Equity Research Company Update Thursday,27 September 2018 BUY MAINTAIN Last price (IDR) 5,975 Target Price (IDR) 8,200 Upside/Downside +37.2% Previous Target Price (IDR) 8,000 Stock Statistics Sector Bloomberg Ticker CONSUMER INDF IJ No of Shrs (mn) 8,780 Mkt. Cap (IDRbn/USDmn) 52,683/3,531 Avg. daily T/O (IDRbn/USDmn) 48.6/3.3 Major shareholders (%) FIRST PACIFIC COMPANY LIMITED 50.1 VANGUARD GROUP 1.6 Estimated free float 48.3 EPS Consensus (IDR) 2018F 2019F 2020F Danareksa 513.7 568.1 610.0 Consensus 500.4 543.3 587.2 Danareksa/Cons 2.7 4.6 3.9 INDF relative to JCI Index Indofood Sukses Makmur(INDF IJ) Compelling business meets enticing valuation The expectation that Bogasari and CBP will continue to perform well in the coming months coupled with the prospect of CPO price recovery should support INDF shares in our view. As such, we see the recent share price weakness as a buying opportunity. Maintain BUY. Attractively valued. INDF remains as the cheapest stock in our consumer universe, currently trading at a FY19F PE of just 10.6x. We believe that the widening discount to ICBP which has reached 52% in the past few months - owes largely to INDF s agribusiness exposure. The prospects for agribusiness look brighter, however, and our plantation analyst is confident of a recovery in CPO prices. In addition, Bogasari and CBP should also perform well in 2H18. Given this backdrop, we view the recent share price weakness as a buying opportunity for investors. Bogasari has upped its ASP. The company has raised its ytd ASP for Bogasari wheat flour by an average of 9-10% ytd. The gradual increase in ASP (3-4% in 1H18 and another 2-3% in July 2018) was intended to mitigate the impact of higher wheat prices this year. The ASP increases should bode well for Bogasari, as we estimate volume growth of around 3% with a 6.5% EBIT margin in FY18F. ICBP is performing strongly. In the past several quarters, the noodles division recorded the highest-ever EBIT margin at 20-22%. Given this, we believe that higher wheat flour prices should only have a minimal impact on the noodles division, as prices were increased early this year. We estimate a FY18 EBIT margin in the noodles division of around 20% with volume growth of 2% yoy. The expected continuation of solid performance in the other divisions including dairy and nutrition and special foods should pave the way for 8.8% earnings growth in FY18F. Maintain BUY with higher TP. We roll over our valuation to 2019 and arrive at a higher target price of IDR8,200 (FY19F PE of 14.4x) based on the SOTP. In the near term, lower-than-projected Malaysia palm oil output in FY18 as the result of declining CPO yields combined with higher palm oil exports from Malaysia given lower export supplies from Indonesia following the full implementation of the B20 mandate should sustain CPO prices at MYR2,450/ton and MYR2,550/ton in FY18 and FY19, respectively. This should create positive sentiment on INDF, we believe. Maintain BUY. Source : Bloomberg x Natalia Sutanto (62-21) 2955 5888 ext.3508 natalia.sutanto@danareksa.com Key Financials Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Revenue (IDRbn) 66,659 70,187 74,050 79,884 86,088 EBITDA (IDRbn) 10,377 10,696 11,433 12,511 13,368 EBITDA Growth (%) 18.7 3.1 6.9 9.4 6.8 Net profit (IDRbn) 4,145 4,168 4,511 4,988 5,356 EPS (IDR) 472.0 474.7 513.7 568.1 610.0 EPS growth (%) 39.6 0.6 8.2 10.6 7.4 BVPS (IDR) 3,299.9 3,550.9 3,831.0 4,146.1 4,476.2 DPS (IDR) 168.0 235.0 236.4 255.8 282.8 PER (x) 12.7 12.6 11.7 10.6 9.8 PBV (x) 1.8 1.7 1.6 1.4 1.3 Dividend yield (%) 2.8 3.9 3.9 4.3 4.7 EV/EBITDA (x) 5.8 5.9 5.5 5.0 4.7 Source : INDF, Danareksa Estimates www.danareksa.com See important disclosure at the back of this report 1
Oct/15 Dec/15 Feb/16 Apr/16 Jun/16 Aug/16 Oct/16 Dec/16 Feb/17 Apr/17 Jun/17 Aug/17 Oct/17 Dec/17 Feb/18 Apr/18 Jun/18 Aug/18 Exhibit 1. Revenues and Growth Exhibit 2. Net Profits and Growth Exhibit 3. Margins Exhibit 4. Gearing Level Exhibit 5. PE Band Exhibit 6. Widening discount between ICBP and INDF 35.0 20.0% 18.0 14.0 17.2 15.1 12.9 30.0 25.0 20.0 15.0 0.0% -20.0% 10.0 10.0 5.0-40.0% PE Average +1SD -1SD +2SD -2SD - -60.0% Jan/13 Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 Discount - ICBP/INDF P/E ICBP P/E INDF www.danareksa.com See important disclosure at the back of this report 2
