22 November 2018

PT Indofood CBP Sukses Makmur Tbk ICBP - 21112018

Rise Up, Champion !


9M18 Solid Top-Line driven by Noodles and Dairy Segment

ICBP recorded 9M18 top-line growth of 7.47% YoY to IDR29.47 tn (3Q18: +4.6% QoQ/+11.70% YoY), slightly in line with our estimate, representing 76.51%/77.72% of Consensus’/MNCS’ FY18E estimates. Growth was supported by the Noodles and Dairy segments, which recorded 9.09% YoY and 8.83% YoY in 9M18 (vs 2.49%/2.45% YoY in 9M17), contributing 65.47% and 19.79% to total sales. Meanwhile, Snacks and Food Seasonings posted weak sales numbers. ICBP new product launch was boosted by national and international events, which also contributed to the increased demand for noodles and dairy products.  


Strong Margin Improvement amid Volatile Raw Material Cost

Furthermore, the Noodles and Dairy segment remains a contributor to fatter margins. EBIT recorded an increase of 19.61% YoY (+9.62% QoQ) with a 16.87% margin, amid fluctuations in the price of wheat, sugar and skimmed milk. The Noodles and Dairy segments posted higher EBIT margin, at 20.65%/12.33% level in 9M18 (vs 19.76%/11.00% in 9M17). We also note a gain in forex, as other income added 14.57% YoY to net profit in 9M18 (+10.72% QoQ) to IDR3.48 tn (vs IDR3.04 tn in 9M17) with net profit margin at a level of 11.82%. Net profit growth is generally better than consensus estimate and ours, reflecting 81.08%/ 82.97% of FY18E Consensus/MNCS estimate. 


Product Innovation Needed Even though it will adversely affect A&P costs

Based on the Nielsen Adex Report on 3Q18, instant food and snack biscuit division was observed to record a significant increase in advertising costs, reaching IDR1.2 tn/IDR1.1 tn (+21%/+17% YoY) respectively. We believe the launch of several new products along with many events such as the World Cup and the Asian Games, caused higher ICBP advertising costs. This can be seen from Indomie products which occupied the first rank with 713 ad spots during the World Cup program. We see higher advertising costs should be compensated by product innovation to manage its margin in FY19F. Meanwhile, total development and product innovation amounted to 36 SKUs (Stock Keeping Units) in 1H18. Product development and marketing strategies are predicted to be able to drive an increase in sales volume, by an average of 6.90%/7.30% YoY in FY18E/FY19F, with an increase in ASP of ~3% YoY.  ICBP sales are projected to rise to IDR37.93 tn/IDR40.91 tn, growing by 6.52%/7.87% YoY in FY18E/FY19F.


Recommend BUY at a Target Price IDR9,600

We recommend BUY for ICBP with TP: IDR9,600, which implies PE/PBV of 26.65x/5.17x in FY18E and 24.48x/ 4.67x in FY19F. We are confident the consumer goods sector will improve along with stable prices of a number of commodities, government stimulus programs and subsidies, and political spending ahead of next year's elections. Furthermore, potential risks coming from higher opex from A&P expense, tightening competition and weakening Rupiah. 


Download PDF