Indonesia Industry Focus Indonesia Consumer & Retail Sector Indonesia Consumer & Retail Sector Page...

ed-TH / sa- MA

Keep Calm and Carry On

Recovery in consumption will come later in the year as consumers adjust to the new normal

Margins unlikely to expand much as ASP increase would be limited and rupiah could weaken further

Prefer resilient companies with minimal exposure to USD and which are early beneficiaries when propensity to spend improves

Picks for the year: LPPF and INDF

Coming from a lower base in 2015. After a wobbly 2015, our take is that consumer sentiment will remain weak in the earlier part of 2016 but would gradually recover as the year progresses. We think consumers will slowly adjust to the new normal; and effects from stimulus packages (introduced in 4Q15) will also take some time to reach consumers. We estimate aggregate revenue growth of 9.0% y-o-y for our coverage in FY16F, helped by a lower base from 2015.

Limited room for margin expansion. With our house view that rupiah will weaken further (c.9%) this year, we expect minimal expansion in margins for consumer companies even when commodity prices are low. While we expect increase in selling prices, it should be fairly limited (c.3-5%) vis-à-vis historical hike of c.7-10%, given the fragile purchasing power. We estimate an 8.8% y-o-y aggregate earnings growth in FY16F, partly driven by recovery in ICBP, INDF, and LPPF.

Prefer resilient and value names with LPPF and INDF as our picks. We prefer companies which have minimal exposure to USD/IDR volatility and also those that would be early beneficiaries when consumer spending picks up. We think that the low/middle income consumers have a more elastic spending pattern, and therefore a consumption pickup from the segment could be one of the early signs of an economic recovery. We like LPPF for its resiliency towards rupiah weakness as well as its target market segment (low/mid-income). Also, we think that INDF offers good value for exposure into ICBP, given that the negatives have largely been priced into its share price. A faster-than-expected rebound in CPO price and completion of China Minzhong stake divestment would be upside catalysts to the share price.

JCI : 4,491.74

Analyst

Edwin Lioe +6221 3003 4936 [email protected] Andy Sim +65 6682 3718 [email protected] STOCKS

Sector PE-band chart

Average

+1 stdev

+2 stdev

-1 stdev

-2 stdev15.0

19.0

23.0

27.0

31.0

35.0

Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15

(x)

DBS’ 2016 revenue and net profit estimates

8.2%

9.5%

12.0%

8.4%

16.8%

13.4%

17.5%

10.2%

10.3%

1.9%

7.6%

0.0% 5.0% 10.0% 15.0% 20.0%

Ne

t p

rofi

tR

eve

nu

e

UNVR MAPI MYOR LPPF INDF ICBP

165.9%

Source: Bloomberg Finance L.P., DBS Bank, DBS Vickers

DBS Group Research . Equity 20 Jan 2016

Indonesia Industry Focus

Indonesia Consumer & Retail Sector

Refer to important disclosures at the end of this report

Price Mkt Cap Target Price Performance (%)

Rp US$m Rp 3 mth 12 mth Rating

Indofood Sukses 5,825 3,693 7,150 (7.9) (20.2) BUY Matahari 17,225 3,629 20,000 6.0 18.6 BUY Mayora Indah 26,025 1,681 25,400 (6.7) 23.9 HOLD Indofood CBP 14,300 6,020 13,200 7.3 12.4 HOLD Mitra Adiperkasa 3,685 442 3,300 3.1 (33.9) HOLD Unilever Indonesia 35,900 19,777 30,000 (7.3) 7.2 FULLY

Industry Focus


Table of Contents

A brief look back into 2015 3

Sector Outlook for 2016 5

Some things to note going to 2016 8

Valuation and stock picks 12

Valuation summary 15

Company Guides 16

Indofood Sukses Makmur 17

Matahari Department Store 23

Mayora Indah 29

Indofood CBP Sukses Makmur 35

Mitra Adiperkasa 41

Unilever Indonesia 48

Industry Focus


A brief look back into 2015 Cautious stance played out. We have been adopting a cautious stance on the consumer sector both domestically as well as regionally across ASEAN countries since early 2015. In July 2015, we reiterated our expectation that consumer demand in Indonesia will remain weak despite the Lebaran season – which was indeed reflected on the mediocre 2Q and 3Q sales volumes across consumer and retail companies under our coverage. Volatile and weak rupiah. A strengthening US dollar, coupled with a weak domestic macro environment, has led rupiah to depreciate by c.11% for the year, and as much as 18% at one point in September. This contributed to the deterioration in the Consumer Confidence Index (CCI) which reached its low in September (97.5) before recovering above the 100 level in November 2015. Consumer companies which have exposure to dollar-linked raw materials also faced pressures in maintaining margins, given that ASP increases were not a viable option amid the already weak consumption. However, this was partly offset by commodity prices which are at multi-year lows. No more fuel subsidies. In late 2014, one of the first initiatives taken by President Jokowi was to remove subsidies on RON88 gasoline and diesel. The initial plan was to allow fuel prices to fluctuate every two weeks, taking in factors such as global oil price, inflation, and exchange rate. However, this caused uncertainties in terms of purchasing power among consumers as reflected negatively on the Confidence Index. As the year progressed, the government then periodically made verbal

commitments that fuel price would be unchanged for a certain period of time, in an attempt to ease uncertainties. Weaker-than-expected economic growth. Early in 2015, optimism surrounded the new government and it targeted the year’s economic growth at 5.8%. However, a slow global economy affected Indonesia’s commodity exports (one which it is dependent on) as well as domestic economy. First three quarters of the year registered weaker-than-expected GDP growth of c.4.7%. FY15 economic growth is expected to be at 4.7-4.8%. Companies performing below expectation. Consumer companies across the board registered subpar performances both on the top line and bottom line. For companies under our coverage (INDF, ICBP, MYOR, UNVR, LPPF, MAPI), we saw declines in y-o-y growth rates on a quarterly basis. In 2015, we forecast a c.4% growth in aggregate top line, the lowest in the past five years, and no earnings growth for the year. Packages of government stimulus. Since the beginning of 4Q15, the government has launched a series of deregulation packages in an effort to stimulate investments and the economy. To date, eight packages have been announced. We view this initiative as a step in the right direction, but we still need to see their implementation. Moreover, even with timely and proper execution, we think that these policies are not quick-fixes and it could take some time for the effects to impact consumers; thus benefitting consumer companies later rather than sooner.

Quarterly aggregate revenue and growth Quarterly aggregate net profit and growth

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

35,000

40,000

45,000

50,000

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15

Revenue % y-o-y revenue growth (RHS)

Rp bn

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0

1,000

2,000

3,000

4,000

5,000

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15

Net profit % y-o-y net profit growth (RHS)

Rp bnRp bn

Source: DBS Bank, DBS Vickers Source: DBS Bank, DBS Vickers

Note: Aggregate numbers based on companies under DBS’s coverage (INDF, ICBP, MYOR, UNVR, LPPF, MAPI)

Industry Focus


Aggregate revenue and growth Aggregate net profit and growth

0%

5%

10%

15%

20%

0

50,000

100,000

150,000

200,000

250,000

2010 2011 2012 2013 2014 2015F 2016F 2017F

Revenue % y-o-y growth

Rp bn

0%

5%

10%

15%

20%

25%

0

5,000

10,000

15,000

20,000

2010 2011 2012 2013 2014 2015F 2016F 2017F

Net profit % y-o-y growth

Rp bn

Sources: Companies, DBS Bank, DBS Vickers Sources: Companies, DBS Bank, DBS Vickers

Note: Aggregate numbers based on companies under DBS’s coverage (INDF, ICBP, MYOR, UNVR, LPPF, MAPI)

Consumer Confidence Index (CCI) vs. USD/IDR SSSG trend

90

100

110

120

12,000

12,500

13,000

13,500

14,000

14,500

15,000

avg. USD/IDR (LHS) CCI (RHS)

-5.0%

0.0%

5.0%

10.0%

15.0%

3M14 6M14 9M14 FY14 3M15 6M15 9M15

LPPF MAPI ACES MPPA RALS

Sources: Bloomberg Finance L.P., DBS Bank, DBS Vickers Source: Companies, DBS Bank, DBS Vickers

Note: MPPA and RALS are not under DBS’s coverage

RON 88 and Diesel fuel price Indonesia 2W sales

4,000

5,000

6,000

7,000

8,000

9,000

May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15

RON 88 fuel price Diesel fuel price

Rp/ l itre

-60%

-40%

-20%

0%

20%

40%

60%

80%

2015 sales down 17.7% vs. 2014

% y-o-y

Sources: Pertamina, DBS Bank, DBS Vickers Source: Indonesia 2W association (AISI)

Industry Focus


Sector outlook for 2016 Recovery in consumer sentiment to come later in the year No significant structural improvement seen to boost short-term sentiment. We think it is premature to expect a recovery in consumer sentiment right from the start of this year. In the second half of 2015, we did not see significant structural improvements that could impact consumer spending in the short term. In our view, the stimulus packages introduced in the fourth quarter are not quick-fixes and it could take some time for the effects to impact consumers; thus benefitting consumer companies later rather than sooner. Frugality is a better new year’s resolution. In the first quarter of the year, consumer spending is generally slower after festive periods such as Christmas and New Year. Furthermore, in our opinion, consumers would try to be more frugal in spending after a tough year in 2015 – in anticipation of another slow economy this year. Adjustment in electricity tariff could trigger short-term uncertainties. With the re-evaluation made to electricity tariff subsidy scheme early this year, the low-mid/middle-income consumers would be feeling a greater impact. Most will no

longer receive subsidised electricity and will be paying monthly-adjusted tariffs. This could again present uncertainties on future purchasing power and would be unfavourable to sentiment. Low oil price could be positive for consumption. We have seen reduction in prices of fuel as global oil price continues to slide. RON 88 and diesel fuel prices have decreased by c.5-16% effective January and will stay at this level at least until the end of March this year. With oil price hovering below the US$30/bbl level at the time of writing, there could be further reduction in fuel price, which will be beneficial to consumers. Revenue growth in 2016 mainly driven by low base in 2015. After a disappointing year in 2015, we think that consumer companies would still see some weakness in terms of revenue this year, but growth would be higher on the back of lower base in 2015. We expect sales volume to remain mediocre in the near term before gradually improving as the year progresses. Increase in selling prices would also be limited as consumer sentiment is still fragile and consumer companies would not want to risk losing market shares.

Ranking companies under DBS's coverage (higher is better)

INDF IJ ICBP IJ MYOR IJ UNVR IJ MAPI IJ LPPF IJ

Sales volume 2 5 3 1 4 6

Same-store growth - - - - 1 2

Revenue growth 2 5 3 1 4 6

Net profit growth 6 2 4 1 3 5

Resiliency towards rupiah depreciation 5 3 4 2 1 6

Total points 15 15 14 5 12 23

Source: DBS Vickers’ estimates

Note: 1 – least preferred, 6 – most preferred

Industry Focus


Revenue growth trend Net profit growth trend

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2013 2014 2015F 2016F 2017F

ICBP INDF LPPF MYOR MAPI UNVR

-100.0%

-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

2013 2014 2015F 2016F 2017F


Sources: Companies, DBS Bank, DBS Vickers Source: Companies, DBS Bank, DBS Vickers

EBIT margin trend DBS’s forecast on GDP growth (historical and forecast)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%


2013 2014 2015F 2016F 2017F

6.0%

5.6%

5.0%4.7%

5.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2012 2013 2014 2015F 2016F

Sources: Companies, DBS Bank, DBS Vickers Source: DBS Bank, DBS Vickers

Difference in revenue estimates – DBS vs. consensus Difference in net profit estimates – DBS vs. consensus

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

ICBP INDF MYOR UNVR MAPI LPPF

2015F 2016F

-60.0%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

ICBP INDF MYOR UNVR MAPI LPPF

2015F 2016F

DBS' estimate excludes forex gain/ loss

DBS' estimate adjusted for the non-cash amortized int. expense

Sources: Bloomberg Finance L.P., DBS Bank, DBS Vickers Sources: Bloomberg Finance L.P., DBS Bank, DBS Vickers

Industry Focus


Improvement in margins would be limited Commodity prices seem to have bottomed out... The weak global economy has led commodity prices to their multi-year lows but in our view they seem to have bottomed out. Thus, we do not expect further downside in prices which could otherwise benefit margins for food producers. Note that soft commodities such as wheat and sugar are raw materials for food producers such as Indofood CBP and Mayora Indah. ... while rupiah is expected to depreciate further. Commodity prices are mostly denominated in dollar and therefore a weak rupiah will effectively increase input costs for food producers. Rupiah is currently hovering at Rp13,900 per dollar. Our in-house economist expects rupiah to depreciate further to Rp15,200 in 3Q16 (implying c.9% downside) before appreciating slightly to Rp15,000 in 4Q16 (c.8% downside). Weather-related occurrences could push up commodity prices. Extreme weather conditions such as flooding and El Niño could cause supply disruption and increase prices of commodities, which could present further downside risks to margins.

