Tuesday, March 8, 2011

PT. Mayora Indah Tbk (MYOR)

by CLSA securities

As one of the biggest coffee and confectionery producers, Mayora is facing cost pressure from rising commodity prices. Though greater business scale, firm support from export, and appreciating Rupiah will help offset cost increases, Mayora’s margin is expected to compress in the near term. We downgrade this year’s earnings by 10% and cut our TP to Rp13,500 based on lower multiple re-rating expectations. TP is derived from 25% discount against 12CL regional peer average PE.

Commodity shock
Soft commodity prices are starting to rise in 2H10, reminiscing what we have seen in 2008. Palm oil, coffee, and sugar prices have exceeded its past record highs. However this year, Rupiah appreciation has helped to mitigate cost pressure. Due to inventory time lag, margins have not been affected by higher costs up to 3Q10. Though 2010 profits have not been finalized, we would expect them to be in line with our expectations.

What will happen in 2011 & 2012?
We downgrade 2011 earnings by 10% as key raw material prices and advertising expenses have increased more than our expectations. The planned 5-10% ASP increases in 1H11 will not be sufficient to offset rising costs. However, we expect this year’s margin compression to be milder than 2008 as the company has achieved greater business scale. On the flip side, we have upgraded next year’s earnings by 7% on the expectations of greater margin recovery when soft commodity prices normalize.

More and more export driven
The export market should be a firm support for Mayora. Even if threats from domestic demand exist, Mayora could divert more of its products to the export market. Export sales have grown by 90% Cagr over the past five years, and its contribution to total sales is increased from 5% to 30% of total sales last year. Management is planning to increase its export contribution to 40% of total sales in the near term.

Maintain BUY
We cut our target price to Rp13,500 per share based on lower multiple rerating expectations. TP is derived from 25% discount against 12CL regional peer average PE. We remain a buyer of Mayora, given its dominant brand presence and track record of delivering growth. Profits grew by 34% Cagr over the past five years, and we are forecasting 30% Cagr for the next two.

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