Confirming the Group’s resilience
Solid 1Q21 Result Across All Segments
• Consolidated net sales increased in all segments by 7.0% QoQ/27.2% YoY in 4Q20, translated to IDR24.56 tn on a yearly basis; slightly above consensus/ours estimate, implies 26%/27% of FY21E target.
• CBP and distribution segment recorded a 27.3%/19.0% YoY growth, while agribusiness grew by 40.1% YoY, thanks to the higher ASP of CPO and other downstream products.
• Operating profit was up 42.9% YoY to IDR4.91 tn with OPM expanded to 20.0% (vs 17.8% in 1Q20).
• Net profit increased by 23.2% YoY to IDR1.73 tn, slightly in-line with consensus/ours expectation implying 26% of FY21E target. Meanwhile, net margin slightly lower 30bps in 1Q21, mainly driven by higher interest expense.
• Moving forward, we believe that amidst the current uncertain and challenging situation, INDF should maintain a positive performance throughout the year.
Expecting Better EBIT Margin to Offset Higher Finance cost
• 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.
• Meanwhile, we expect higher sales of Bogasari division (contributes 24.5% to total sales) given its low based in 1H20, better volume during Ramadhan season and strong brand positioning.
• 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.
• Besides, the distribution segment remains stable with 10.1% YoY revenue growth in FY21E.
• We expect EBIT margin to rise in all segments to 15.51% level.
• However, we remain concerned about rising A&P spending, higher interest expense, and forex losses that potentially curb FY21E earnings growth.
Beware of rising Covid-19 cases; Economic Recovery could be slower-than-expected
Indonesia hit its highest daily increase in Covid-19 infections with 40k cases, raising the country's tally to 2.56mn on Monday (12/07). Hence, the government is reportedly preparing a scenario to extend the PPKM Darurat for another 4-6 weeks. The prolonged social restrictions have the potential to reduce domestic consumption in 3Q21, resulting in slower-than-expected economic recovery, in our view. Thus, we downgraded our FY21E GDP projection to 3.8% YoY in FY21E, inline with government target.
Maintain BUY with a Lower TP: IDR8,650
We maintain our BUY recommendation for INDF IJ with a lower 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 8.3x (close to -2STD of 5-yrs avg mean), around a 43% discount to ICBP. 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-thanexpected consumer spending; 3) any vaccine rollout delay; 4) higher raw materials ASPs; 5) another progressive levy on CPO price.
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