Result update: Indofood CBP (ICBP IJ, BUY, TP: IDR10,050), Noodles Boosted 1Q14 Earnings

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Company Result update:

Indofood CBP (ICBP IJ, BUY, TP: IDR10,050)

Noodles Boosted 1Q14 Earnings

1Q14 earnings came in line with our expectation, reaching IDR689bn (+84.7% q-o-q) thanks to noodles’ earnings recovery, while dairy, snacks and beverages’ earnings declined, driven by higher cost of raw materials and advertising & promotion expenses. We maintain NEUTRAL with a IDR10,050 TP based on 21.5x-19.1x FY14-15F P/Es.

¨       A better quarter. 1Q14 earnings grew 84.7% q-o-q to IDR689bn, accounting for 25.2%/26.7% of our/consensus full-year forecasts – thanks to noodles’ earnings recovery. However, dairy, snacks, and beverages booked negative EBIT, driven by higher cost of raw materials and also advertising and promotion expenses. On a consolidated basis, 1Q14 earnings¬ were boosted by lower opex, which declined 11.2% q-o-q to IDR1,005bn. On the flip side, sales increased 18.3% q-o-q to IDR7,355bn, driving EBIT to widen to 11.5% in 1Q14 from 6.2% in 4Q13.

¨       Robust recovery on noodles’ sales volume. 1Q14 noodles’ sales volume surged to 3.47bn packets (+23.5% q-o-q) after declining to 2.81bn packets (-13.3% q-o-q), following an increase in selling price in 4Q13. Furthermore, EBIT margin widened to 16.5% in 1Q14 (from 9.5% in 4Q13), increasing 1Q14 noodles’ EBIT to IDR861bn (+116% q-o-q).

¨       Dairy and beverages booked losses. Higher raw material costs were the main driver of dairy’s operating loss widening to IDR5bn in 1Q14 from IDR2bn in 4Q13. Indofood’s condensed milk market share declined to 34% in 1Q14 (from 39% in 4Q13), while its skimmed milk market share declined to 15% from 18% previously. On beverage products, operating loss declined to IDR27bn in 1Q14 from IDR29bn in 4Q13, thanks to higher sales volume which lowered promotional costs per unit.

¨       Maintain NEUTRAL. We maintain NEUTRAL with a IDR10,050 TP based on 21.5x-19.1x FY14-15F P/Es. Despite disappointing dairy and beverages’ earnings, we believe the company’s outlook is still promising. We expect the selling price of its dairy to go up as its major competitor Ultra Jaya (ULTJ IJ, NR) has also increased its selling price recently. Meanwhile, beverages are estimated to book a profit, driven by lower fixed-cost per unit, which is in line with higher sales volume.

Best regards,

RHB OSK Indonesia Research Institute

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