Increase in average selling price would be limited. In 2015, consumer companies were cautious in increasing selling prices given the weak purchasing power and consumer demand. We expect similar cautiousness to carry on this year as consumer sentiment is still fragile, and companies would not want to sacrifice market share by hastily increasing prices. Thus, increasing prices will not be one of the first cards to play in order to protect/expand margins. Rupiah weakness would also impact retailers. Retail companies such as MAPI (HOLD; TP Rp3,300) and ACES (not rated) would also see pressure on their margins if rupiah continues to weaken. More than 60% and 80% (respectively) of the companies' costs are exposed to USD/IDR movements as most of their products are imported. Although increases in costs due to currency movements are usually passed on to consumers, we think there will be a cap to this and at one point, margins will be sacrificed. With that said, we like LPPF as it has virtually zero exposure to USD/IDR movements – making it one of our stock picks for the year.

USD/IDR exchange rate Indexed commodity prices

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000 Rp/ US$

0

20

40

60

80

100

120

140

160

180

Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15

Brent Oil Wheat CPO Skimmed milk Sugar


Industry Focus


Some things to note going into 2016

Event What about it? What’s our take? Impact?

1 Fuel price adjustment With global oil price hovering near

historical lows, the government has cut

the price of RON 88 gasoline by c.5% to

Rp6,950/litre and diesel fuel by c.16% to

Rp5,650/litre effective 5 January 2016.

Fuel prices will be re-evaluated in three

months time, taking into factors such as:

global oil price, inflation, as well as

USD/IDR exchange rate.

Reduction in fuel price would give

positive sentiment to consumers and

indirectly spur consumer spending, vice

versa.

Persistently low global oil prices could

potentially lead to subsequent cuts in

fuel prices, which is positive for

consumer companies.

From companies’ standpoint, we do not

anticipate significant cost-saving or

improvement in margins, as fuel expense

is not a major cost component.

2 Electricity tariff adjustment 2016 budget for electricity subsidy is cut

by c.40%.

Beginning in December 2015, electricity

tariff for capacities 1300VA and 2200VA

will no longer be subsidised and will

follow the monthly tariff adjustments

that are already applicable to higher

capacities.

Similarly, the state electricity firm (PLN)

will reevaluate the eligibility of its

households that are currently using

450VA and 900VA capacities and enjoy

subsidised tariff. Data show that more

than 45m households are using

subsidised tariff, while only 25m of those

are actually eligible.

The difference between non-subsidised

vs. subsidised electricity tariff is more

than twofold. Thus, the removal in

subsidy will impact consumer sentiment

negatively.

Moreover, for customers who are

unfamiliar with the monthly tariff

adjustment scheme, uncertainties could

arise and expectation of future

purchasing power could then be lower –

discouraging current consumption.

3 Interest rate adjustment

After the recent 25bps cut in the

benchmark interest rate (BI rate), our

economist expects the BI rate to be

lowered further by 25bps to 7.0% in

1Q16, and remain at that level in 2016.

However, in the event that inflation

remains in check and further efforts to

stimulate the economy are needed, we

could see further downward adjustment

to the BI rate.

Downward adjustments in BI rate would

generally yield positive effect on

consumption. Lending rate would be

lower; cost to expand businesses is then

cheaper and investments would pick up.

When employment opportunity opens

up, future expectation of income and

consumer sentiment would improve –

potentially increasing consumption.

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Industry Focus



4 Rupiah depreciation against

the USD

At the time of writing, rupiah is hovering

at Rp13,900 per US dollar. DBS’s

economist forecasts the rupiah to

weaken further against the dollar this

year.

We expect rupiah depreciation to peak in

3Q16 at Rp15,200 (c.9% downside from

current level), before recovering slightly

to Rp15,000 in 4Q16.

A persistently weak rupiah would pose a

significant headwind to most consumer

companies.

Food producers which have dollar-linked

raw materials would see its margins

come under pressure, especially if selling

price adjustments are not without

sacrificing sales volume (due to weak

purchasing power).

Retailers such as MAPI and ACES which

have more than 80% of its costs exposed

to the USD would also face more margin

pressure when rupiah weakens further.

5 El Niño During the course of 2015, occurrence of

El Niño had been widely reported as

being one of the strongest in history.

Although the exact magnitude and

impacts of the El Niño are beyond our

capabilities to measure, it should be

anticipated that disruption in weather

patterns and temperature could

negatively impact supply of commodities

such as wheat and palm oil, which could

then increase their prices.

Supply disruption due to weather-related

occurrences could increase the prices of

commodities such as wheat, sugar, and

palm oil.

These soft commodities are used as raw

materials for consumer companies such

as Indofood and Unilever. Thus, increase

in input costs could potentially put

negative pressure on the companies’

margins.

6 Eid al-Fitr (Lebaran) festival This year’s Lebaran period will fall on the

first week of July (4-8), with Eid al-Fitr on

the 7 July. Generally, consumer spending

will peak in the weeks leading up to

Lebaran as Muslims prepare to gather

and celebrate with family members from

different parts of the country.

Businesses and corporations are also

required by law to provide an additional

one-month salary to their employees

during this period, thus increasing their

purchasing power. The additional salary

will be paid in June this year, usually on

the 25th.

In 2015, Eid al-Fitr fell on the 17th of July

and increase in consumption was

somewhat divided between June and

July (2Q and 3Q).

With Lebaran occurring in the first week

of July this year, we should observe a

heavier consumption in June with a slight

spillover into July. Thus, we should

expect for a seasonally stronger 2Q

compared to last year.

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Industry Focus



7 Tax amnesty In an effort to increase tax revenue, the

government is in process of

implementing a tax amnesty. A draft of

the law is currently waiting for approval

from the House of Representative.

The purpose of it is to encourage

Indonesians to repatriate their

unreported assets from overseas back to

Indonesia. They will be paying a tax rate

of less than 5% (current discussion is at

2%) for those repatriated assets, instead

of a penalty and up to 30% in the usual

case. Further incentives could also be

given when the assets are used for

investments, etc.

In our view, this initiative will not have

immediate impact on consumer

spending. Individuals that have assets

stashed in other countries are likely to be

those belonging in the middle-high/ high

income segment, while the country’s

consumer demographics is mostly

middle/middle-low income segment.

However, in the long run, repatriated

assets that are invested into the economy

could mean more businesses and more

employment opportunities. This would

then potentially increase the income level

of the population, and hence result in a

higher level of consumption.

8 Corporate tax rate cut The government plans to lower

corporate tax rate for businesses to 18%

from the current rate of 25%. The policy

is still under discussion and no further

details have been finalised/ announced

yet.

For publicly listed companies that have

more than 40% free float shares, the

additional 5-ppt tax rate reduction will

still be applicable.

A reduction in tax rate will be favourable

for corporate earnings across the board.

It will be positive for cash flow and could

stimulate investments as well as business

expansion.

However, we think that the impact from

this policy will depend on the details that

come with it: the length of period in

which the lower tax is in effect as well as

the eligibility criteria for the lower tax

would be some of the many factors that

will determine its effectiveness.

9 Annual wage increase One of the policies in stimulus package

#4 is the new formula used to calculate

the annual increase in regional minimum

wage, beginning in 2016.

Now, the annual percentage increase in

wages will be determined by the sum of

the year’s inflation rate and the year’s

economic growth rate.

Between 2011-15, average annual wage

increased at a CAGR of 14.2%. For this

year, the increase is likely to be lower at

c.10-12%.

In our view, this is a positive move by the

government as it provides better labour

cost certainty for employers while at the

same time eliminating the yearly

discussion on the “Basic Living

Standard”, which could be complicated

at times. It also allows

companies/employers to have more

clarity on budget plans and future

investments.

From the workers' standpoint, this could

also provide better estimate on future

income and purchasing power; thus

providing better income certainty.

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+

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Industry Focus



10 UEFA Euro 2016 The Euro 2016 in France will begin on 10

Jun and end on 10 Jul.

In Western Indonesia Time zone

(GMT+7), the matches will be at either

one or all of the following time slots:

8pm, 11pm, and 2am. Semifinals will be

on 6-7 Jul and the Final will be on 10 Jul.

Note that the final matches of Euro this

year will coincide with the Lebaran

season, in which majority of businesses

and offices are closed for holiday (4-8

Jul). We could expect the number of

match viewers to be high during this

period.

In past years, major soccer events like the

World Cup and Euro had coincided with

the Lebaran season; therefore, we

cannot pinpoint causation between

increase in consumption and the soccer

events.

However, in our view, as viewership of

the games increases, companies such as:

ICBP (snack foods and instant noodles),

MYOR (biscuits and coffee), KLBF (energy

drink), MLBI and DLTA (beer producers),

GGRM and HMSP (cigarettes) are likely

to see a pickup in sales volume.

Sources: Various sources, DBS Bank, DBS Vickers

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Industry Focus


Valuation and stock picks Prefer the resilient and value names. This year, our stock preference leans towards companies which have minimal exposure to USD/IDR volatility and also those that would be early beneficiaries when consumer spending picks up. In our view, the low/middle-income consumers have a relatively more elastic spending pattern. Therefore, when the economy picks up and purchasing power improves, one of the earlier signs that we are likely to see is higher consumption by the low/middle-income consumers. Pick #1: Matahari Department Store (LPPF IJ; BUY, TP Rp20,000). We like LPPF for its resiliency towards rupiah weakness as well as its target market segment (low/mid-income). The company has virtually zero cost exposure to USD and is the largest department store operator in Indonesia with c.37% market share. It has more than 140 stores nationwide, covering more than 60 cities. LPPF is currently trading at 21.3x/18.3x FY16F/17F earnings, about +0.5SD of its five-year average valuation, and providing c.17% upside to our target price.

Pick #2: Indofood Sukses Makmur (INDF IJ; BUY, TP Rp7,275). We continue to like INDF as we believe it offers good value for exposure into Indofood CBP (ICBP IJ), and that its share price has largely priced in the negatives. A faster-than-expected rebound in CPO price and completion of China Minzhong’s stake divestment would be upside catalysts to the share price. INDF is currently trading at 16.4x/10.9x FY16F/17F earnings, slightly above its average valuation over the last 10 years, and offering c.28% upside to our target price. Avoid: Unilever Indonesia (UNVR IJ; FULLY VALUED, TP Rp30,000). We maintain our Fully Valued recommendation on UNVR as we believe that the stock is overpriced given slowing growth and tightening competition in the FMCG space, as well as margin pressure due to weakness in the rupiah. The stock is currently trading at 47x/44.2x FY16F/17F earnings, about +1.5SD of its average valuation in the past 10 years, and having c.16% downside to our target price.

