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Tuesday, May 3, 2011

Kalbe Farma

by Kresna Securities 

1Q11 result was relatively inline with our expectation accounted for 19.2% — 20.5% from our FY estimate. We have changed our FX assumption from Rp8,986/US$ to Rp8,800/US$ due to strengthening rupiah, which will expand margin this year by 0.1% — 0.7%. As such, we have raised our EPS projection by 0.4% — 1.9% in 2011—2013 and consequently raised our TP by 5.8% to Rp3,650 per share. However, as the share provides only around 1.4% upside potential to our TP, we maintain our HOLD recommendation. Currently Kalbe is also trading at demanding FY11 P/E of 21.4x, premium to its historical average P/E of 15.1x.

· Moderate growth in 1Q11. The company booked Rp2.4tr revenue in 1Q11, increased by 7.5% YoY. We believe this moderate performance was partially caused by the divestment of Kageo Igar Jaya (IGAR) on August last year while revenue from packaging division will be eliminated this year. However, bottomn line looks stronger registering a growth of 17.6% YoY to Rp325.7bn.

· Special case on distribution and logistics division. Revenue from this division in 1Q11 decreased by 5.8% YoY to Rp714.8bn, attributable to the divestment of IGAR in August last year. However, should we adjust the revenue by excluding the sales from packaging division in 1Q10, revenue from thedivisions was increased by 7% YoY. This division was also the only one that posted a decline in gross margin by 3.8% to 27.7% in 1Q11 due to pressure frommthe principals to lower the margin.

· Strong IDR = improving margin. As 90% of raw material is imported, we believe Kalbe is benefited by the strengthening rupiah against USD during this year. The rupiah has even reached its strongest level in 7 years at p8,543/US$. Having said that, we see an improvement in the company's gross margin by 1.6% to 51.8% in 1Q11.

· Higher dividend payout ratio. The company has shown its intention to raise dividend payout ratio (DPR) from 27% to 50% this year, higher than our expectation of 32.5%. This will translate to Rp643.4bn dividend this year or equivalent with Rp68.6/share, giving a dividend yield of 1.9%.

· Treasury stock is ready to sell. The company is ready to sell its 781m shares in treasury stocks worth around Rp2.8tr if the company needs the funds for its acquisition plans. We see this is as a healthy plan to support its growth in the future.

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