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Wednesday, April 13, 2011

Kalbe Farma (KLBF)

by Samuel Securities

Performance meet expectations

Highlights:

 In FY10 KLBF recorded 12.5% YoY revenue growth and 38% YoY earnings growth at Rp10.227 trillion and Rp1.286 trillion respectively.

Comments:

 KLBF’s FY10 audited result was in-line with market expectation as well as with our projection. Nutritionals and Prescription pharmaceuticals divisions contributed the largest growth in revenue with 18.4% and 16.5% YoY respectively. Distribution division also did well despite the packaging divestiture and managed 13.8% YoY growth compensating the underperforming Consumer Health division.


 Consumer health division was the laggard amongst other division with 17.9% QoQ and 1.5% YoY decline in revenue as a result of unstable sales of the energy drink products and lower sales in 4Q10 due to Idul Fitri season in 3Q10.

 Distribution & Packaging division did well in 4Q10 with 53% QoQ revenue growth. This was achieved as a result of increased sales in Medical Devices and the expansion of its distribution network by opening of a new branch in Kendari, Sulawesi, and by the addition of 4 local distribution company partners, thus enabling the Company to reach remote areas in Makassar, Banjarmasin and Pekanbaru. KLBF also built a total of 25 Mitrasana clinics in Greater Jakarta Region.

 Recently, KLBF’s new generic drugs production facility is completed in December 2010 and we expect commercial operation to start around 2Q11. Furthermore, KLBF also started to build a new production facility dedicated for oncology drugs which is expected to be completed in 18 months.

Action & Recommendation:

 We slightly raise our earnings by 5.1% in FY11 and 5.5% in FY12 while we believe gross margin can be maintained around 50%, our DCF valuation suggest a new fair value of Rp3,375 implying 19.85x PE’11F. We downgrade our recommendation to Hold with 8% downside as current market price has exceeded our TP and trading at 21.4x PE’11F. HOLD

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