ICBP, Less savoury, CLSA

We foresee flat Ebit margin of 13% this year despite lower input cost, due
to less likelihood of price adjustment coupled with stiffer competition
which lead to greater ads spending. The company has targeted to
increase its ads spending by about 30% this year, or about 3.5% of its
total sales, from 2.9% in 2011. We thus trim our earnings assumption by
3-5% for FY12-13CL, which translate to 8% earnings Cagr over FY11-
14CL, halved from its consumer peers. Retain U-PF with new TP of
Rp5,400/sh.


Noodle: volume growth at the expense of margin
While we expect noodle volume to recover by 4% this year, this will come at
the expense of margins, as 1) company needs to educate consumers for their
new products, 2) some of these new products are selling at cheaper price to
attract first buyer. We assume noodle volume to hit 11.5bn packs in 2012, at
similar level as 2010, but still 4% below its 2007’s peak. On profitability, we
expect noodle’s Ebit margin to remain flat at 16% level.

Dairy: a slight margin recovery
We expect dairy sales volume to grow by 8% this year, supported by its
additional capacity expansion for both liquid and condensed milk by 50% and
30% respectively, which will come on stream in 2Q/3Q this year. However, we
only assume a slight margin expansion to 8% in 2012, given stubbornly high
sugar prices (about 50% of raw material cost) and greater promotional cost
in an effort to regain its market share.

Ads spending to surge by 30%
The company has targeted to raise its ads spending by c.30% this year to
Rp741bn, or about 3.5% of its total sales from 2.9% in 2011. Not only for
noodle, but the company also needs to advertise more aggressively for its
dairy products to regain market share particularly in liquid category. They will
be competing head-to-head with Ultrajaya (ULTJ IJ), #1 player in liquid milk
with ~30% market share.

Retain U-PF
We do not see near-term catalysts for the stock, as its earnings growth will
likely to remain inferior as compared to its peers (8% FY11-14 Cagr vs 15%
for consumer peers). We trim our TP to Rp5,400/sh, on lower earnings
assumption, still based on a blended DCF and SOTP-valuation.

Downlaod file : Indonesia ICBP 300312