Consumer peers valuation table

Company Ticker Curr Last Px Mkt Cap (US$ m)

2016F PE (x)

2017F PE (x)

2016F EV/ EBITDA

2017F EV/ EBITDA P/B (x) P/S (x)

Indofood CBP Sukses Makmur Tbk PT ICBP IJ IDR 14,075 5,941 25.3 22.1 15.5 13.6 5.6 2.6

Indofood Sukses Makmur Tbk PT INDF IJ IDR 5,675 3,597 16.6 11.0 8.1 7.3 1.9 0.8

Kalbe Farma Tbk PT KLBF IJ IDR 1,360 4,616 30.2 24.7 18.8 15.3 6.4 3.6

Unilever Indonesia Tbk PT UNVR IJ IDR 35,650 19,647 46.9 44.0 32.7 30.7 47.5 7.6

Gudang Garam Tbk PT GGRM IJ IDR 55,500 7,710 18.2 15.6 10.5 9.3 3.0 1.6

Mayora Indah Tbk PT MYOR IJ IDR 26,275 1,689 24.2 19.4 12.3 10.5 5.0 1.6

Nippon Indosari Corpindo Tbk PT ROTI IJ IDR 1,205 437 21.1 17.4 11.9 10.3 5.4 2.9

Tiga Pilar Sejahtera Food Tbk AISA IJ IDR 1,135 257 8.0 7.3 6.8 5.5 1.1 0.6

Universal Robina Corp URC PM PHP 182.00 8,464 23.7 20.1 14.2 13.1 6.2 3.7

Nestle Malaysia Bhd NESZ MK MYR 73.50 3,921 26.8 25.2 18.2 17.5 24.3 3.6

Super Group Ltd/Singapore SUPER SP SGD 0.69 538 14.6 12.9 7.6 6.9 1.5 1.5

Petra Foods Ltd PETRA SP SGD 2.29 972 31.8 21.2 18.0 14.0 4.2 2.2

24.0 20.1 14.6 12.8

Retail peers valuation table

Company Ticker Curr Last Px Mkt Cap (US$ m)

2016F PE (x)

2017F PE (x)

2016F EV/ EBITDA

2017F EV/ EBITDA P/B (x) P/S (x)

Matahari Department Store Tbk PT LPPF IJ IDR 17,050 3,623 22.3 19.2 15.5 13.1 72.9 5.8

Mitra Adiperkasa Tbk PT MAPI IJ IDR 3,650 444 33.7 19.9 7.3 6.3 2.1 0.5

Matahari Putra Prima Tbk PT MPPA IJ IDR 1,685 657 18.0 15.2 9.2 7.9 3.2 0.7

Sumber Alfaria Trijaya Tbk PT AMRT IJ IDR 600 1,791 37.2 28.9 10.4 9.0 5.5 0.5

Modern Internasional Tbk PT MDRN IJ IDR 111 36 16.6 12.4 6.7 6.1 0.4 0.4

Courts Asia Ltd COURTS SP SGD 0.36 131 7.8 6.9 5.9 5.5 0.7 0.3

Sheng Siong Group Ltd SSG SP SGD 0.81 830 19.6 18.3 12.4 11.4 5.2 1.6

Puregold Price Club Inc PGOLD PM PHP 32.30 1,926 16.1 14.0 9.8 8.5 2.5 1.0

Robinsons Retail Holdings Inc RRHI PM PHP 61.55 1,788 17.0 15.3 10.6 9.3 2.0 1.0

Parkson Holdings Bhd PKS MK MYR 0.99 243 9.9 8.5 5.5 5.1 0.3 0.3

Big C Supercenter PCL BIGC TB THB 237.00 5,388 23.8 21.2 14.4 13.2 4.4 1.5

20.2 16.3 9.8 8.7

Sources: DBS Bank, DBS Vickers’ estimates, Bloomberg Finance L.P. as of 18-Jan-2016

Industry Focus


Indofood CBP Forward PE Band (x) Indofood CBP PB Band (x)

A v g : 2 0 .4 x

+ 1 s d : 2 5 .2 x

+ 2 s d : 3 0 x

‐1 sd : 1 5 .5 x

‐2 sd : 1 0 .7 x9 . 6

1 4 .6

1 9 .6

2 4 .6

2 9 .6

3 4 .6

O c t - 1 0 J u n - 1 1 J a n - 1 2 S e p - 1 2 M a y - 1 3 J a n - 1 4 S e p - 1 4 M a y - 1 5 J a n - 1 6

( x )

A v g : 4 .3 x

+ 1 s d : 5 .2 x

+ 2 s d : 6 .2 x

‐1 s d : 3 .3 x

‐2 s d : 2 .4 x2 . 1

2 . 6

3 . 1

3 . 6

4 . 1

4 . 6

5 . 1

5 . 6

6 . 1

6 . 6

7 . 1

D e c - 1 0 A u g - 1 1 A p r - 1 2 N o v - 1 2 J u l - 1 3 F e b - 1 4 O c t - 1 4 M a y - 1 5 J a n - 1 6

( x )


Indofood Sukses Makmur Forward PE Band (x) Indofood Sukses Makmur PB Band (x)

A v g : 1 6 .9 x

+ 1 s d : 2 0 .5 x

+ 2 s d : 2 4 .1 x

‐1 sd : 1 3 .3 x

‐2 s d : 9 .7 x8 . 6

1 0 .6

1 2 .6

1 4 .6

1 6 .6

1 8 .6

2 0 .6

2 2 .6

2 4 .6

2 6 .6

J a n - 1 0 O c t - 1 0 J u l - 1 1 A p r - 1 2 J a n - 1 3 O c t - 1 3 J u l - 1 4 A p r - 1 5 J a n - 1 6

( x )

A v g : 2 .4 x

+ 1 s d : 2 .7 x

+ 2 s d : 3 x

‐1 s d : 2 .1 x

‐2 s d : 1 .8 x

1 . 3

1 . 8

2 . 3

2 . 8

3 . 3


( x )


Unilever Indonesia Forward PE Band (x) Unilever Indonesia PB Band (x)

A v g : 3 4 .5 x

+ 1 s d : 4 3 .8 x

+ 2 s d : 5 3 .1 x

‐1 sd : 2 5 .3 x

‐2 sd : 1 6 x1 4 .4

2 4 .4

3 4 .4

4 4 .4

5 4 .4

6 4 .4

J a n - 0 9 N o v - 0 9 O c t - 1 0 A u g - 1 1 J u l - 1 2 M a y - 1 3 A p r - 1 4 F e b - 1 5 J a n - 1 6

( x )

A v g : 4 5 .2 x

+ 1 s d : 5 7 .6 x

+ 2 s d : 6 9 .9 x

‐1 s d : 3 2 .8 x

‐2 s d : 2 0 .5 x1 8 .4

2 8 .4

3 8 .4

4 8 .4

5 8 .4

6 8 .4

7 8 .4

D e c - 0 9 O c t - 1 0 J u l - 1 1 A p r - 1 2 J a n - 1 3 O c t - 1 3 J u l - 1 4 A p r - 1 5 J a n - 1 6

( x )


Industry Focus


Mayora Indah Forward PE Band (x) Mayora Indah PB Band (x)

A v g : 2 1 .4 x

+ 1 s d : 3 4 .7 x

+ 2 s d : 4 8 .1 x

‐1 s d : 8 x

- 4 .8

5 . 2

1 5 .2

2 5 .2

3 5 .2

4 5 .2

5 5 .2

J a n - 0 9 N o v - 0 9 O c t - 1 0 A u g - 1 1 J u l - 1 2 M a y - 1 3 A p r - 1 4 F e b - 1 5 J a n - 1 6

( x )

A v g : 5 .2 x

+ 1 s d : 6 .6 x

+ 2 s d : 7 .9 x

‐1 s d : 3 .9 x

‐2 s d : 2 .5 x

1 . 5

2 . 5

3 . 5

4 . 5

5 . 5

6 . 5

7 . 5

8 . 5

D e c - 0 9 O c t - 1 0 J u l - 1 1 A p r - 1 2 J a n - 1 3 O c t - 1 3 J u l - 1 4 A p r - 1 5 J a n - 1 6

( x )


Mitra Adiperkasa Forward PE Band (x) Mitra Adiperkasa PB Band (x)

A v g : 7 1 .5 x

+ 1 s d : 1 5 7 .2 x

+ 2 s d : 2 4 2 .9 x

‐1 s d : ‐1 4 .2 x

- 8 9 . 9

1 0 . 1

1 1 0 . 1

2 1 0 . 1

3 1 0 . 1

4 1 0 . 1


( x )

A v g : 4 .2 x

+ 1 s d : 5 .3 x

+ 2 s d : 6 .5 x

‐1 s d : 3 .1 x

‐2 s d : 1 .9 x1 . 5

2 . 5

3 . 5

4 . 5

5 . 5

6 . 5

7 . 5


( x )


Matahari Department Store Forward PE Band (x)

A v g : 2 1 x

+ 1 s d : 3 2 .8 x

+ 2 s d : 4 4 .6 x

‐1 s d : 9 .2 x

- 2 . 3

1 7 . 7

3 7 . 7

5 7 . 7

7 7 . 7

9 7 . 7


( x )

