Sunday, October 7, 2012

Reflecting Higher Cost and SG&A

by Credit Suisse

Indofood CBP (ICBP, O, PT Rp8,100): Reflecting Higher Cost and SG&A

·         Ella upgrades ICBP’s SOTP-based TP to Rp8,100 (from Rp7,350) – as she rolls over the valuation using 2013 assumptions – which equates to 18.6x 2013 P/E with 14% projected  earnings growth for 2013-14. ICBP is CS’ top pick in the Indonesian consumer space. Despite its outperformance against the JCI, ICBP valuation remains undemanding to its peers, and Ella also likes ICBP’s sound growth potential and clearer earnings visibility.

·         Ella, however, fined tuned ICBP’s 2012/13 earnings by -5%/-3% due to: 1) lower noodle ASPs, despite higher volume, as ICBP’s lower end products are getting more popular in the market; and 2) higher volume for the dairy business with the operations of new capacity starting 2013. All-in-all, Ella projects ICBP’s 2012/13 earnings to grow 11%/17% respectively.

·         Ella has also included higher cost and SG&A for ICBP in her model to account for: 1) bigger workforce and higher A&P; 2) weakening rupiah; and 3) higher commodity/input prices. She slightly adjust ICBP’s gross margin assumptions to 26%/27% for 2012/13 – vs 27% previously.

Sales commentary: Trading at 15x 2013 PE at present, ICBP is the second cheapest consumer stock in CS Indonesia coverage universe, after parent company Indofood Sukses (INDF, N, PT Rp6,850), which trading at 12x. We prefer ICBP amid its direct exposure to the consumer segment, vs INDF which is more exposed to commodity prices (wheat and CPO).

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