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Sunday, June 12, 2011

SIMP listing - PT. Indofood Sukses Makmur Tbk

by Samuel Securities

 IPO on SIMP. PT Salim Ivomas Pratama (SIMP) will issue 3.163 billion shares or 20% to the public via Initial Public Offering (IPO) and decided its offer price at Rp1,100/share, the lower end of the initial range of Rp1,060 – 1,700/share. The share is scheduled to be listed in Indonesian Stock Exchange (BEI) on 9 June 2011.

 Proceeds from listing. Based on the offer price, SIMP will raise Rp3,479 billion from the offering. Proceeds from IPO will be used for; 1) 40% for debt repayment, 2) 50% for the Planting division’s new planting and maintenance program, and 3) 10% will be used for Edible Oils & Fats division to construct production facilities and purchase of transportation vessels.

 Dilution effect. Currently, SIMP is a 90% subsidiary of Indofood Agri Resources Ltd (IFAR), a company in which INDF owns 57.8% indirect economic interest. INDF also owns a direct 8.4% interest in SIMP. After IPO, IFAR’s shareholding interest in SIMP will be diluted from 90% to 72%, whereas INDF’s 8.4% direct ownership will also be diluted to 6.7%.

 Valuation and recommendation. With offer price at Rp1,100/share, SIMP will be trading at 9.9x PE’11E (assuming SIMP FY’11E net profit of Rp1,757 billion) which is a discount compared to its plantation peers at an average of 11.76x PE’11E. We believe the share may go up on the first day of listing as the market will adjust towards the fair value. Based on our calculation, the fair value of the stock is Rp1,788/share, 63% upside from the current offer price. We also believe the IPO may be a positive catalyst for INDF as can be seen from the rise of INDF’s share price since the mention of SIMP IPO plan in February. Furthermore, post-IPO, SIMP will have lower net gearing of 0.27x. This will enable the company and/or the Group to have more funding alternatives in the future for expansion purposes. As for INDF, there is no change in our forecast, we maintain our target price and reiterate our recommendation. BUY

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