Sources: Bloomberg Finance L.P., DBS Bank, DBS Vickers

Industry Focus


Indonesia Consumer and Retail companies: Valuation Summary

Company ICBP INDF MYOR UNVR MAPI LPPF

Market cap (US$m) 5,999 3,680 1,674 19,706 440 3,616

Share price (Rp) 14,300 5,825 26,025 35,900 3,685 17,225

Rec HOLD BUY HOLD FULLY VALUED HOLD BUY

TP 13,200 7,150 25,400 30,000 3,300 20,000

Upside -8% 23% -2% -16% -10% 16%

PE (x) FY14 32.0 13.2 57.7 47.7 82.6 35.4

FY15F 28.0 19.3 27.6 47.7 87.0 26.4

FY16F 25.9 17.2 23.5 46.8 32.7 22.6

FY17F 23.2 11.5 18.9 43.9 19.3 19.4

PB (x) FY14 5.9 2.0 5.8 59.6 2.4 283.0

FY15F 5.4 1.9 5.0 56.7 2.3 53.5

FY16F 4.9 1.8 4.3 54.1 2.2 27.4

FY17F 4.4 1.7 3.6 51.6 2.0 17.5

PS (x) FY14 2.8 0.8 1.6 7.9 0.5 6.3

FY15F 2.6 0.8 1.6 7.5 0.5 5.7

FY16F 2.4 0.7 1.5 6.9 0.4 5.0

FY17F 2.1 0.7 1.3 6.3 0.4 4.4

EV/EBITDA (x) FY14 21.4 8.2 20.9 33.7 8.4 21.7

FY15F 17.5 9.4 13.6 33.3 8.3 18.2

FY16F 16.1 8.3 12.0 32.7 7.2 15.7

FY17F 14.4 7.5 10.2 30.6 6.2 13.3

Revenue FY14 30,022 63,594 14,169 34,512 11,822 7,926

(Rp bn) FY15F 32,243 63,923 14,452 36,761 12,832 8,876

FY16F 35,308 69,293 15,934 39,571 14,153 10,068

FY17F 39,035 74,959 17,902 43,617 15,697 11,463

Net profit FY14 2,604 3,885 404 5,739 74 1,419

(Rp bn) FY15F 2,975 2,648 843 5,747 70 1,907

FY16F 3,218 2,967 990 5,854 187 2,227

FY17F 3,598 4,436 1,230 6,238 317 2,594

Revenue growth FY14 19.6% 14.3% 17.9% 12.2% 21.4% 17.3%

(%) FY15F 7.4% 0.5% 2.0% 6.5% 8.5% 12.0%

FY16F 9.5% 8.4% 10.2% 7.6% 10.3% 13.4%

FY17F 10.6% 8.2% 12.4% 10.2% 10.9% 13.9%

Profit growth FY14 17.1% 55.2% -61.3% 7.2% -77.4% 23.4%

(%) FY15F 14.2% -31.8% 108.7% 0.1% -5.1% 34.4%

FY16F 8.2% 12.0% 17.5% 1.9% 165.9% 16.8%

FY17F 11.8% 49.5% 24.3% 6.6% 69.3% 16.4%

Gross margin FY14 26.8% 26.8% 17.9% 49.5% 46.3% 63.7%

(%) FY15F 29.0% 27.0% 25.3% 50.2% 44.6% 63.5%

FY16F 28.5% 26.5% 22.5% 49.5% 45.4% 63.4%

FY17F 28.0% 26.5% 23.0% 49.4% 46.2% 63.4%

EBIT margin FY14 10.4% 11.3% 6.3% 22.5% 4.4% 26.6%

(%) FY15F 11.7% 9.5% 10.2% 21.2% 3.5% 27.6%

FY16F 11.4% 10.4% 10.4% 20.0% 4.2% 27.8%

FY17F 11.5% 10.8% 10.9% 19.4% 4.7% 28.3%

Net gearing FY14 cash 28% 49% 8% 53% 21%

(%) FY15F cash 23% 37% 11% 50% cash

FY16F cash 23% 32% 15% 47% cash

FY17F cash 23% 25% 18% 42% cash

ROE FY14 18.5% 15.1% 10.1% 124.8% 2.9% 799.1%

(%) FY15F 19.1% 9.8% 18.0% 119.0% 2.7% 202.8%

FY16F 18.7% 10.4% 18.1% 115.6% 6.7% 121.6%

FY17F 19.0% 14.4% 19.1% 117.4% 10.4% 90.4%

Source: DBS Bank, DBS Vickers’ estimates

Industry Focus


Company Guides

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa: MA

BUY Last Traded Price: Rp5,825 (JCI : 4,491.74) Price Target: Rp7,150 (23% upside) (Prev Rp7,275) Potential Catalyst: Recovery in CPO price, lower raw material prices Where we differ: One of the lowest among consensus Analyst Edwin Lioe +6221 3003 4936 [email protected] Andy Sim +65 6682 3718 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rp bn) 2014A 2015F 2016F 2017F Revenue 63,594 63,923 69,293 74,959 EBITDA 10,175 8,604 10,120 11,420 Pre-tax Profit 6,229 4,944 6,508 7,402 Net Profit 3,885 2,648 2,967 4,436 Net Pft (Pre Ex.) 3,885 2,648 2,967 4,436 Net Pft Gth (Pre-ex) (%) 55.2 (31.8) 12.0 49.5 EPS (Rp) 443 302 338 505 EPS Pre Ex. (Rp) 443 302 338 505 EPS Gth Pre Ex (%) 55 (32) 12 50 Diluted EPS (Rp) 443 302 338 505 Net DPS (Rp) 221 151 169 253 BV Per Share (Rp) 2,927 3,078 3,247 3,499 PE (X) 13.2 19.3 17.2 11.5 PE Pre Ex. (X) 13.2 19.3 17.2 11.5 P/Cash Flow (X) 5.5 7.7 7.9 6.9 EV/EBITDA (X) 8.2 9.4 8.3 7.5 Net Div Yield (%) 3.8 2.6 2.9 4.3 P/Book Value (X) 2.0 1.9 1.8 1.7 Net Debt/Equity (X) 0.4 0.3 0.3 0.3 ROAE (%) 15.1 9.8 10.4 14.4 Earnings Rev (%): 3 (2) (3) Consensus EPS (Rp): 389 472 551 Other Broker Recs: B: 20 S: 0 H: 4

Source of all data: Company, DBS Bank, DBS Vickers, Bloomberg Finance L.P

The Value is Attractive With This One

Maintain BUY; negatives priced in We maintain our BUY recommendation on INDF for its valuation gap with ICBP (i.e. now at 27%). We acknowledge that the weak performance from Agri and the impending divestment of Minzhong’s stake have been capping INDF’s stock price performance. However, we think that these are largely priced in to the stock price at this point. Thus, positive surprises such as a faster-than-expected recovery in CPO price due to weather-related occurrences could provide upside to earnings and stock price. Similarly, further development on Minzhong’s stake divestment will remove a major overhang and be positive to stock price. Update on Minzhong’s stakes divestment On 30 Dec 2015, it was announced that INDF has received the S$40m earnest sum payment from China Minzhong Holdings (CMZ BVI). This would then keep the MoU in effect and retains the deadline of 14 Oct 2016 on which the share divestment is targeted to complete. Earnings revised slightly after changes made to ICBP We adjusted our estimates on INDF’s earnings for FY15F/16F/17F by 3.2%/(2.0)%/(2.7)% after we tweaked our assumptions for ICBP (consumer branded products segment). Similarly, INDF’s revenue is also lowered by (1.3)%/(2.1)%/(3.3)% after similar adjustments to ICBP. We expect lower revenue growth for ICBP on the back of a slower recovery in consumer demand as well as limited room for ASP increase given a fragile consumer demand. Valuation:

We value Indofood Sukses Makmur at Rp7,150/share based on sum-of-the-parts valuation. Our target price implies 21x FY16F and 14x FY17F PE. Key Risks to Our View:

Volatile commodity prices. Fluctuations in commodity prices could swing costs, and consequently, margins. At A Glance Issued Capital (m shrs) 8,780 Mkt. Cap (Rpbn/US$m) 51,146 / 3,693 Major Shareholders CAB Holding (%) 51.5 Free Float (%) 48.5 3m Avg. Daily Val (US$m) 3.4 ICB Industry : Consumer Goods / Food Producers


Indonesia Company Guide

Indofood Sukses Makmur Edition 1 Version 3 | Bloomberg: INDF IJ | Reuters: INDF.JK Refer to important disclosures at the end of this report

81

101

121

141

161

181

201

221

3,960.0

4,460.0

4,960.0

5,460.0

5,960.0

6,460.0

6,960.0

7,460.0

7,960.0

8,460.0

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Relative IndexRp

Indofood Sukses Makmur (LHS) Relative JCI INDEX (RHS)

ASIAN INSIGHTS VICKERS SECURITIES

Company Guide

Indofood Sukses Makmur

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Consumer Branded Products (CBP) segment is the primary earnings driver. In 2014, Indofood’s CBP segment, under ICBP, contributed more than 40% of Group EBIT. Agribusiness and Bogasari contributed 30% and 20%, respectively. Growth in the CBP segment is predominantly driven by the noodles business which generated over 95% of ICBP’s earnings in FY14. Also, noodles are considered a cheap substitute to rice for many Indonesians, which is why noodle sales are relatively resilient in a slow economy. Wheat price and rupiah strength. Bogasari produces wheat flour, of which 30% is used by ICBP, 65% is sold to SMEs, and the rest to retail consumers. Bogasari imports all its wheat requirement, which means it is susceptible to fluctuations in global wheat prices and the strength of the rupiah. It adjusts average selling price according to its costs, which eventually affects ICBP’s margins. The sharp depreciation of the rupiah in 2013-14 had reduced EBIT margins at the CBP segment by about 300bps to 10.2% in 2014 from 13.1% in 2012. CPO price. The Agribusiness segment, under 60.5%-owned subsidiary Indofood Agri Resources (IFAR SP), is involved in both upstream and downstream operations. Currently, the low CPO price is pressuring the Agribusiness margins, i.e. EBIT margin fell to 15% in 2014 vs. 24% in 2011. Our plantation analyst indicated that excess supply and slower demand from China are keeping CPO prices down. The Agribusiness segment contributed c.30% of Indofood’s 2014 EBIT. A recovery of the global economy would help to lift demand for palm oil and support CPO price. Recovery of the domestic economy. The slow domestic economy has been pressuring revenues at both the CBP segment and Bogasari. We estimate volume growth at ICBP will be relatively flat in 2015 given weaker consumer demand this year. Earnings growth at ICBP will also be relatively muted, which would affect Indofood’s earnings. Similarly, as 65% of Bogasari’s wheat flour is sold to SMEs, weak domestic consumer demand would also dampen Bogasari’s sales volume as small businesses are now less inclined to expand operations, which implies lower demand for wheat flour.

Sales Trend

Profitability Trend

Margins Trend

Wheat price (USD/bushel)

CPO price (RM/MT)

Source: Company, DBS Bank, DBS Vickers

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2013A 2014A 2015F 2016F 2017F

Rp bn

Total Revenue Revenue Growth (%) (YoY)

2,503

3,503

4,503

5,503

6,503

7,503

2013A 2014A 2015F 2016F 2017F

Rp bn

Operating EBIT Pre tax Profit Net Profit

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

2013A 2014A 2015F 2016F 2017F

Operating Margin % Net Income Margin %

300

400

500

600

700

800

900

1,000


1,500

2,000

2,500

3,000

3,500

4,000

4,500



Company Guide


Balance Sheet:

Cash-rich; ready for attractive ventures. Indofood Sukses Makmur had Rp14.2tr cash (US$1.07bn) as at end 2014. This puts the company in a comfortable position to take on acquisitions or joint ventures that are in line with its vision of being a Total Food Company. Healthy debt ratio. Indofood currently has a debt-equity ratio of c.0.4x which is reasonable. After the planned partial divestment of China Minzhong this year, we expect the proceeds to be used to pare down outstanding debts, and reduce the debt-equity ratio to 0.2x by end 2016.

Share Price Drivers:

INDF is exposed to fluctuations in wheat as well as crude palm oil (CPO) prices. An increase in wheat price (as well as a weaker rupiah) would translate into higher wheat flour price, which will consequently reduce margins for ICBP’s noodle segment (assuming no adjustment to noodle ASP). Overall, that would hurt INDF as ICBP’s noodle segment accounts for c.40% of INDF’s operating profit. Similarly, weak CPO prices will hurt the Agribusiness segment, and consequently, INDF. These could pressure INDF’s share price.

Key Risks:

Volatile commodity prices. Fluctuations in commodity prices could swing costs, and consequently, margins. Suppressed CPO price. Persistently low CPO prices could hurt Agribusiness’ revenues and earnings.

Company Background

Indofood Sukses Makmur is the largest instant noodle and wheat flour manufacturer in Indonesia, has the largest market share in the cooking oil market, and is also involved in oil palm cultivation (through subsidiary, Indofood Agri Resources), and other branded food products, including snack food, food seasoning, specialty and nutrition food, and dairy products.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


0.7

0.7

0.7

0.8

0.8

0.8

0.8

0.8

0.9

0.9

0.9

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

2013A 2014A 2015F 2016F 2017F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

2013A 2014A 2015F 2016F 2017F

Capital Expenditure (-)

Rp

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2013A 2014A 2015F 2016F 2017F

Avg: 18.6x

+1sd: 21.6x

+2sd: 24.7x

‐1sd: 15.5x

‐2sd: 12.5x11.2

13.2

15.2

17.2

19.2

21.2

23.2

25.2

27.2


(x)

Avg: 2.38x

+1sd: 2.7x

+2sd: 3.01x

‐1sd: 2.07x

‐2sd: 1.76x

1.3

1.8

2.3

2.8

3.3


(x)


Company Guide


Segmental Breakdown

FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Rp bn) Consumer Branded 24,746 29,921 32,243 35,308 39,035 Bogasari 18,678 19,926 18,918 19,682 20,881 Agribusiness 13,300 14,677 13,666 15,283 16,103 Distribution 4,548 5,135 4,996 5,416 5,859 Others (5,648) (3,955) (1,801) (6,396) (6,919) Total 55,624 63,595 63,923 69,293 74,959 Operating Profit (Rp bn) Consumer Branded 2,633 3,039 3,756 4,026 4,490 Bogasari 1,402 1,445 1,135 1,279 1,462 Agribusiness 1,363 2,197 1,022 1,722 1,972 Distribution 162 192 175 190 205 Others (3) 533 861 1 1 Total 5,557 7,406 6,950 7,217 8,130

Operating Profit Margins (%)

Consumer Branded 10.6 10.2 11.7 11.4 11.5 Bogasari 7.5 7.3 6.0 6.5 7.0 Agribusiness 10.3 15.0 7.5 11.3 12.2 Distribution 3.6 3.7 3.5 3.5 3.5 Total 10.0 11.6 10.9 10.4 10.8

