Monday, May 23, 2011

Agribusiness Reinforcement - PT. Indofood Sukses Makmur Tbk

by Trimegah Securities

INDF reported Rp735.6bn net profit in 1Q11, increase 15.6% YoY. Revenue up 15.6% YoY mainly contributes by ICBP, Bogasari, and Agribusiness. EBIT margin improve to 16.5% from 14.4% strongly support by Agribusiness, while 3 others division show weaker margin from higher input cost. Interest expense fell 31.4% from debt payment since ICBP IPO.

Although volume growth 10.4% YoY, management strategy to dominate flour market seems paid with significant decline in EBIT. EBIT margin dropped from 11.4% to 8%, mainly due to peak in wheat price in 1Q11 while management decides not to increase the product price yet. Company is reviewing plan to increase its flour price to normalize their margin after grabbing more market shares.

Company's EBIT help by agribusiness division by rise in sales volume and higher CPO Price in 1Q11. Volume growth by 23.4% YoY, higher CPO price lead plantation margin reach 36.4%. Edible oil & Fats record 6.5% volume growth; 20% price increase in cooking oil help to create slight positive margin (1.9%) from loss position last year. Distribution division show relatively flat revenue, sales only grow 4.2% to Rp868.3bn. EBIT slammed 55.8% due to increase on transportation cost and rental fee.

There is no significant change in cash position, debt slightly decrease (5.9%) to Rp13.5tr. The divestment of Salim Ivomas in the next few months is expected to reduce company's debt amount that rise from acquiring LSIP.

Valuation and recommendation

An integrated business between plantation and consumer manufacturer create a stable margin for INDF. The divestment of 20% stake in Salim Ivomas also becomes a positive catalyst for INDF. Consensus target price for end of 2011 is Rp6028/ share, reflect 16x PE ratio.

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