Stevanus Juanda, PT UOB Kay Hian Sekuritas |

3Q18: EBIT Up 24.2%, But Share Price Down Post Results; Upgrade To BUY
3Q18 net income came in at Rp1,263b, rising 31% yoy with EBIT rising 24% yoy. 9M18 results are above expectations. The positive results were achieved on the back of margin expansion in dairy as competition eased. However, share price has declined since the 9M18 results announcement. We view the recovery in operation and below-average valuation as an attractive combination. With this, we upgrade ICBP to BUY and assign a target price of Rp9,650

ICBP reported 9M18 net income of Rp3,554b, up 17.3% yoy. With historical 9M contributing an average 80% of full-year profit, the reported 9M18 net income is above both UOBKH’s (at 84.5%) and consensus’ (at 84.1%) full-year net income forecasts of Rp4,207b and Rp4,228b respectively. 9M18 net income was boosted by nonrecurring gain from revaluation of investment in subsidiary (Rp59b) and forex gain (Rp262b). If we subtract those nonrecurring gains, reported core 9M18 net income is in line with both UOBKH’s (at 79%) and consensus’ (at 79%) full-year forecasts of Rp4,207b and Rp4,228b respectively.

3Q18 net income came in at Rp1,263b, up 34.7% yoy and 17.2% qoq. Very strong performance was observed at operating profit level as operating profit rose by 40% yoy. 3Q18 core net income rose 31% yoy and 12.4% qoq.

STOCK IMPACT

3Q18 segmental analysis revealed that the double-digit growth in sales could have been caused by additional working days in 3Q18 as Lebaran in 2017 took place in 3Q17.

  • Noodle: EBIT was up 17.8% yoy from Rp1,177b in 3Q17 to Rp1,387b as sales rose 13%. This could be due to price increase as volume growth was still flattish.
  • Dairy: EBIT was up 71.5% yoy from Rp164b to Rp281b as competition eased. EBIT margin in 3Q18 expanded 445bp. The strong performance could carry on into 2019.
  • Snack: Losses expanded from a Rp7b loss to a Rp66b loss as competition continued to be stiff with Wings Group making a push into the market.
  • Seasoning: Stable performance as EBIT grew by 6.6% yoy.
  • Nutrition: EBIT decreased from Rp16b to Rp6b.
  • Beverage: Losses decreased from Rp84b in 3Q17 to Rp74b in 3Q18, and competition remained stiff.

EARNINGS REVISION/RISK
With 9M18 net income coming in at about 5% above expectation, we revisit our model and raise our 2018/2019 net income by 6.0%/7.1% respectively. Our new forecasts are 3.9% and 3.4% ahead that of consensus’

VALUATION/RECOMMENDATION

  • Upgrade to BUY and PE-based target price of Rp9,650. ICBP’s share price has declined from Rp8,975 when it announced its 9M18 results to Rp8,725 currently. This is despite a 24.2% yoy EBIT growth in 3Q18. Despite one possibly arguing that 3Q18 benefited from unallocated income, we would like to point out that excluding the impact of unallocated income, EBIT rose 20% yoy in 3Q18.
  • ICBP’s valuation at 22.2x now trade at -0.5SD below the historical average of 23.7x. By applying the historical average 23.7x PE to 2019F EPS, we derive a target price of Rp9,650. With upside more than 10%, we upgrade ICBP to BUY.

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