ICBP 3Q19 Review

ICBP 9M19 Eᴀʀɴɪɴɢs Rᴇᴠɪᴇᴡ

Tᴀsᴛᴇꜰᴜʟ Iɴsᴛᴀɴᴛ Nᴏᴏᴅʟᴇs

9M19 Pᴇʀꜰᴏʀᴍᴀɴᴄᴇs

Indofood CBP Sukses Makmur (ICBP) published its 9M19 financials with total net sales of IDR32.8tr (+11.2% YOY), and net profit at IDR3.9tr (+11.5% YoY). ICBP maintained the sweet surprise it delivered since the 1Q19 whereby its Noodles division posted double digit sales growth of 13.7% YoY, the first time since 2014 of14.9% YoY (1H19: 14.8% YoY, 9M19:12.3% YoY). September this year, Noodles contributed 64.4% to total Sales, and 84.1% to total EBIT. In September this year Sales of Diary, Snack Foods, Food Seasonings, Nutrition and Special Foods  have also increased, by 2.8%, 2.5%, 83.9%, 14.7%, respectively as compared to the same period last year.  Meanwhile, sales  of Beverages division decreased slightly (-0.3% YoY). Note that this year see nine-months consolidation of food seasoning company Nugraha Indah Citarasa Indonesia, fully acquired as of October 2018.

Overall profitability improved with gross margin in during 9M19 recorded at 34.3% vs.32.5% in 9M18, operational margin at 17.7% vs. 16.9% in 9M18, pretax margin at 17.5% in 9M19 vs.16.8% in 9M18, and net income margin at 11.9% in 9M19 vs. 11.8% in 9M18.

Vᴀʟᴜᴀᴛɪᴏɴs

We arrived at equity value /share that we set as the counter’s 12-M target price of IDR13,700 (WACC:9%, LTG:3%), representing a 21.4% share price gain over 12-M horizon. Earnings multiple wise, at our target price, ICBP is trading at 28.5x our forecast FY20 earnings estimates, a multiple within its historical average of 28 times.

Rᴇᴄᴏᴍᴍᴇɴᴅᴀᴛɪᴏɴ

We value the company acumen to catch up with domestic dynamic consumer market, especially in noodle segment, as the result of the company’s continued innovations both in product and process.  ICBP has years of record of strong balance sheet (net-cash position in end of September and last year), and dominance in the share of instant noodles segment domestically. Also, given stable macro indicators during the 3Q19 as well as central bank expansive monetary stance, we foresee next year is another conducive business environment for the company to generate growth. BUY