Another Good Performance Across All Segments
Consolidated net sales increased 20% YoY to IDR47.29tn
• Consolidated net sales increased in all segments by 20.1% YoY in 1H21, translated to IDR47.29tn; slightly in-line with consensus/our estimate, implies 50.5%/51.8% of FY21E target.
• CBP and distribution segment recorded a 22.1%/10.5% YoY growth in 1H21. We believe CBP segment remain strong in FY21E followed by greater demand on noodles (+15.1% YoY), helped by the contribution from Pinehill. We expect EBIT margins from the CBP division is likely to increase by 30bps to 19.71% in FY21E.
• Agribusiness segment grew by 28.7% YoY in 1H21, thanks to the higher ASP of CPO and other downstream products. The agribusiness segment continues to perform well, along with an uptrend on avg. CPO price as we project will still stand around RM3,900-RM4,000 per ton in FY21E.
• Meanwhile, Bogasari segment increased by 8.5% YoY in 1H21. We expect higher sales of Bogasari division in FY21E given its low based in 1H20, better volume during Ramadhan season and strong brand positioning.
1H21 earnings rose by 20.8% YoY, slightly in-line with our estimate
• Operating profit was up 50.8% YoY to IDR8.49tn with OPM expanded to 17.9% (vs 14.3% in 1H20). We expect EBIT margin to rise in all segments to 15.51% level.
• Net profit increased by 20.8% YoY to IDR3.43tn, in-line with consensus/our expectation implying 52% of FY21E target. Net margin went slightly higher +10bps in 1H21, although the financing expenses rose to IDR1.2tn and recorded IDR674bn of net forex losses. However, we remain concerned about rising A&P spending, higher interest expense, and forex losses that potentially curb FY21E earnings growth.
• Moving forward, we believe that amidst the current uncertain and challenging situation, INDF should maintain a positive performance throughout the year.
FMCG monitor: FMCG spending are growing but at a lower pace
According to Kantar, Indonesia's 2Q21 FMCG grew by +7% YoY in value and +4% YoY in volume, with shoppers reprioritizing their spending for FMCG with lower purchase level due to the emerging case of Covid-19 in Indonesia. Shoppers compensate bigger basket for home care, dairy, and personal care as they are also keep on increasing their spending for food products. Household spending allocation is also expanding beyond food and FMCG towards healthcare and travel during festive season. We see that economy started to pick up as consumers gaining back their confidence although in a lower pace. Meanwhile, the prolonged social restrictions have the potential to reduce domestic consumption in 3Q21, resulting in slower-than-expected economic recovery, in our view.
Maintain BUY with a TP: IDR8,650
We maintain our BUY recommendation for INDF IJ with a TP: IDR8,650, which implied PE FY21E at 11.35x. As a proxy player in the consumer sector, we also note INDF is currently trading at an attractive valuation of FY21F PE of 8.03x (close to -2STD of 5-yrs avg mean). INDF’s superior market position in consumer sector, well-diversified business portfolio, vertically integrated business operations, and strong cash flow will provide higher returns going forward. Risk to our call: 1) increase in competitive intensity; 2) lower-than-expected consumer spending; 3) any vaccine rollout delay; 4) higher raw materials ASPs; 5) another progressive levy on CPO price.
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