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IP Indofood CBP : FY19 Results - A Resilient Play
Tuesday, March 24, 2020       10:11 WIB

Company Update / IJ /  Click here for full PDF version  
Author(s): Kevie Aditya, Elbert Setiadharma
  • FY19 core net profit grew by 21.3% yoy to Rp4,985bn, in line, despite sales growth normalization to 6.4% yoy in 2H19 (13.7% yoy in 1H19).
  • We expect FY20F sales to grow by 4.2% yoy, but core net profit to remain flat on the back weaker GPM as commodity prices spiked up.
  • Current valuation at 20.5x fwd P/E seems have priced in most risks (2015 bottom was at 18.5x). We upgrade to Buy with Rp10,200 TP.

A solid FY19 results (in line), albeit a normalizing 2H19
4Q19 sales growth was decent at 6.4% yoy, similar to 3Q19, albeit was a normalization from 13.9/13.5% in 1Q/2Q19. 4Q19 GPM was up by 320bps yoy, albeit down by 200bps qoq likely due to the rebound in key commodity prices (i.e. wheat, skim milk, and sugar). 4Q19 earnings grew by 25.1% yoy, which brought FY19 earnings to Rp4,985tr (+21.3% yoy), in line.
Noodles: Remain the backbone of the company
FY19 noodles volume grew by 6% yoy, albeit normalizing in 2H19 (around 3% yoy vs. 9% yoy in 1H19). Following the high base and uncertainties in the light of coronavirus, we conservatively estimate 2/4% yoy volume and revenue growth, respectively, in FY20. FY20 EBIT margin also may contract from FY19's high-based 21.9% as GPM weakened following increase in wheat prices.
Other business units also booked profitability improvement in FY19
Other growing unit is dairy, which posted solid 20% sales growth in 4Q19 on the back of estimated 14% volume growth, albeit due to low base (-1% sales growth in 4Q18). Its FY19 EBIT margin also significantly improved by 370bps to 14.2%, albeit possibly normalizing in FY20 as skim milk and sugar extended price rally. Operating losses in snack foods and beverages units also minimized along with decent sales growth of around 3% yoy in FY19 respectively.
A defensive play at an attractive valuation; upgrade to Buy
We conservatively expect 4.2% yoy revenue growth in FY20F (below company's 6-8% guidance). Nonetheless, as key commodity price increase (i.e. wheat, sugar, and skim milk), we estimate GPM to contract 120bps from high-based 34.1% to 32.9%. Following c.21% share price contraction during market-selloffs in the past 1M, 's current 20.5x valuation (around 1.5 s.d. below 5-year mean) has turned attractive, in our view. Its last bottom of 18.2x fwd P/E was in Dec 2015. We cut our FY20/21F earnings forecast by 5.2/4.8%, but raised our call to Buy (from Hold) with new TP of Rp10,200 (previously Rp11,500), pegged to 21.9x 2021F P/E (1 s.d. below 5-year mean) vs. previously 25.0x 2020F P/E (1 s.d. above 5-year mean).


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