1/15 11/15 12/15 1/16 2/16 3/16 4/16 5/16 6/16 7/16 8/16 9/16 1/16 Indofood CBP Sukses (ICBP IJ) Makmur 9M16 Review: Volume driven in 3Q16 Consumers Company Report October 31, 216 (Maintain) Buy Target Price (12M, IDR) 11,8 Share Price (1/28/16, IDR) 9,525 Expected Return 23.9% Consensus OP (16F, IDRtr) 4.7 EPS Growth (16F, %) 12. P/E (16F, x) 3.9 Industry P/E (16F, x) 33.2 Benchmark P/E (16F, x) 17.7 Market Cap (IDRbn) 111,79.7 Shares Outstanding (mn) 11,661.9 Free Float (mn) 2,27.2 Institutional Ownership (%) 7.9 Beta (Adjusted, 24M) 1.1 52-Week Low (IDR) 5,663 52-Week High (IDR) 1,275 (%) 1M 6M 12M Absolute -1. 26.8 42.7 Relative -.8 15.2 25.3 (D-1yr=1) JCI ICBP 17 15 13 11 9 7 Volume driven and soft cost increase (ICBP) published 9M16 earnings at IDR2.8tr (+15.9% YoY) on the back of IDR26.5tr revenue (+9.9% YoY), which is driven both by increase in volume (6%) and ASP (4%). ICBP s total revenue growth in 9M16 accounts for almost twice the company s last year s growth rate (see Figure 1), which is higher than that of the value of Food & Beverages (F&B) sector (8% YoY for the period). Given Indonesia s consumer sector recovery, ICBP s volume growth is also higher than F&B s, which inched up to 3.9% YoY in 8M16 vs. -.9% YoY in 8M15. All of ICBP s business segments contributed to the increase in 9M16, which is also especially clear in 3Q16 (see Figure 2). We attribute ICBP s rewarding period to the progressive re-launch of existing products as well as the launch of c.6 new products this year. A leap in the dairy segment In 9M16, the ICBP s dairy segment contributed 19.8% to the company s total net revenue (an increase of 18bps; see Figure 3), which was due to its excellent growth both in terms of both volume and profitability, the latter of which was supported by skimmed milk powder s lower price this year. The increase in this segment s contribution reflects a decrease in the noodle segment s to 64.2% of total revenue in 9M16 (vs. 65.4% in 9M15 and 69% in 211). We believe the shift is beneficial for ICBP as it could translate to a more balanced revenue contribution from each segment in the medium/longer term. ICBP s dairy segment s accelerated performance in 9M16 has also resulted in the segment s higher contribution to EBIT, accounting for 24.5% in 9M16 vs. 12.9% in 9M15 (see Figure 5 and 6). The company s next move in this segment is to reinforce its icecream lines, which currently have a small market share in the market. On a side note, ICBP holds the second largest market share in both sweetened condensed milk at an estimated 35% share, and liquid milk at an estimated 27% share. Its main competitor in the milk products include products of non-listed company Frisian Flag Indonesia and listed Ultrajaya Milk Industry. Beverages segment showing a good improvement ICBP s beverages segment underwent a volume growth of 3% YoY in 9M16 as compared to 1% YoY in 1H16, which we attribute to the successful launch of the new product Cafèla expresso in the 3Q16 (see Figure 7). PT. Daewoo Securities Indonesia Dang Maulida +62-21-515-114 dangmaulida@dwsec-id.com FY (Dec.) 12/13 12/14 12/15 12/16F 12/17F Revenue (IDRbn) 25,95 3,22 31,741 36,165 39,883 Gross profit (IDRbn) 6,426 8,1 9,619 11,392 11,965 Operating profit (IDRbn) 2,772 3,185 3,992 5,92 5,977 NP (IDRbn) 2,225 2,645 3,1 3,764 4,375 EPS (IDR) 192 228 259 324 377 BPS (IDR) 1,144 1,257 1,413 1,585 1,78 P/E (x) 49.7 41.8 36.8 29.4 25.3 ROE (%) 16.8 18.1 18.3 2.5 21.2 ROA (%) 1.5 1.6 11.3 12.8 13.4 Note: NP refers to net profit attributable to controlling interests Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
Other existing products, such as Club brand mineral water (see Figure 8) and ready-to-drink tea Ichi Ocha, also continued to do well, as evidenced by a lower total sales decline of 4.6% YoY in 9M16 (as compared to 6.2% YoY sales decline in 6M16). At the other end, the segment s loss before interest and taxes contribution to total EBIT decreased to 5.5% in 9M16 as compared to 1.2% in 9M15 (which is due to improved EBIT margin of -16.7% in 9M16 vs. -23.1% in 9M15). Noodles segment grew in 9M16 After posting % YoY volume growth in 6M16, the noodle segment posted a 1% YoY volume growth in 9M16. We view the growth rate positively in light of the declining trend of the industry s growth in recent years. Indomie cup noodles as well as new product Indomie real meat strongly contributed to the growth, according to the management. Also, the management stated that the premium product Indomie real meat was unexpectedly found in the general trade channels as opposed to the company s initial distribution line only to modern trade channels. This, we think, highlights a strong take of the products by a more general consumers. ICBP launched several noodles products in 3Q16, including Supermi opor ayam flavor. Earnings projections While ICBP s revenue in 9M16 is in-line with our and consensus estimates, the company s published 9M16 earnings are slightly higher than our and consensus estimates. Thus, we revised profitability