Download PDFThe battle for market share
- Innovations to support mid-teens growth in 's coffee sales.
- But, tight competition may hamper 's food processing growth.
- Favorable raw material prices should help to sustain the margin.
- Re-initiate at HOLD with TP of Rp 3,200 (based on target P/E of 36x).
Upswing in 's coffee segment. 's strategy to launch various coffee variants when competitors have been focusing more on lowering prices via price promotion has resulted in strong growth of 's coffee sales over the last few quarters (1Q18: 9.7%; 4Q17: 32.4%; 3Q17: 20.6%). We expect sales of 's coffee segment to remain strong, growing by 14.2%/14.6% in FY18F/FY19F, from 13.0% CAGR during FY12-FY17, backed by extensive innovations as well as price adjustment. had kept overall product prices since last year, compared to 7% ASP hike p.a historically, thus we see a potential for 4-5% price hikes in second half this year.
Tight competition curbing growth outlook. Competition in the biscuits category might restrain growth in 's food processing segment, which accounted for 53.8% of the company's overall revenue in 1Q18, despite positive sales outlook during Lebaran this year. Euromonitor data showed that market share of Nabati Group, the pioneer of cheese wafer biscuit, increased to 15.2% in 2017 (vs 2016: 14.7%; 2015: 14.4%) through its Richeese brand, resulting in the Nabati Group's rise to the second-ranking vs. 's third ranking position with 13.2% share in 2017. Our own ground check found Nabati Group offers attractive products, which are selling at average of 50% discount vs. 's biscuits, with a very innovative products flavor and packaging, highlighting the difficulties for to command larger pie in the biscuit market. We expect declining growth trend in 's food processing segment to 12.2/11.2% in FY18F/FY19F, from 16.2% CAGR during FY12-FY17, hampering 's revenue growth to only 13.2%/12.9% FY18F/FY19F, from 14.6% CAGR during FY12-FY17.
Margin to remain solid. On the positive side, prices of key commodities that are used as 's major raw materials like sugar and Robusta coffee bean have been trending down (-17.0% and -2.5%, respectively, YTD), thus could bring upside potential in gross margin level. However, the positive impact might be partially offset by rising wheat price (+25% YTD). We expect GPM of c.26% in FY18F-FY19F, from 24% in FY13-FY17 and EBIT margin of c.12% in FY18F-FY19F, from 11% over the last five, taking into account OPEX -to-sales ratio remain at c. 14% during FY18F-FY19F, in line with 's 3-year historical average.
Valuation. We re-initiate coverage with HOLD rating and TP of Rp3,200, which we derive based on our target FY18F P/E of 36x, or near 1SD of 's 5-year historical average P/E multiple, justified by our forecast for sustained ROAE of c. 24% in the next few years. However, we view the current stock's valuation as demanding, given sharp share price rally since last year and near 50% YTD.
Sumber : IPS RESEARCH
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