Company Result Update: Indofood Sukses Makmur (INDF IJ, BUY, TP: IDR7,200), Good on Noodles and Flour

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Company Result Update:

Indofood Sukses Makmur (INDF IJ, BUY, TP: IDR7,200)

Good on Noodles and Flour

1Q14 core-profit was in line with our/consensus expectation, came in at IDR925bn (+15.7% q-o-q) on the back of higher noodles and flour earnings. Indofood Sukses booked IDR729bn foreign exchange gain which caused  the company booked net-financing income of IDR445bn (from net-financing expense of IDR572bn in 4Q13). We maintain Neutral with  target price IDR7,200 based on 14.9x-12.4x FY14-15F P/Es.

¨       Within expectation 1Q14 earnings. 1Q14 core-profit came in at IDR925bn (+15.7% q-o-q), in line with our/consensus expectation, achieved at 21.8%/22.3% of our/consensus full-year forecasts. On operating level, 1Q14 EBIT was flat at IDR1,962bn (+0.5% q-o-q) as lower agribusiness and cultivation & processed vegetable EBITs were offset by higher Consumer Branded Products (CBP) and flour (Bogasari) EBITs. While, reported 1Q14 net profit jumped to IDR1,373bn (+135.4% q-o-q) which was driven by IDR729bn gain on foreign exchange from financing activities.

¨       Rising competition in flour.  Bogasari aims to maintain its market shares at minimum 51% in the domestic flour market, for comparison its market share was 53% in FY13. In national flour industry, five new flour mills are ready to commence its operation, adding total national flour mills to 29 mills in 2014. This will add domestic flour mills annual capacity to 9.7m tons (from 7.0m tons), also it will increase domestic flour annual production to 7.5m tons (from 5.4m tons). We see that the additional new mills will increase competition in the domestic flour industry. Furthermore, import-duty and import quota may not be effective as imported flour still flooded the domestic market.

¨       Noodles to remain robust. We see that Indofood Sukses will still be benefit from its robust position in noodles market thanks to its strong brand name. Indofood Sukses’ noodles sales growth has recovered in 1Q14, after aggressive average sales price (ASP) increase at end 2013. We maintain our Neutral call with  target price IDR7,200 based on 14.9x-12.4x FY14-15F P/Es.

Best regards,

RHB OSK Indonesia Research Institute

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