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Sunday, October 30, 2011

PT Kalbe Farma Tbk - Revenue Grew 5.8%

by Kresna Securities

Investment Thesis

We maintain our HOLD recommendation with 12-month TP of Rp3,650. In 3Q11, the company booked revenue of Rp2.7tr, grown by 5.7% QoQ, while operating profit jumped by 13.9% QoQ to Rp526.0bn, mainly resulting from shrinking promotion expenses (-65.0% QoQ). Net income in 3Q11 rose by 11.5% QoQ to Rp1.1tr. Cumulatively, 9M11 revenue grew by 5.8% YoY to Rp7.7tr, while net income accelerated by 18.1% YoY to Rp1.1tr. The results were seemingly somewhat below our projection (65.1%-67.6% of FY11E), however, we believe they remain intact as historical data suggests that 4Q is the strongest quarter and should form around 30%-33% of full-year earnings.

Key Catalysts

Positive growth across divisions. All divisions posted positive revenue growth in 3Q11, ranging between 1.9%-14.3% QoQ. Nutritional Division posted the highest growth of 14.3% YoY in 3Q11, followed by Consumer Health (+7.0% YoY), Distribution & Packaging (+5.0% YoY), and Prescription Pharmaceutical Divisions (+1.9% YoY). Overall, revenue in 3Q11 grew by 5.7% QoQ to Rp2.7tr, bringing 9M11 revenue to Rp7.7tr, a rise of 5.8% YoY, compared to Rp7.3tr in 9M10. However, if we exclude any consideration of the packaging division in 2010, revenue in 9M11 rose by 9.1% YoY.

Higher input cost offset by lower opex. Higher input cost depressed gross margin in 3Q11 by 1.2% QoQ to 51.3%, taking gross profit to Rp1.4tr (+3.3% QoQ). However, we note lower opex by 2.1% QoQ to Rp880.0bn in 3Q11, as a result of declining promotional expenses: down by 65.0% QoQ to Rp75.0bn, pepping up operating margin by 1.4% QoQ to 19.2%; therefore, operating profit accelerated by 13.9% QoQ to Rp526.0bn, while net income rose by 11.5% QoQ to Rp390.0bn. Cumulatively, 9M11 net income grew by 18.1% YoY to Rp1.1tr from Rp902.0bn in 9M10.

Declining cash. Cash position declined by 20.3% to Rp1.9tr by the end of Sep11, taking into account the Rp643.4bn dividend payment in Jul11 and the purchase of the total 7.58% of EMPT's shares (equal to Rp164.2bn) in Aug11. The amount, however, is still sufficient to finance company’s expansion plan next year, which is projected to reach Rp700.0bn.

Earnings Outlook

9M11 results are still within expectations. Revenue accounted for 65.1% of our full-year estimate and 66.7% of consensus, while net income was 67.6% of our full-year estimate and 70.0% of consensus. Worth noting is that while the results in 9M11 might seem somewhat far from our forecast, we believe they remain intact, since historical data suggest that 4Q is the strongest quarter and tends to form around 30%-33% of full-year earnings. Hence, we prefer to maintain our forecast at the moment and reiterate our HOLD recommendation with 12-month TP of Rp3,650.

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