Income Statement (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 55,624 63,594 63,923 69,293 74,959 Cost of Goods Sold (42,018) (46,545) (46,663) (50,931) (55,095) Gross Profit 13,606 17,050 17,259 18,363 19,864 Other Opng (Exp)/Inc (7,494) (9,841) (11,170) (11,145) (11,734) Operating Profit 6,112 7,209 6,089 7,217 8,130 Other Non Opg (Exp)/Inc (1,657) (51.1) 0.0 0.0 0.0 Associates & JV Inc (17.2) (119) 96.3 416 446 Net Interest (Exp)/Inc (437) (809) (1,241) (1,126) (1,174) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 4,001 6,229 4,944 6,508 7,402 Tax (1,177) (1,828) (1,451) (1,910) (2,172) Minority Interest (322) (516) (845) (1,631) (794) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 2,504 3,885 2,648 2,967 4,436 Net Profit before Except. 2,504 3,885 2,648 2,967 4,436 EBITDA 8,723 10,175 8,604 10,120 11,420 Growth Revenue Gth (%) 10.8 14.3 0.5 8.4 8.2 EBITDA Gth (%) (4.4) 16.6 (15.4) 17.6 12.8 Opg Profit Gth (%) (11.1) 17.9 (15.5) 18.5 12.6 Net Profit Gth (Pre-ex) (%) (23.2) 55.2 (31.8) 12.0 49.5 Margins & Ratio Gross Margins (%) 24.5 26.8 27.0 26.5 26.5 Opg Profit Margin (%) 11.0 11.3 9.5 10.4 10.8 Net Profit Margin (%) 4.5 6.1 4.1 4.3 5.9 ROAE (%) 10.7 15.1 9.8 10.4 14.4 ROA (%) 3.2 4.5 3.1 3.4 4.8 ROCE (%) 6.1 6.6 5.6 6.4 7.0 Div Payout Ratio (%) 49.8 50.0 50.0 50.0 50.0 Net Interest Cover (x) 14.0 8.9 4.9 6.4 6.9


Others include Cultivation and Processed Food, and elimination


Company Guide


Quarterly / Interim Income Statement (Rp bn)

FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 15,398 16,712 15,021 17,614 14,929 Cost of Goods Sold (11,364) (12,207) (10,913) (12,769) (11,015) Gross Profit 4,034 4,505 4,108 4,844 3,915 Other Oper. (Exp)/Inc (2,448) (2,715) (2,358) (2,744) (2,341) Operating Profit 1,586 1,790 1,750 2,101 1,574 Other Non Opg (Exp)/Inc 13.7 (25.7) (408) (308) (1,125) Associates & JV Inc 32.5 (77.7) (70.5) (104) (109) Net Interest (Exp)/Inc (354) (171) (173) (218) (286) Exceptional Gain/(Loss) 110 153 209 183 29.9 Pre-tax Profit 1,389 1,669 1,307 1,654 83.6 Tax (374) (564) (321) (519) (97.0) Minority Interest (260) (291) (116) (274) (34.0) Net Profit 754 814 870 861 (47.3) Net profit bef Except. 644 660 661 678 (77.2) EBITDA 2,168 2,648 2,374 2,671 2,227 Growth Revenue Gth (%) (6.4) 8.5 (10.1) 17.3 (15.2) EBITDA Gth (%) (18.9) 22.1 (10.4) 12.5 (16.6) Opg Profit Gth (%) (29.0) 12.9 (2.2) 20.1 (25.1) Net Profit Gth (Pre-ex) (%) (9.2) 2.5 0.1 2.5 (111.4) Margins Gross Margins (%) 26.2 27.0 27.3 27.5 26.2 Opg Profit Margins (%) 10.3 10.7 11.6 11.9 10.5 Net Profit Margins (%) 4.9 4.9 5.8 4.9 (0.3)

Balance Sheet (Rpbn)

FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 30,097 30,604 30,175 33,272 35,982 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 14,742 14,339 14,435 14,851 15,297 Cash & ST Invts 17,610 14,823 14,133 13,091 12,287 Inventory 8,161 8,455 8,054 8,791 9,510 Debtors 5,267 4,340 4,696 5,091 5,507 Other Current Assets 1,735 13,378 13,378 13,378 13,378 Total Assets 77,611 85,939 84,872 88,474 91,961 ST Debt 12,032 14,272 14,272 14,272 14,272 Creditor 4,851 5,151 5,333 5,820 6,296 Other Current Liab 2,589 3,259 3,259 3,259 3,259 LT Debt 15,324 16,838 12,924 12,924 12,924 Other LT Liabilities 4,924 5,191 5,191 5,191 5,191 Shareholder’s Equity 23,429 25,700 27,025 28,508 30,726 Minority Interests 14,462 15,528 16,869 18,500 19,293 Total Cap. & Liab. 77,611 85,939 84,872 88,474 91,961 Non-Cash Wkg. Capital 7,723 17,763 17,537 18,180 18,839 Net Cash/(Debt) (9,746) (16,286) (13,062) (14,105) (14,908) Debtors Turn (avg days) 34.6 24.9 26.8 26.8 26.8 Creditors Turn (avg days) 44.9 43.1 44.1 44.2 44.4 Inventory Turn (avg days) 75.6 70.8 66.6 66.8 67.0 Asset Turnover (x) 0.7 0.7 0.8 0.8 0.8 Current Ratio (x) 1.7 1.8 1.8 1.7 1.7 Quick Ratio (x) 1.2 0.8 0.8 0.8 0.7 Net Debt/Equity (X) 0.3 0.4 0.3 0.3 0.3 Net Debt/Equity ex MI (X) 0.4 0.6 0.5 0.5 0.5 Capex to Debt (%) 19.3 15.1 22.1 22.1 22.1 Z-Score (X) 2.2 2.2 2.3 2.3 2.4



Company Guide


Cash Flow Statement (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 4,001 6,229 4,944 6,508 7,402 Dep. & Amort. 2,078 2,467 2,515 2,903 3,290 Tax Paid (1,177) (1,828) (1,451) (1,910) (2,172) Assoc. & JV Inc/(loss) 17.2 119 (96.3) (416) (446) Chg in Wkg.Cap. (1,083) (10,214) 722 (643) (659) Other Operating CF 3,093 12,496 0.0 0.0 0.0 Net Operating CF 6,929 9,269 6,634 6,441 7,415 Capital Exp.(net) (5,286) (4,707) (6,000) (6,000) (6,000) Other Invts.(net) (3,398) (3,937) 0.0 0.0 0.0 Invts in Assoc. & JV (4,389) (461) 3,914 0.0 0.0 Div from Assoc & JV (552) 0.0 0.0 0.0 0.0 Other Investing CF (776) (1,058) 0.0 0.0 0.0 Net Investing CF (14,402) (10,163) (2,086) (6,000) (6,000) Div Paid (1,624) (1,247) (1,324) (1,484) (2,218) Chg in Gross Debt 8,851 3,109 (3,914) 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (436) (459) 0.0 0.0 0.0 Net Financing CF 6,791 1,403 (5,238) (1,484) (2,218) Currency Adjustments 981 130 0.0 0.0 0.0 Chg in Cash 298 639 (690) (1,043) (803) Opg CFPS (Rp) 912 2,219 673 807 920 Free CFPS (Rp) 187 520 72.2 50.2 161


Target Price & Ratings History

Source: DBS Bank, DBS Vickers

S.No. Date Closing Price

Target Price

Rating

1 17 Feb 15 7400 9050 BUY

2 03 Mar 15 7425 9050 BUY3 23 Mar 15 7400 9050 BUY4 08 May 15 6650 9050 BUY5 08 Jun 15 6975 9050 BUY6 15 Jul 15 6225 8350 BUY7 10 Aug 15 6050 8350 BUY8 03 Sep 15 5325 7275 BUY9 03 Nov 15 5825 7275 BUY

Note : Share price and Target price are adjusted for corpora te actions .

17425 2

2

6975

46050

B

5825

4000

5000

6000

7000

8000

Jan-15 May-15 Sep-15

Rp


BUY Last Traded Price: Rp15,975 (JCI : 4,561.33) Price Target : Rp20,000 (25% upside) Potential Catalyst: New stores, stronger-than-expected SSSG Where we differ: In line with consensus Analyst Edwin Lioe +6221 3003 4936 [email protected] Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rp bn) 2014A 2015F 2016F 2017F Revenue 7,926 8,876 10,068 11,463 EBITDA 2,318 2,709 3,094 3,564 Pre-tax Profit 1,851 2,383 2,784 3,242 Net Profit 1,419 1,907 2,227 2,594 Net Pft (Pre Ex.) 1,419 1,907 2,227 2,594 EPS (Rp) 486 653 763 889 EPS Pre Ex. (Rp) 486 653 763 889 EPS Gth (%) 23 34 17 16 EPS Gth Pre Ex (%) 23 34 17 16 Diluted EPS (Rp) 486 653 763 889 Net DPS (Rp) 292 392 458 533 BV Per Share (Rp) 60.9 322 628 983 PE (X) 32.8 24.4 20.9 18.0 PE Pre Ex. (X) 32.8 24.4 20.9 18.0 P/Cash Flow (X) 29.8 20.8 18.9 15.6 EV/EBITDA (X) 20.1 16.9 14.5 12.3 Net Div Yield (%) 1.8 2.5 2.9 3.3 P/Book Value (X) 262.5 49.6 25.5 16.2 Net Debt/Equity (X) 0.3 CASH CASH CASH ROAE (%) 799.1 202.8 121.6 90.4 Earnings Rev (%): 0 0 0 Consensus EPS (Rp): 631 755 903 Other Broker Recs: B: 20 S: 2 H: 1

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P

The Resilient Retailer

Maintain BUY – resilient counter despite slow economy. We maintain our BUY recommendation for Matahari with a TP of Rp20,000, pegged to 26x FY16F earnings, or about +1SD of its average valuation over the last five years. We remain positive on the company as it has proved its resiliency so far this year despite the overall slowdown in the domestic economy. Matahari’s SSSG for 9M15 was recorded at a decent 6.6% amid a soft demand environment; we are expecting FY15F SSSG of 7.6%, in line with the company’s guidance of 7-9%.

Minimal exposure to rupiah depreciation. With more than 80% of its products domestically sourced, Matahari has minimal exposure to rupiah weakness. This is particularly attractive given the current volatile rupiah environment – DBS’ economists expect for further depreciation of c.3% until the end of this year and another c.5% at the end of 1H16. In 2015, rupiah has depreciated by c.9% to date but Matahari’s gross margins remain stable at 34-36%, reflecting its minimal exposure to rupiah fluctuations.

Benefiting from recovery in consumer demand. We expect consumer demand to remain dampened in the near term, but are anticipating for a recovery at least in the second half of 2016 as consumers adjust to the new normal and government stimulus packages introduced this year begin to yield positive impacts to consumers. We should then see a more immediate effect to the mid-low/ middle income consumers, which is the company’s target market. Our SSSG estimate for FY16F is at 8.8%.

Valuation:

We value LPPF at Rp20,000, pegging it to 26x FY16F PE, which is +1SD of its 5-year average valuation. In our view, Matahari deserves to trade at a premium to peers, given its strong lead in a growing market segment, attractive growth prospects, and a sustainable business model.