rate slightly for this year: we adjust 1) our gross margin rate in light of the impact of lower commodity prices, and 2) our operating margin rate as the company incurred softer operating expenses growth this year compared to our expectation. For this year, we project ICBP to register IDR36.2tr in revenue (+13.9% YoY), and IDR3.76tr in net profit (25.4%, YoY). For next year, we project ICBP to post a 1.3% YoY revenue growth to IDR39.9tr and net profit growth of 16.2% to IDR4.3tr. Valuation and recommendation At IDR9,525, ICBP is trading at 25.3x our estimate of FY17F earnings compared to 29.4x FY16F earnings and 33.2x that of the consumer sector. In light of the company s latest development, we maintain our Buy rating on the stock with a 12M DCF-based target price of IDR11,8. At our target price, the stock trades at 31.2x FY17F earnings, which we think is fair. Table 1. ICBP s 3Q16 earnings review 2Q15 3Q15 2Q16 3Q16 QoQ YoY 9M15 9M16 YoY Our FY est. Run-rate Revenue 8,583.5 7,544.5 9,253. 8,296.2-1.3% 1.% 24,95.8 26,471.3 9.9% 36,165.2 73.2% Cost of revenue 5,857.6 5,229.3 6,31.9 5,596. -11.2% 7.% 16,73.8 18,11.2 7.8% 24,773.1 72.7% Gross profit 2,725.9 2,315.3 2,951.1 2,7.2-8.5% 16.6% 7,392. 8,46.1 14.4% 11,392. 74.3% Gross margin 31.8% 3.7% 31.9% 32.5% 3.7% 32.% 31.5% Operating expenses 1,543.1 1,311.1 1,545.3 1,468.6-5.% 12.% 4,195.4 4,491.2 7.% 6,3.2 71.3% Operating profit 1,182.8 1,4.2 1,45.8 1,231.6-12.4% 22.7% 3,196.6 3,968.9 24.2% 5,91.8 77.9% Operating margin 13.8% 13.3% 15.2% 14.8% 13.3% 15.% 14.1% Net non-operating profit 62. (113.) (28.2) 25. (63.3) 11.4 22.9 Pretax profit 1,244.9 891.1 1,377.6 1,256.6-8.8% 41.% 3,133.3 3,98.3 27.% 5,294.7 75.2% Tax expenses 279.3 236.5 327.9 353.5 7.8% 49.5% 86.5 1,28.9 27.6% 1,371.8 75.% Minority interests 23.9 (5.9) 15.2 5.3 (117.3) 119.4 159.2 Net profit 941.7 75.6 1,34.5 852.8-17.6% 2.9% 2,444. 2,832.1 15.9% 3,763.7 75.2% Net profit margin 11.% 9.4% 11.2% 1.3% 1.1% 1.7% 1.4% (IDRbn) 2
Figure 1. Obvious recovery during 9M16 Figure 2. Volume growth comparisons (%, YoY) 3. 25. 24.1 26.5 25 2 22 21 19 18 2. 15 15. 1. 5.. 12. 8.9 1. 9.3 9.9 7.8 8.3 5.8 1Q16 2Q16 3Q16 9M15 9M16 Total revenue (IDRtr) Growth (%, YoY) 1 5-5 -1 1 Noodles Dairy Snack Foods 3 1 Food -1 Beverages Seasoning -4 3 Nutrition and Special Foods 6M16 9M16 Figure 3. Revenue* composition (9M16) Figure 4. Dairy segment s huge growth (9M16) 1.8% 2.6% 6.7% 4.9% Noodles (%, YOY) 16 14 12 14.1 19.8% Dairy Snack Foods Food Seasonings 1 8 64.2% NSF Beverages 6 4 2 2.6 22 Sales Volume EBIT *after elimination, Figure 5. Noodles segment dominated EBIT** share (9M15) Figure 6. More balanced EBIT** contribution (9M16).3% 2.9% 2.4% -1.2%.8% -5.5% 2.1% 2.9% 12.9% Noodles Dairy Snack Foods 24.5% Noodles Dairy Snack Foods Food Seasonings Food Seasonings 91.6% NSF Beverages 75.2% NSF Beverages **after elimination and before unallocated expenses,source: Company data, Daewoo Securities Indonesia **after elimination and before unallocated expenses, Source: Company data, Daewoo Securities Indonesia 3
Figure 7. 3Q16 New product in the beverages segment with a very good offtakes Source: Daewoo Securities Indonesia Figure 8. Bottled water, among the main contributor in the beverages segment Source: Daewoo Securities Indonesia 4
APPENDIX 1 Important Disclosures & Disclaimers Disclosures As of the publication date, PT Daewoo Securities Indonesia, and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding. Stock Ratings Industry Ratings Buy Relative performance of 2% or greater Overweight Fundamentals are favorable or improving Trading Buy Relative performance of 1% or greater, but with volatility Neutral Fundamentals are steady without any material changes Hold Relative performance of -1% and 1% Underweight Fundamentals are unfavorable or worsening Sell Relative performance of -1% * Ratings and Target Price History (Share price (----), Target price (----), Not covered ( ), Buy ( ), Trading Buy ( ), Hold ( ), Sell ( )) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst s estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. Analyst Certification The research analysts who prepared this report (the Analysts ) are registered with the Indonesian jurisdiction and are subject to Indonesian securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of PT Daewoo Securities Indonesia, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or PT Daewoo Securities Indonesia except as otherwise stated herein. Disclaimers This report is published by PT Daewoo Securities Indonesia ( Daewoo ), a broker-dealer registered in the Republic of Indonesia and a member of the Indonesia Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Bahasa Indonesia. If this report is an English translation of a report prepared in the Indonesian language, the original Indonesian language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. 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Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. 5
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