PT Kalbe Farma Tbk, 1Q12: Strong Quarter; Beats Expectations, Morgan Stanley

Quick Comment: Kalbe Farma reported strong results
for 1Q12. Revenue, EBIT, and PAT grew 27.7%, 23.6%,
and 27.7% yoy, respectively. Revenue beat
expectations by 4%, while earnings beat MS estimates
by 5-6%. The upside was driven by better-thanexpected
growth and margins from the Prescription
Pharma and Nutritionals divisions. 1Q PAT is 24% of our
full- year profit estimate (vs. historical average of c22%).
We continue to view Kalbe as a better consumption play
within our Indonesian consumer coverage and retain our
OW rating.


Key Positives: 1) Acceleration in growth in core
business – while strong revenue growth was facilitated
by a 55% increase in distribution revenue with the
addition of Abbott as a new principal, it is important to
note that underlying core segment growth was faster at
16% yoy (vs. high single digits in 2011). Prescription
Pharma revenue grew 16% yoy while Nutritionals
reported 20% yoy growth in revenue. We estimate the
bulk of the growth was volume led. 2) Gross margin for
Prescription Pharma and Nutritionals improved by
150bp and 60bp, respectively. 3) Working capital cycle
improved by 18 days to 112 days compared to 130 days
in 1Q11 with better inventory control.

What concerned us? Consumer Health segment was
weak with 8.4% revenue growth and 330bp contraction
in GPM. We suspect a change in mix and supply
constraints in the drinks segment drove the weakness.

Some price hikes implemented; input costs remain
in control: Kalbe has implemented selective price
hikes in April (3% for 40% of its prescription pharma
portfolio and 3-5% for some premium products in the
nutritionals portfolio), which is likely to alleviate concerns
on some potential cost increases for the business.

Download file : KLBF 1Q12