Company Update

22 Juli 2020

Consumer Sector: Indofood Group Highlight 22 July 2020

Indofood Group Highlight

Consumer Sector


Doing Well Against All Odds


Reaping the Rewards from INDF & ICBP

INDF IJ and ICBP IJ are releasing dividends soon with the distribution date of August 14th and August 12th, respectively. INDF cash dividend amounts to IDR2.44 tn, which is equivalent to IDR278 per share with a 4.26% yield. Meanwhile, the payout ratio is 49.73% with FY19 net profit at IDR4.91 tn. On the other hand, ICBP’s dividend reached IDR2.5 tn, which is equal to IDR215 per share. The dividend yield stood at 2.27%, with a payout ratio of 49.76% from the FY19 net profit of IDR5.94 tn. The cum dividend date for both will be July 23rd. We believe that dividends provided by both companies are still attractive amid uncertain market conditions since the offered dividend yields are higher than the previous year (3.62% for INDF in FY19 and 1.52% for ICBP in FY19).


Stellar Performance in 1Q20 from ICBP

INDF’s performance growth continues to grow but slower due to the challenging global conditions. It recorded revenue at IDR19.31 tn, increasing slightly by 0.70% YoY. On the other hand, ICBP’s performance growth is more stellar with a revenue growth of 6.67% YoY, reaching IDR12.01 tn in 1Q20. The revenue growth trickled to the net profit growth as well. INDF recorded IDR1.40 tn of net profit, a 4.03% YoY increase, while ICBP bottom line substantially surged to IDR1.98 tn, increasing by 48.24% YoY. ICBP emerged as a winner during the pandemic-induced economic condition since its performance growth can be attributed to the increased need for staple food, especially during the early days that drove many people to stockpile on food. While both companies might face a decline in 2Q20 as the public purchasing power decreased, both companies have proved their resilience in the first quarter.

Keeping Up with the Acquisition

ICBP management stated the general shareholder meeting would be postponed at an unknown later date because the financial services authority has asked for more information regarding ICBP’s transaction plan on the Pinehill acquisition. Previously, ICBP has signed the agreement to acquire Pinehill Group with a massive value of USD2.99 bn (IDR44.25 tn; IDR14,800/USD) that would require a bank loan of USD2.69 bn, or 90% of the price valuation. ICBP received backlash because Pinehill was valued too high at 23.25x PE and that Pinehill is an affiliate of Mr. Anthony Salim (CEO Indofood Group). Now, there is a threat that the acquisition will fail because shareholders are still sceptical of the price valuation, along with the processes and management of an overseas company. Nonetheless, we believe that the acquisition can still be an attractive asset to make ICBP a global food player.


BUY Recommendation for ICBP (TP: IDR10,300) and INDF (TP: IDR8,500)

No matter the result of the acquisition, we maintain our BUY recommendation of ICBP with a target price at IDR10,300 based on FY20E PE of 18.98x (under the -2STD of its 5-years mean). We also maintain our BUY recommendation INDF with a target price at IDR8,500 on FY20E PE of 11.72x (close to -1.5STD of its 5-years mean). This is especially when INDF is valued below the average of its peers, as JAKCONS shows a PE of 17x. Downside risk to our call: 1) higher interest cost due to acquisition; 2) higher COGS due to the supply chain disruption; 3) depreciation of IDR; 4) lower public purchasing power.


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