1/Jan/11 1/Aug/11 1/Mar/12 1/Oct/12 1/May/13 1/Dec/13 1/Jul/14 1/Feb/15 1/Sep/15 1/Apr/16 1/Nov/16 1/Jun/17 1/Jan/18 1/Aug/18 Exhibit 7. CPO price in correlation to INDF s discount to ICBP s PE 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Pal2maly Index (MYR/ton) Discount to ICBP 50% 30% 10% -10% -30% -50% -70% Exhibit 8. Wheat price (USD/bushel) 630 610 590 570 550 530 510 490 470 450 7/16/2015 7/16/2016 7/16/2017 7/16/2018 Exhibit 9. Valuation table SOTP Stake EBIT 2019 EV Effective valuation % Method IDR bn IDR bn ICBP 80.5% 102,370 82,408 78% Based on Danareksa' TP of IDR9,400 Bogasari 100.0% 1,482 11,858 11,858 11% 8x EV/EBIT Agribusiness 74.3% 11,988 8,912 8% Market Distribution 100.0% 277 2,796 2,796 3% 9x EV/EBIT Net debt - holding Co (10,455) Total EV 95,519 Holding company disc 25% (23,880) Equity value (Rp bn) 71,640 Per share (Rp) 8,200 14.4x PE 2019 Source: Danareksa Sekuritas estimates www.danareksa.com See important disclosure at the back of this report 3
Exhibit 10. Income Statement Year to 31 Dec (IDRbn) 2016A 2017A 2018F 2019F 2020F Revenue 66,659 70,187 74,050 79,884 86,088 COGS (47,322) (50,318) (52,660) (56,554) (61,113) Gross profit 19,338 19,869 21,390 23,330 24,974 EBITDA 10,377 10,696 11,433 12,511 13,368 Oper. profit 8,272 8,561 9,161 10,059 10,758 Interest income 545 500 530 558 547 Interest expense (1,574) (1,396) (1,458) (1,287) (1,305) Forex Gain/(Loss) 273 62 16 157 0 Income From Assoc. Co s (246) (103) 0 0 0 Other Income (Expenses) 116 34 229 108 184 Pre-tax profit 7,385 7,659 8,478 9,595 10,184 Income tax (2,533) (2,513) (2,782) (3,149) (3,342) Minority interest (708) (977) (1,185) (1,458) (1,485) Net profit 4,145 4,168 4,511 4,988 5,356 Core Net Profit 3,871 4,106 4,495 4,831 5,356 Exhibit 11. Balance Sheet Year to 31 Dec (IDRbn) 2016A 2017A 2018F 2019F 2020F Cash & cash equivalent 13,362 13,690 16,550 15,334 15,887 Receivables 5,205 6,853 7,230 7,424 8,040 Inventory 8,470 9,691 10,142 10,892 11,770 Other Curr. Asset 1,415 1,481 1,681 1,885 1,919 Fixed assets - Net 25,702 29,787 33,318 37,124 41,198 Other non-curr.asset 27,487 25,637 25,849 26,488 26,755 Total asset 82,175 87,939 95,570 99,948 106,370 ST Debt 9,305 12,074 15,139 16,846 16,881 Payables 4,760 5,466 5,780 6,004 6,610 Other Curr. Liabilities 5,154 4,097 4,193 4,803 5,263 Long Term Debt 11,888 11,607 11,636 8,620 8,744 Other LT. Liabilities 7,126 7,938 8,971 10,395 12,006 Total Liabilities 38,233 41,183 45,718 46,668 49,504 Shareholder'sFunds 28,974 31,179 33,638 36,405 39,303 Minority interests 14,967 15,578 16,214 16,875 17,564 Total Equity & Liabilities 82,174 87,939 95,570 99,948 106,370 www.danareksa.com See important disclosure at the back of this report 4
Exhibit 12. Cash Flow Year to 31 Dec (IDRbn) 2016A 2017A 2018F 2019F 2020F Net income 4,145 4,168 4,511 4,988 5,356 Depreciation and Amort. 2,278 2,460 2,706 2,940 3,158 Change in Working Capital (1,111) (2,261) (465) (574) (705) OtherOper. Cash Flow 9,959 451 1,103 991 1,000 Operating Cash Flow 15,270 4,820 7,855 8,345 8,810 Capex (3,188) (6,841) (6,431) (6,884) (7,310) Others Inv. Cash Flow (2,162) 2,379 512 57 357 Investing Cash Flow (5,350) (4,462) (5,919) (6,828) (6,952) Net change in debt (5,151) 1,906 2,764 (1,310) 160 New Capital (1,850) 710 659 686 714 Dividend payment (1,475) (2,063) (2,075) (2,246) (2,483) Other Fin. Cash Flow (1,158) (583) (424) 138 306 Financing Cash Flow (9,634) (30) 924 (2,732) (1,304) Net Change in Cash 286 328 2,860 (1,215) 553 Cash - begin of the year 13,076 13,362 13,690 16,550 15,334 Cash - end of the year 13,362 13,690 16,550 15,334 15,887 Exhibit 13. Key Ratios Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Growth (%) Sales 4.1 5.3 5.5 7.9 7.8 EBITDA 18.7 3.1 6.9 9.4 6.8 Operating profit 20.3 3.5 7.0 9.8 7.0 Net profit 39.6 0.6 8.2 10.6 7.4 Profitability (%) Gross margin 29.0 28.3 28.9 29.2 29.0 EBITDA margin 15.6 15.2 15.4 15.7 15.5 Operating margin 12.4 12.2 12.4 12.6 12.5 Net margin 6.2 5.9 6.1 6.2 6.2 ROAA 4.8 4.9 4.9 5.1 5.2 ROAE 14.7 13.9 13.9 14.2 14.2 Leverage Net Gearing (x) 0.2 0.2 0.2 0.2 0.2 Interest Coverage (x) 5.3 6.1 6.3 7.8 8.2 Source : INDF, Danareksa Estimates www.danareksa.com See important disclosure at the back of this report 5
www.danareksa.com See important disclosure at the back of this report 6