Key Risks to Our View:

Slowing economy and rising energy prices will crimp spending. Matahari’s target segment makes up c.60% of the country’s population. A slowing economy and rising energy prices would impact this segment and subsequently hurt earnings. At A Glance Issued Capital (m shrs) 2,918 Mkt. Cap (Rp bn/US$m) 46,614 / 3,415 Major Shareholders Multipolar (%) 20.5 Asia Color (%) 2.0 Free Float (%) 77.5 3m Avg. Daily Val (US$m) 4.6 ICB Industry : Consumer Services / General Retailers

DBS Group Research . Equity 23 Nov 2015


Matahari Department Store Edition 1 Version 2 | Bloomberg: LPPF IJ | Reuters: LPPF.JK Refer to important disclosures at the end of this report

61

111

161

211

261

311

361

411

461

511

2,070.0

4,070.0

6,070.0

8,070.0

10,070.0

12,070.0

14,070.0

16,070.0

18,070.0

20,070.0

Nov-11 Nov-12 Nov-13 Nov-14 Nov-15

Relative IndexRp

Matahari Department Store (LHS) Relative JCI INDEX (RHS)


Company Guide

Matahari Department Store


Earnings Drivers:

Stable SSSG and new store openings. We assumed 7.6%/8.8% SSSG, and the opening of 11 new stores in FY15F/16F. Matahari saw overall lower sales volume growth and SSSG because of generally weaker consumer spending, especially in ex-Java islands such as Kalimantan where incomes have been affected by low commodity prices and several closures of commodity-related businesses. Kalimantan’s economy is dependent on the commodity industry, such as coal-mining and oil palm cultivation. Recovery of consumer sentiment. Matahari’s target market is the mid-low/middle income consumers, which make up about 60% of the country’s population. A pickup in the consumer sentiment, represented by the Consumer Confidence Index, would lift sales growth. Larger share of retail sales to lift margins. Matahari operates two main business segments: consignment sales and retail sales. Gross margins from retail sales are higher than from consignment sales, at 43% vs 31%. Going forward, we expect retail sales to outpace consignment sales, which would expand margins as the revenue mix shifts. Expect net profit to grow at 22% CAGR (FY14-17F).Our earnings projection is premised on: (1) margin expansion arising from a shift in revenue mix, (2) stable SSSG and store expansion, and (3) full year impact of lower effective tax rate of 20% from 2015 onwards, supported by a debt-free balance sheet and strong cashflow generation. Low exposure to USD/IDR volatility. More than 80% of Matahari’s products are sourced locally, so margins are rarely affected by the volatile rupiah. Currently, the rupiah is trading at Rp13,700 to the dollar amid a weak domestic macro environment, and in anticipation of the Fed raising interest rate by the end of this year. Our in-house forecast for the rupiah is Rp14,070 by the end of 2015, implying further downside. We like Matahari for its minimal exposure to the USD and relatively stable earnings throughout our forecast period.

Sales Trend

Profitability Trend

Margins Trend

Consumer Confidence Index

Same-store growth (%)

Source: Company, DBS Vickers, Bloomberg Finance L.P.

10.0%

15.0%

20.0%

25.0%

30.0%

0

2,000

4,000

6,000

8,000

10,000

2013A 2014A 2015F 2016F 2017F

Rp bn


1,150

1,650

2,150

2,650

3,150

2013A 2014A 2015F 2016F 2017F

Rp bn


16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

28.0%

30.0%

2013A 2014A 2015F 2016F 2017F


90

95

100

105

110

115

120

125

Oct-11 Oct-12 Oct-13 Oct-14 Oct-15

12.1

10.7

7.6

8.89.6

0.0

2.4

4.9

7.3

9.8

12.2

2013A 2014A 2015F 2016F 2017F


Company Guide


Balance Sheet:

An asset-light, debt-free company. At the end of 2014, Matahari had Rp410bn in long-term debt. The company aims to be debt-free by this year end, which is likely to happen given its stellar operating cash flow generation capability. The other positive aspect is the company’s asset-light business model. We like that 100% of Matahari’s stores are leased –70% on 10-year fixed rent contracts and 30% on revenue sharing contracts with the space operator. Matahari also does not rely heavily on distribution centres as its effective supply chain allows for just-in-time inventory system; its goods are shipped to its stores nationwide within 48 hours of arriving at the distribution centre. This business model has allowed the company to improve its operating efficiency, and its store and marketing initiatives have expanded net margins over the past few years. Share Price Drivers:

Better-than-expected same store growth. A recovery in the domestic economy and a pickup in consumer spending will be reflected in better-than-expected SSSG for Matahari. As of 9M15, Matahari stores recorded 6.6% SSSG, which was weak was weak but relatively better than peers’ amid the slow economy. Going into the last quarter of the year, we do not expect Matahari to book any positive/ negative surprises in terms of sales growth. We are expecting full year SSSG of 7.6%, which is in line with the company’s guidance of 7-9% SSSG. Again, stronger-than-expected SSSG in the fourth quarter could signal a demand recovery and rerate the stock. Key Risks:

Slower demand because of higher fuel price. The increase in (subsidised) fuel price could reduce middle-low/ middle income consumers’ disposable income, and subsequently, reduce discretionary spending. Limited available space for expansion. Matahari’s store expansion plan may slow down if space becomes limited. This could lead to slower-than-expected revenue growth. Company Background

PT Matahari Department Store Tbk operates a retail business that carries several types of products including clothes, accessories, bags, shoes, cosmetics, and household appliances.


Capital Expenditure

ROE (%)

Forward PE Band (x)

Source: Company, DBS Vickers

1.8

1.9

2.0

2.1

2.2

2.3

2.4

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2013A 2014A 2015F 2016F 2017F


190.0

195.0

200.0

205.0

210.0

215.0

220.0

225.0

230.0

235.0

2013A 2014A 2015F 2016F 2017F


Rp

0.0%

100.0%

200.0%

300.0%

400.0%

500.0%

600.0%

700.0%

800.0%

2013A 2014A 2015F 2016F 2017F

Avg: 19.4x

+1sd: 27.7x

+2sd: 36.1x

‐1sd: 11x

‐2sd: 2.6x2.3

7.3

12.3

17.3

22.3

27.3

32.3

37.3

Nov-11 Nov-12 Nov-13 Nov-14

(x)


Company Guide


Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F New stores 9 6 11 11 10 Same-store growth (%) 12.1 10.7 7.6 8.8 9.6

Segmental Breakdown

FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Rp bn) Consignment sales 8,695 9,552 10,404 11,464 12,678 Retail sales 4,044 4,899 5,578 6,422 7,417 Service fees 37 45 50 56 63 Total 12,776 14,496 16,033 17,942 20,158 Gross Profit (Rp bn)

Consignment sales 2,674 2,981 3,247 3,590 3,983 Retail sales 1,668 2,038 2,360 2,761 3,241 Service fees 22 29 33 37 41 Total 4,363 5,048 5,640 6,387 7,265 Gross Profit Margins (%) Consignment sales 30.7 31.2 31.2 31.3 31.4 Retail sales 41.2 41.6 42.3 43.0 43.7 Service fees 58.1 63.3 65.0 65.0 65.0 Total 34.2 34.8 35.2 35.6 36.0


FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 6,754 7,926 8,876 10,068 11,463 Cost of Goods Sold (2,391) (2,878) (3,236) (3,680) (4,198) Gross Profit 4,363 5,048 5,640 6,387 7,265 Other Opng (Exp)/Inc (2,582) (2,937) (3,189) (3,584) (4,026) Operating Profit 1,781 2,111 2,451 2,803 3,239 Other Non Opg (Exp)/Inc 33.7 (27.1) 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (291) (233) (67.5) (19.0) 3.32 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 1,524 1,851 2,383 2,784 3,242 Tax (373) (431) (477) (557) (648) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 1,150 1,419 1,907 2,227 2,594 Net Profit before Except. 1,150 1,419 1,907 2,227 2,594 EBITDA 1,978 2,318 2,709 3,094 3,564 Growth Revenue Gth (%) 20.2 17.3 12.0 13.4 13.9 EBITDA Gth (%) 13.2 17.2 16.9 14.2 15.2 Opg Profit Gth (%) 13.2 18.5 16.1 14.4 15.5 Net Profit Gth (Pre-ex) (%) 49.2 23.4 34.4 16.8 16.4 Margins & Ratio Gross Margins (%) 64.6 63.7 63.5 63.4 63.4 Opg Profit Margin (%) 26.4 26.6 27.6 27.8 28.3 Net Profit Margin (%) 17.0 17.9 21.5 22.1 22.6 ROAE (%) (147.2) 799.1 202.8 121.6 90.4 ROA (%) 39.2 41.6 49.3 44.4 41.8 ROCE (%) 115.6 123.4 117.8 87.7 72.1 Div Payout Ratio (%) 40.0 60.0 60.0 60.0 60.0 Net Interest Cover (x) 6.1 9.0 36.3 147.4 NM


Revenues are based on net consignment sales

Revenues are based on gross consignment sales


Company Guide



FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 2,710 1,886 1,619 2,302 2,892 Cost of Goods Sold (992) (665) (601) (839) (1,080) Gross Profit 1,718 1,221 1,018 1,463 1,812 Other Oper. (Exp)/Inc (798) (738) (762) (861) (887) Operating Profit 920 484 256 602 925 Other Non Opg (Exp)/Inc (6.0) (1.8) (1.3) 1.31 2.50 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (34.1) (29.8) (14.3) (16.6) (13.3) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 880 452 241 587 914 Tax (181) (93.4) (55.6) (124) (178) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 699 359 185 463 736 Net profit bef Except. 699 359 185 463 736 EBITDA 978 544 308 660 988 Growth Revenue Gth (%) 46.6 (30.4) (14.2) 42.2 25.6 EBITDA Gth (%) 95.8 (44.5) (43.4) 114.4 49.7 Opg Profit Gth (%) 107.3 (47.4) (47.0) 135.0 53.6 Net Profit Gth (Pre-ex) (%) 192.8 (48.7) (48.4) 150.2 59.1 Margins Gross Margins (%) 63.4 64.7 62.9 63.6 62.6 Opg Profit Margins (%) 33.9 25.6 15.8 26.2 32.0 Net Profit Margins (%) 25.8 19.0 11.4 20.1 25.5

Balance Sheet (Rp bn)

FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 727 726 698 637 541 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 481 565 565 565 565 Cash & ST Invts 798 786 1,248 2,142 3,348 Inventory 724 955 995 1,283 1,385 Debtors 32.8 45.1 27.9 54.9 39.4 Other Current Assets 174 331 331 331 331 Total Assets 2,937 3,408 3,865 5,013 6,210 ST Debt 116 423 423 423 423 Creditor 1,266 1,411 1,515 1,772 1,931 Other Current Liab 508 685 685 685 685 LT Debt 1,567 410 0.0 0.0 0.0 Other LT Liabilities 262 302 302 302 302 Shareholder’s Equity (781) 178 940 1,831 2,869 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 2,937 3,408 3,865 5,013 6,210 Non-Cash Wkg. Capital (843) (764) (846) (788) (861) Net Cash/(Debt) (885) (46.8) 825 1,719 2,925 Debtors Turn (avg days) 1.8 2.1 1.1 2.0 1.3 Creditors Turn (avg days) 210.6 192.8 185.7 190.8 182.1 Inventory Turn (avg days) 120.4 130.5 122.0 138.2 130.5 Asset Turnover (x) 2.3 2.3 2.3 2.0 1.8 Current Ratio (x) 0.9 0.8 1.0 1.3 1.7 Quick Ratio (x) 0.4 0.3 0.5 0.8 1.1 Net Debt/Equity (X) CASH 0.3 CASH CASH CASH Net Debt/Equity ex MI (X) CASH 0.3 CASH CASH CASH Capex to Debt (%) 13.7 24.7 54.4 54.4 54.4 Z-Score (X) 11.4 13.0 14.4 13.5 13.2



Company Guide



FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 1,524 1,851 2,383 2,784 3,242 Dep. & Amort. 197 207 258 291 325 Tax Paid (373) (431) (477) (557) (648) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (67.8) (61.4) 81.4 (58.2) 73.5 Other Operating CF 10.9 (1.7) 0.0 0.0 0.0 Net Operating CF 1,290 1,563 2,246 2,460 2,993 Capital Exp.(net) (230) (205) (230) (230) (230) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 38.4 (21.4) 0.0 0.0 0.0 Net Investing CF (192) (227) (230) (230) (230) Div Paid 0.0 (460) (1,144) (1,336) (1,556) Chg in Gross Debt (1,363) (907) (410) 0.0 0.0 Capital Issues (3,767) 0.0 0.0 0.0 0.0 Other Financing CF 3,767 0.0 0.0 0.0 0.0 Net Financing CF (1,363) (1,367) (1,554) (1,336) (1,556) Currency Adjustments 37.4 44.4 0.0 0.0 0.0 Chg in Cash (228) 13.7 462 894 1,206 Opg CFPS (Rp) 465 557 742 863 1,000



Source: DBS Vickers

S.No. DateClosing

PriceTarget Price

Rat ing

1: 08 Apr 15 19425 22200 BUY

2: 04 May 15 17250 22200 BUY

3: 15 Jul 15 17300 22200 BUY

4: 10 Aug 15 18400 20000 BUY

5: 28 Oct 15 17000 20000 BUY

Note : Share price and Target price are adjusted for corporate actions.

