Indofood CBP (ICBP IJ)
Time to shine
ICBP’s noodle volume grew in 1Q18, after no growth in past 2 years.
Fresh marketing campaign should improve revenue growth outlook.
We forecast stronger earnings growth despite normalising margins.
Re-initiate at BUY with TP of Rp 9,560 (based on target P/E of 27x).
Sign of noodle sales recovery. ICBP’s noodle sales revenue grew by 7.1% yoy in
1Q18, which was much improved vs. growth of 2.6% a year ago. More importantly, its
noodle sales volume growth has turned positive, growing at 3% yoy in that quarter,
after 2 years of no growth, which we believe reflects the company’s innovation in
product flavor and packaging. ICBP’s strong noodle sales performance this year appears
to be in contrast to weak sales recorded for the industry. According to Nielsen, noodle
sales volume industry wide in Indonesia declined by 8% yoy in 1Q18, or worsening
from last year (1Q17: -6%), indicating ICBP’s improving noodle market share amid
weak consumer purchasing power in Indonesia.
Fresh marketing campaign. We forecast ICBP’s revenue growth to improve to
9.2%/9.6% in FY18F/FY19F, from 5.9% CAGR during FY14-FY17, supported by
stronger sales growth outlook for its noodle division to 8.2%/8.5% in FY18F/FY19F,
respectively, from 5.1% CAGR in the prior three years. We believe ICBP’s consistent
efforts in creating fresh marketing campaigns, such as its Nostalgic Marketing
Campaign launched in 2017 and this year’s appointments of its popular brands
Indomie, Pop Mie and Indomilk as official partners of the 2018 Asian Games in
Indonesia may improve consumer perception of these brands as healthy products in
line with shifting consumer preference towards healthy foods and thus supports
stronger sales growth outlook.
Stronger earnings outlook. We forecast ICBP’s earnings growth to accelerate to
10.9% CAGR in the next three years, from 5.4% in FY17, on the back of its stronger
sales outlook and despite our more modest EBIT margin assumption of c.14% in the
coming years (FY17: 14.7%), which is in line with its 3-year historical average, as we
expect EBIT margin for the noodle division to normalize to c.19.6% (FY17: 21.3%)
given 25% YTD rise in global wheat price to USD 5.0/bushel. Similarly, the benchmark
milk powder price has also continued to rise with the price of NZ-based Fonterra now
back to US$3,600/t level (+16% YTD), which in turn might lower ICBP’s EBIT margin
on dairy products to c.10.0% in next 3 years, from 12% in FY14-FY17.
Valuation. We re-initiate coverage with BUY rating and TP of Rp 9,560, which is based
on our target P/E of 27x, higher than ICBP’s 5-year historical average P/E of 24x, which
is justified by stronger revenue and earnings growth. ICBP share price has been trading
sideways, underperforming the overall market index in the past 12 months, on the back
of the company’s weak sales growth. Our forecast for ICBP’s improving ROAE to c.21%
in the coming years, from 20% in FY14-FY17, should also be a positive catalyst for the
stock, in our view.
Putri Tobing, CFA
PT Indo Premier Sekuritas
putri.tobing@ipc.co.id
+62 21 5793 1168
Komentar
Posting Komentar