INDF IJ - MNC Sekuritas Equity Report 27 April 2021

PT Indofood Sukses Makmur Tbk (INDF IJ)

Undemanding Valuation Coupled with Solid Earnings Quality

Robust FY20 Result: Beat Estimates on Strong Revenues

• Consolidated net sales increased 22.40% QoQ/18.4% YoY in 4Q20, translated to IDR81.73 tn on a yearly basis; slightly in-line with consensus/ours estimate, implies 101%/102% of FY20 target.
•  CBP and distribution segment recorded a 9.86%/10.18% YoY growth, while agribusiness grew by 6.99% YoY, thanks to the higher ASP of CPO and other downstream products.
•  Operating profit increased by 36.74% YoY to IDR12.61 tn with OPM stood at 15.42% (vs 12.04% in FY19).
•  Core net profit increased by 31.50% YoY to Rp6.50 tn, strongly beat consensus/ours expectation implying 120%/126% of FY20 target. Net profit margin improved to 7.9% in FY20 (vs 6.41% in FY19), mainly driven by strong demand on CPB products as well as higher CPO price.

Expecting Solid Performance from All Divisions

•  We believe CBP segment remain strong (+15.15% YoY),  in FY21E followed with greater demand on noodles helped by the contribution from Pinehill with estimated volume of 4bn packs.
•  Meanwhile, we expect higher sales of Bogasari division (contributes 26.26% 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 10.18% YoY revenue growth in FY21E.
•  However, we remain concerned about rising A&P spending and higher interest expense that potentially curb FY21E earnings, which only grew by 3.09% YoY.

Household Consumption to Accelerate in 2H21E as Economic Proxy to Start Showing Signs of Recovery

We are quite optimistic that annual sales will jump start, boosted by greater consumer spending as government regulation foresees an extra bonus for all employees (THR). We expect the growth to escalate in 2Q21E as the event of Ramadhan and Eid al-Fitr happened. The ongoing national economic recovery is also predicted to increase, with GDP reaching 4.1%-5.1%, supported by an increase in export performance (commodities) and private and government consumption. The latest Consumer Survey conducted by BI revealed how consumer confidence continued to grow in Mar-2021, as confirmed by an increase in the CCI to a level of 93.4 from 85.8/84.9 in Feb/Jan-2021, respectively along with the decrease in daily new Covid-19 cases.

Attractive Valuation, Maintain BUY: TP IDR9,000

We maintain our BUY recommendation for INDF IJ with TP: IDR9,000, which implied PE FY21E/FY22F at 11.87x/10.63x. As a proxy player in the consumer sector, we also note INDF is currently trading at an attractive valuation of 9.14x PE level (-2STD of 3 years avg. mean); 40% 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 return 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.

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