Kalbe Farma, Management revised its guidance upwards—numbers in line with our estimates, Credit Suisse

● Kalbe’s management has revised its 2012 guidance: it now
expects operating margins of 16.0-16.5% and earnings growth of
10-15% YoY, on the back of 18-20% revenue growth YoY.
Previously, during an analyst meeting in mid-Feb, management
had guided for 15-20% YoY revenue growth for 2012, with
operating margins of 15-16% and earnings growth of 5-10% YoY.
● Management said that the upward revisions were based on the
encouraging results in the first two months of this year, while it is
optimistic about price increases in 1H12. Management also sees
an improving trend for the newly launched products.
● Our forecasts are in line with management guidance. We expect
19% YoY revenue growth in 2012, with operating margins of
16.2% and net profit growth of 8% YoY.
● Our DCF-based target price of Rp3,100 implies 19.9x 2012E P/E,
with 27% estimated earnings growth over the next two years. The
stock has underperformed the JCI: it has only gained 2% YTD,
while the JCI has gained 4%. We reiterate our NEUTRAL rating.


Management said that the first two months have shown
encouraging results
Kalbe’s management has revised up its 2012 guidance. During an
analyst meeting hosted in mid-February, it had guided for 15-20%
YoY revenue growth in 2012, with operating margins of 15-16% and
earnings growth of 5-10% YoY. The lower operating margin (2011E:
17.9%) guidance is due to the higher revenue contribution from the
distribution division. Starting from the end of last year, the distribution
company, Enseval (EPMT.JK), distributes powder milk for PT Abbott
Indonesia (such as Gain Plus, gain School, PediaSure, Isomil, and
Ensure). This will likely add Rp800 bn to Rp1 tn in revenue, but with a
lower margin. As a result, the distribution division should account for
36% of total revenue in 2012E, up from 30% in 2011E.
On 6 March, management revised its guidance for 2012 operating
margins, which it expects to be 16.0-16.5%, with earnings growth of
10-15% YoY, on the back of 18-20% YoY revenue growth.
Management said that the reason for the upward revision is that the
first two months of the year have shown encouraging results while it is
optimistic about price increases in 1H12 (which we believe is likely to
be a price adjustment due to the rise in fuel and electricity prices). The
higher operating margin is underpinned by volume growth, derived
from the manufacturing businesses (prescription pharma, consumer
health, and nutritionals). Management also sees an improving trend
for the newly launched products.

Where are our forecasts?
Our forecasts are in line with management guidance. We expect 19%
YoY revenue growth in 2012, with operating margins of 16.2% and net
profit growth of 8% YoY.
For 2012, we estimate 42% YoY revenue growth for the distribution
division, 12% YoY revenue growth for the consumer health division,
9% revenue growth for the nutritionals division and 8% revenue
growth for prescription pharma business.
Management has guided that Kalbe’s first two months’ results are
encouraging, which we believe was due to the low-base comparison,
whereas as shown in Figure 1 below, the company’s revenue only
grew 8% YoY in 1Q11, due to the lack of price increase at its
prescription pharma division.

Reiterate our NEUTRAL rating on the stock
Our DCF-based target price of Rp3,100 is using a WACC of 11.3%.
On our WACC calculation, we assume a risk-free rate of 7%. Our
target price suggests 19.9x 2012E P/E, with 27% estimated earnings
growth over the next two years. The stock has underperformed the
JCI: it only has gained 1% YTD, while the JCI has gained 4%. We
reiterate our NEUTRAL rating on the stock.

Download file : Asian Daily-KLBF 6 Mar 2012