higher marketing sales due to lower interest rates, which ought to incentivise mortgage users. BSD City has the largest proportion of mortgage users vis-à-vis other developers. There is also better monetisation from its large landbank.
Bukit Asam		4,100	20	Bukit Asam is the cheapest coal counter in our coal universe. We think earnings growth should be the catalyst for its share price. We believe investors’ concerns about a potential cost-plus margins formula in determining coal selling prices to domestic power plants should fade. This is based on our checks with several competent sources. The formula is only valid for coal sales to new mine mouth power plants. It is not for existing/under construction mine mouth power facilities.
Indofood Sukses Makmur		10,300	28	We expect higher domestic consumer spending in 2018. This would be thanks to the Government stimulus initiatives for low-end consumers. Indofood Sukses Makmur, as one of the largest food & beverage (F&B) players, should benefit from this situation. F&B accounted for around 62% of its total 9M17 EBIT. Higher flour prices may also boost Bogasari Flour Mills’ earnings, which accounted for around 14% of the company’s EBIT.
	Ramayana Lestari	1,550	34	Consumer spending recovery – especially from the lower income segment in 2018 – is likely to benefit Ramayana Lestari after a flat performance in 2017. This is due to increased subsidies by the Government that have been allocated in the 2018 budget via the Ministry of Social Affairs. In addition, President Joko Widodo’s (Jokowi) work-for-cash programme is likely to help raise consumer spending.