When Local Go International
1Q18 : Softer Top Line, Stronger Bottom Line
SIDO successfully booked revenues of IDR620.84 billion (+2.88% YoY), supported by the growth of herbal product segment, contributing 65.68% to total sales in 1Q18. This 1Q18 revenue reflects 22.50%/22.61% of MNCS/Consensus estimates. SIDO also successfully managed to maintain its operational performance, so that gross profit increased by 17.77% YoY from IDR259.73 billion to IDR305.89 billion, with a maintained margin of 49.27% (vs 43.04% in 1Q17). The efficiency of SIDO has an impact on net profit increase by 32.57% YoY in 1Q18, with a net profit margin maintained at 27.23% level (vs 21.13% in 1Q17), which representing 27.08%/30.78% of MNCS/Consensus estimate.
When Local Go International Attracts FDI Interest
In order to expand its market, SIDO exported the Tolak Angin products to 12 countries and targeting a 5% revenues contribution this year (vs 2.5% in FY17). As the first step to strengthen sales in the regional market, SIDO planned to open a new marketing office in the Philippines in 1Q18. Promising business development, supported by good fundamentals has turned out to attract Affinity Equity Partners, a foreign private equity, to collaboration with SIDO. We see this could have a positive impact on SIDO in developing domestic and export markets supported by more than 250 products, with proven track record in their flagship products like Tolak Angin and Kuku Bima Energi.
Recommendation HOLD with Target Price IDR810
We recommend HOLD for SIDO at a TP: IDR810 which implies PE/PBV 19.48x/3.97x in FY18E and 16.98x/3.73x in FY19E. We believe a strong brand and the potential of entering the international market will become a positive catalyst for SIDO.SIDO also offers 3-5% dividend yield in the last three years to attracts investor. On the other hand, rampant circulation of illegal herbal products that are free to circulate can threaten the well-being of the herbal medicine industry. SIDO is currently trading at a level of +2 STD (average 3-years PE) with PE of 21.73x.