1

2

3

4

5

13490

14490

15490

16490

17490

18490

19490

20490

Nov-14 Mar-15 Jul-15

Rp


HOLD Last Traded Price: Rp26,025 (JCI : 4,491.74) Price Target: Rp25,400 (2% downside) Potential Catalyst: Low raw material prices, larger export revenues Where we differ: Relatively in line with consensus Analyst

Edwin Lioe +6221 3003 4936 [email protected]

Andy Sim +65 6682 3718 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rp bn) 2014A 2015F 2016F 2017F Revenue 14,169 14,452 15,934 17,902 EBITDA 1,302 1,924 2,158 2,508 Pre-tax Profit 530 1,104 1,296 1,606 Net Profit 404 843 990 1,230 Net Pft (Pre Ex.) 404 843 990 1,230 Net Pft Gth (Pre-ex) (%) (61.3) 108.7 17.5 24.3 EPS (Rp) 451 942 1,107 1,376 EPS Pre Ex. (Rp) 451 942 1,107 1,376 EPS Gth Pre Ex (%) (61) 109 17 24 Diluted EPS (Rp) 451 942 1,107 1,376 Net DPS (Rp) 160 188 221 275 BV Per Share (Rp) 4,481 5,235 6,121 7,221 PE (X) 57.7 27.6 23.5 18.9 PE Pre Ex. (X) 57.7 27.6 23.5 18.9 P/Cash Flow (X) nm 18.7 20.8 17.6 EV/EBITDA (X) 20.9 13.6 12.0 10.2 Net Div Yield (%) 0.6 0.7 0.9 1.1 P/Book Value (X) 5.8 5.0 4.3 3.6 Net Debt/Equity (X) 0.9 0.6 0.5 0.3 ROAE (%) 10.1 18.0 18.1 19.1 Earnings Rev (%): 0 0 0 Consensus EPS (Rp): 1,159 1,196 N/A Other Broker Recs: B: 8 S: 2 H: 3


Re-rating Held Back by Volatility

Maintain HOLD; no significant catalysts in sight We have a HOLD recommendation on Mayora with TP of Rp25,400 per share based on 23x FY16F PE, which is relatively in line with the regional average valuation. We like the company for its strong foothold in the domestic coffee and confectionery markets as well as its high export contribution to sales. However, we think that the company’s strategy in prioritising market shares over margins could lead to volatile earnings and could be the limiting factor for the company to see its stock re-rate. Largest export sales among consumer names Among other consumer names listed on the IDX, Mayora has the highest export contribution to sales with c.48% in 9M15. Export sales had expanded at a CAGR of 27% between 2009-14 and provided the company with a natural hedge towards forex risk during times when the rupiah is volatile. But earnings are too volatile to warrant a re-rating Despite lower forex risk, Mayora is still exposed to fluctuation in raw material prices. When there is a spike in input costs, Mayora tends to hold off raising its prices hastily in order to protect/gain market share. This will contract its margins and earnings in the short run, as evident in 2014 where net margin dropped to 2.8% from 8.7% in 2013. In our view, this volatility could be a limiting factor for the company to see its stock re-rate.

Valuation:

We value Mayora Indah at Rp25,400/share based on 23x FY16F PE, which is in line with our regional consumer sector average valuation.


Rapid increase in raw material prices would crimp the company’s margins if it is unable to pass on the cost increases to consumers. At A Glance Issued Capital (m shrs) 894 Mkt. Cap (Rp bn/US$m) 23,275 / 1,681 Major Shareholders Unita Branindo (%) 32.9 BBH Boston S/A GMO (%) 5.6 Free Float (%) 61.5 3m Avg. Daily Val (US$m) 0.04 ICB Industry : Consumer Goods / Food Producers



Mayora Indah Edition 1 Version 1 | Bloomberg: MYOR IJ | Reuters: MYOR.JK Refer to important disclosures at the end of this report

86

106

126

146

166

186

206

226

10,800.0

15,800.0

20,800.0

25,800.0

30,800.0


Relative IndexRp

Mayora Indah (LHS) Relative JCI INDEX (RHS)


Company Guide

Mayora Indah


Earnings Drivers:

Economic growth in Indonesia (and other Asian countries). Mayora’s products are sold in both domestic and international markets. In 9M15, exports constituted c.48% of sales, with more than 90% of exports made to China and Southeast Asian countries. We think that the health of an economy is generally reflected in the consumption of basic necessities and staple foods. Thus, a stronger economy in the countries where Mayora’s products are offered would be beneficial to the company, favouring sales volume. Volatility in commodity prices. About 60% of Mayora’s COGS is attributable to raw materials, which mostly consist of soft commodities such as sugar, coffee, wheat flour, and palm oil. The prices of these commodities are naturally volatile and Mayora does not enter into futures contracts. Therefore, a sudden spike in the prices of these commodities could adversely hurt the company’s margins as it would not raise ASP hastily in order to protect market share. Evident in 2011 and 2014, gross margins dropped by more than 5ppts as raw material prices spiked up. Competition in the coffee and confectionery market. The company has two product segments: (1) Food processing, and (2) Coffee/ Cacao. In terms of value share, Mayora is among the top three in most of its product categories, thus proving its strong foothold in the Indonesian food and beverage market. However, we note that due to lack of product differentiation and tight competition, consumer demand for the products has higher price elasticity. Mayora has a priority to protect/gain market share and is able to tolerate short-term volatility in margins. Hence, as Mayora gains larger market share, it will be easier to raise (adjust) its selling prices. Weakness of rupiah against the US dollar. With its high export contribution to sales, Mayora enjoys a hedge towards its forex exposure. Note that more than 60% of its COGS is soft commodities which are denominated in the dollar. However, if export contribution decreases, we could see negative impact from rupiah depreciation to earnings. On the other hand, if export contribution increases, Mayora could have its dollar exposure completely hedged, and minimalize impact by rupiah fluctuation.

Sales Trend

Profitability Trend

Margins Trend

USD/IDR Exchange Rate

Arabica coffee price (US$/lb)

Source: Bloomberg Finance L.P., Company, DBS Bank, DBS Vickers

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2013A 2014A 2015F 2016F 2017F

Rp bn


403

603

803

1,003

1,203

1,403

1,603

1,803

2013A 2014A 2015F 2016F 2017F

Rp bn


2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

2013A 2014A 2015F 2016F 2017F


8,000

10,000

12,000

14,000

16,000


0

50

100

150

200

250

300

350



Company Guide

Mayora Indah

Balance Sheet:

Plenty of cash; no debt problem. In 2015, we estimate that Mayora will have Rp1.7tn in cash and a net gearing of 60%. Although this level of gearing is relatively high among consumer companies, we do not anticipate financial stress arising on the company. Its interest coverage ratio is decent at 4.0x.


Pick-up in the economy. A recovery in the economy, or when GDP growth meets market expectations, would be positive for F&B companies like Mayora. This could lead to higher demand for F&B and FMCG products, creating positive sentiment towards the stock. Increase in export contribution to sales. In 9M15, c.48% of sales is contributed by exports. As the proportion of exports increases, we think that there will be positive sentiment towards the stock as a higher export proportion would imply a more complete hedge in terms of forex risk. Note that Mayora is already the consumer company with the highest export contribution to sales.

Key Risks:

Slowdown in economy. Mayora’s revenue growth will be hurt by softening consumer demand. A slowing global economy would also reduce purchasing power in other countries, potentially reducing Mayora’s export sales. Rapid increase in prices of raw materials. A spike in prices of raw materials would crimp Mayora’s margins if it is unable to pass on the cost increases to consumers. Tightening competition. As competition tightens, the company could lose market share and find it increasingly difficult to adjust (raise) selling prices.

Company Background

Mayora Indah (MYOR) manufactures candies and cookies, as well as food, coffee powder, instant coffee, and cocoa beans. It was founded in 1977 and is one of the largest food companies in Indonesia. It is also among the top players in every product category that it operates in.


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


1.2

1.3

1.3

1.4

1.4

1.5

1.5

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2013A 2014A 2015F 2016F 2017F


0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

2013A 2014A 2015F 2016F 2017F


Rp

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2013A 2014A 2015F 2016F 2017F

Avg: 29.5x

+1sd: 41x

+2sd: 52.5x

‐1sd: 18x

‐2sd: 6.5x5.8

15.8

25.8

35.8

45.8

55.8


(x)

Avg: 5.97x

+1sd: 6.75x

+2sd: 7.54x

‐1sd: 5.18x

‐2sd: 4.39x

3.9

4.9

5.9

6.9

7.9

8.9


(x)


Company Guide

Mayora Indah

Segmental Breakdown

FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Rp bn) Food Processing 6,668 7,886 6,793 7,648 9,309 Coffee Powder / Cacao 5,350 6,284 7,660 8,286 8,593 Total 12,018 14,169 14,452 15,934 17,902


FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 12,018 14,169 14,452 15,934 17,902 Cost of Goods Sold (9,096) (11,634) (10,796) (12,349) (13,784) Gross Profit 2,922 2,535 3,656 3,585 4,117 Other Opng (Exp)/Inc (1,617) (1,644) (2,182) (1,928) (2,166) Operating Profit 1,305 891 1,474 1,657 1,951 Other Non Opg (Exp)/Inc 283 (35.8) 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (232) (326) (370) (361) (345) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 1,356 530 1,104 1,296 1,606 Tax (298) (120) (242) (284) (353) Minority Interest (16.7) (6.2) (19.4) (21.4) (23.5) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 1,042 404 843 990 1,230 Net Profit before Except. 1,042 404 843 990 1,230 EBITDA 1,669 1,302 1,924 2,158 2,508 Growth Revenue Gth (%) 14.3 17.9 2.0 10.2 12.4 EBITDA Gth (%) 16.9 (22.0) 47.7 12.2 16.2 Opg Profit Gth (%) 12.8 (31.7) 65.4 12.4 17.8 Net Profit Gth (Pre-ex) (%) 42.8 (61.3) 108.7 17.5 24.3 Margins & Ratio Gross Margins (%) 24.3 17.9 25.3 22.5 23.0 Opg Profit Margin (%) 10.9 6.3 10.2 10.4 10.9 Net Profit Margin (%) 8.7 2.8 5.8 6.2 6.9 ROAE (%) 27.0 10.1 18.0 18.1 19.1 ROA (%) 10.7 3.9 8.1 8.7 10.0 ROCE (%) 12.4 7.5 12.4 12.8 14.0 Div Payout Ratio (%) 19.7 35.4 20.0 20.0 20.0 Net Interest Cover (x) 5.6 2.7 4.0 4.6 5.7



Company Guide

Mayora Indah


FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 3,140 3,612 3,456 4,083 3,151 Cost of Goods Sold (2,802) (2,823) (2,509) (2,885) (2,238) Gross Profit 338 789 947 1,198 912 Other Oper. (Exp)/Inc (334) (528) (556) (658) (597) Operating Profit 4.67 260 391 540 315 Other Non Opg (Exp)/Inc 5.73 9.80 72.9 22.2 145 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (84.1) (80.2) (96.8) (84.9) (90.3) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit (73.7) 190 367 478 370 Tax 18.5 (33.8) (86.7) (149) (87.0) Minority Interest 0.87 (2.0) (7.7) (7.3) (7.7) Net Profit (54.3) 154 273 321 276 Net profit bef Except. (54.3) 154 273 321 276 EBITDA 328 694 522 790 687 Growth Revenue Gth (%) (19.9) 15.0 (4.3) 18.1 (22.8) EBITDA Gth (%) (33.1) 111.8 (24.8) 51.2 (13.0) Opg Profit Gth (%) (98.3) 5,469.5 50.2 38.2 (41.7) Net Profit Gth (Pre-ex) (%) (129.5) (383.5) 77.0 17.7 (14.1) Margins Gross Margins (%) 10.8 21.8 27.4 29.3 29.0 Opg Profit Margins (%) 0.1 7.2 11.3 13.2 10.0 Net Profit Margins (%) (1.7) 4.3 7.9 7.9 8.8


FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 3,114 3,585 3,735 3,884 3,977 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 165 197 197 197 197 Cash & ST Invts 1,860 713 1,191 1,462 1,637 Inventory 1,456 1,967 1,588 1,817 2,028 Debtors 2,813 3,081 3,006 3,314 3,723 Other Current Assets 300 748 748 748 748 Total Assets 9,710 10,291 10,467 11,422 12,312 ST Debt 1,119 1,977 1,424 1,424 1,424 Creditor 1,179 955 990 1,133 1,264 Other Current Liab 334 182 182 182 182 LT Debt 2,754 2,626 2,626 2,626 2,376 Other LT Liabilities 385 450 450 450 450 Shareholder’s Equity 3,852 4,008 4,682 5,474 6,458 Minority Interests 86.4 92.6 112 133 157 Total Cap. & Liab. 9,710 10,291 10,467 11,422 12,312 Non-Cash Wkg. Capital 3,057 4,658 4,170 4,564 5,053 Net Cash/(Debt) (2,012) (3,890) (2,858) (2,588) (2,162) Debtors Turn (avg days) 85.4 79.4 75.9 75.9 75.9 Creditors Turn (avg days) 49.3 31.1 34.9 34.9 34.9 Inventory Turn (avg days) 60.9 64.0 56.0 56.0 56.0 Asset Turnover (x) 1.2 1.4 1.4 1.4 1.5 Current Ratio (x) 2.4 2.1 2.5 2.7 2.8 Quick Ratio (x) 1.8 1.2 1.6 1.7 1.9 Net Debt/Equity (X) 0.5 0.9 0.6 0.5 0.3 Net Debt/Equity ex MI (X) 0.5 1.0 0.6 0.5 0.3 Capex to Debt (%) 16.4 18.3 14.8 16.1 17.1 Z-Score (X) 5.7 5.8 6.5 NA NA


Margins surged after an 8% ASP increase in October 2014


Company Guide

Mayora Indah


FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 1,356 530 1,104 1,296 1,606 Dep. & Amort. 364 411 450 501 557 Tax Paid (298) (120) (242) (284) (353) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (65.5) (1,308) (64.7) (394) (489) Other Operating CF (370) (375) 0.0 0.0 0.0 Net Operating CF 987 (862) 1,247 1,118 1,322 Capital Exp.(net) (635) (841) (600) (650) (650) Other Invts.(net) 25.1 25.9 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (610) (816) (600) (650) (650) Div Paid (183) (206) (169) (198) (246) Chg in Gross Debt 119 727 0.0 0.0 (250) Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF (63.7) 522 (169) (198) (496) Currency Adjustments 208 8.65 0.0 0.0 0.0 Chg in Cash 521 (1,148) 478 270 176 Opg CFPS (Rp) 1,177 498 1,467 1,691 2,025 Free CFPS (Rp) 393 (1,905) 723 524 751




S.No. DateClosing

PriceTarget Price

Rat ing

1: 18 Sep 15 27950 25500 HOLD

2: 02 Nov 15 27300 25400 HOLD


1

2

19997

21997

23997

25997

27997

29997

31997

Jan-15 May-15 Sep-15 Jan-16

Rp


HOLD Last Traded Price: Rp14,300 (JCI : 4,491.74) Price Target : Rp13,200 (8% downside) (Prev Rp13,500) Potential Catalyst: Lower raw material prices, rupiah appreciation Where we differ: More bearish than consensus Analyst Edwin Lioe +6221 3003 4936 [email protected] Andy Sim +65 6682 3718 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rpbn) 2014A 2015F 2016F 2017F Revenue 30,022 32,243 35,308 39,035 EBITDA 3,748 4,534 4,888 5,421 Pre-tax Profit 3,389 4,100 4,434 4,958 Net Profit 2,604 2,975 3,218 3,598 Net Pft (Pre Ex.) 2,604 2,975 3,218 3,598 Net Pft Gth (Pre-ex) (%) 17.0 14.2 8.2 11.8 EPS (Rp) 447 510 552 617 EPS Pre Ex. (Rp) 447 510 552 617 EPS Gth Pre Ex (%) 17 14 8 12 Diluted EPS (Rp) 447 510 552 617 Net DPS (Rp) 223 255 276 309 BV Per Share (Rp) 2,414 2,669 2,945 3,254 PE (X) 32.0 28.0 25.9 23.2 PE Pre Ex. (X) 32.0 28.0 25.9 23.2 P/Cash Flow (X) 21.6 23.2 21.7 19.6 EV/EBITDA (X) 21.4 17.5 16.1 14.4 Net Div Yield (%) 1.6 1.8 1.9 2.2 P/Book Value (X) 5.9 5.4 4.9 4.4 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 18.5 19.1 18.7 19.0 Earnings Rev (%): 3 (1) (3) Consensus EPS (Rp): 509 594 N/A Other Broker Recs: B: 18 S: 1 H: 6


Incorporating Strong Margins

Maintain HOLD; TP slightly lowered to Rp13,200 We maintain our HOLD recommendation on ICBP with a slightly lowered TP of Rp13,200, pegged to 24x FY16F PE which is about +1SD of its 5-year average valuation. Our earnings for FY15F/16F/17F are adjusted by 3.0%/(0.9)%/(3.2)% on the back of lowered revenues of (2.5)%/(4.1)%/(6.2)%. Stronger-than-expected margins in 2015 We bumped up our EBIT margin assumption for the noodle segment (which makes up c.65% of revenue) by 50bps to 15.5%, in line with management’s guidance of 14-16%. In 9M15, the noodle segment recorded an impressive EBIT margin of 17.9% which is an increase of c.1.7ppt y-o-y. However, with the wheat flour inventory lag of 3-6 months and a weaker rupiah in 2Q-3Q15, we estimate that margin will see some pressure in 4Q15. Our overall EBIT margin is hence increased to 11.7% from 11%. Expecting a slower revenue growth We expect a slower growth in sales volume this year as we think consumer sentiment could remain weak in the near term. Moreover, increase in ASP this year could also be fairly limited given a fragile consumer demand. We lowered our revenue growth estimates to 7.4%/9.5%/10.6% from 10.1%/11.4%/13% for FY15F/16F/17F. Valuation:

We value ICBP at Rp13,200, pegged to 24x FY16F PE, or +1SD of its 5-year average valuation. We prefer exposure to ICBP through its parent company, Indofood Sukses Makmur (INDF IJ), as that stock offers better value. Key Risks to Our View:

Rapid rupiah depreciation and commodity price hike. A sharp rupiah depreciation or increase in commodity prices could hurt ICBP’s margins. At A Glance Issued Capital (m shrs) 5,831 Mkt. Cap (Rp bn/US$m) 83,383 / 6,020 Major Shareholders PT Indofood Sukses Makmur (%) 80.5 Free Float (%) 19.5 3m Avg. Daily Val (US$m) 1.9 ICB Industry : Consumer Goods / Food Producers



Indofood CBP Sukses Makmur Edition 1 Version 2 | Bloomberg: ICBP IJ | Reuters: ICBP.JK Refer to important disclosures at the end of this report

85

105

125

145

165

185

205

225

245

265

4,500.0

6,500.0

8,500.0

10,500.0

12,500.0

14,500.0

16,500.0


Relative IndexRp

Indofood CBP Sukses Makmur (LHS) Relative JCI INDEX (RHS)


Company Guide

Indofood CBP Sukses Makmur


Earnings Drivers:

Noodle segment the primary earnings driver. The noodles segment was ICBP’s primary revenue and earnings contributor in FY14, at 66% and 95%, respectively. It is also their strongest product, capturing 72% market share in Indonesia to maintain a comfortable lead over its closest competitor which has 15% market share. The strong lead allows it to be a price-maker in the segment, which is an advantage during times of rising costs and slowing demand. Instant noodles are the preferred substitute to rice by many Indonesians, hence, the resilient demand for the product. Beverage segment to turnaround in 2016-17. To diversify its revenue and earnings, ICBP expanded into the beverage business by forming a JV with Asahi, one of the largest beverage producers in Japan. Its products include RTD green tea, RTD coffee, and bottled drinking water. It started operations in 4Q13 and aims to breakeven at operating profit level in 2016-17. We are optimistic that ICBP’s expertise in consumer products coupled with Indofood’s extensive distribution network would help ICBP to establish its presence in the under-tapped domestic RTD beverage market. Rupiah strength and commodity prices are key margin drivers. The primary ingredient for noodles is wheat flour, which ICBP obtains through its sister company – Bogasari. Palm oil, skimmed milk powder, potatoes and chilies are also ingredients for ICBP. Most of the soft commodities such as wheat and milk powder are imported, which means its costs are affected by the strength of the rupiah. Hence, ICBP’s margins will be dampened by a rapid depreciation of the rupiah, as well as fluctuations in commodity prices. New products and new markets to drive topline growth. In December 2014, ICBP entered into a JV with Oji Holding Corporation, a Japanese company that produces paper diapers. The business plans and objectives are still unclear, but this would be another product line to drive topline growth going forward. According to Nielsen’s report, when consumer demand slowed down this year, sales volume of baby diapers in Indonesia had been the most resilient among all the FMCG categories.

Sales Trend

Profitability Trend

Margins Trend

Wheat price (USD/bushel)

USD/IDR exchange rate


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2013A 2014A 2015F 2016F 2017F

Rp bn


2,223

2,723

3,223

3,723

4,223

4,723

2013A 2014A 2015F 2016F 2017F

Rp bn


8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

2013A 2014A 2015F 2016F 2017F


300

400

500

600

700

800

900

1,000


8,000

10,000

12,000

14,000

16,000



Company Guide


Balance Sheet:

Strong cash position with a steady cash conversion cycle. In 9M15, ICBP had Rp6.13tr cash on its balance sheet. This will allow the company to tap on attractive acquisitions and/or joint ventures. Furthermore, cash conversion cycle is strong at 38.5 days (at end 2014), and the trend has been improving over the past four years. The company has been paying out 50% of earnings as dividends to shareholders.


Soft commodity prices and rupiah. The majority of ICBP’s raw materials are priced in US dollars; these include wheat flour, skimmed milk powder, potato, and palm oil. Therefore, the strength of the rupiah and volatile commodity prices would affect margins. During periods of bad harvests, a supply deficit would inflate the price of the affected commodity. This would lead to expectations of weaker margins, and pressure the share price. Economic recovery. When GDP growth meets market expectations, it is normally favourable for staple food companies like ICBP. This would raise expectations for higher sales volumes and topline growth, which could lift the share price.

Key Risks:

Rupiah depreciation and commodity price hike. ICBP is susceptible to these because it is exposed to imported raw materials such as wheat flour and milk powder. Cost pressure after adjustments to fuel price. The higher fuel price generally leads to higher costs of goods and services, which would crimp margins if the company is unable to raise selling prices.

Company Background

Indofood CBP Sukses Makmur is a 80.5%-subsidiary of Indofood Sukses Makmur PT (INDF IJ). It is the Consumer Branded Products arm of INDF, with noodles its biggest revenue and profit contributor. In the domestic market, ICBP’s flagship brand Indomie captures the largest market share for instant noodles at 72%. Other segments in the company include: dairy, snack food, food seasoning, beverage, and nutritional food.


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


1.1

1.1

1.1

1.2

1.2

1.2

1.2

1.2

1.3

1.3

1.3

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

2013A 2014A 2015F 2016F 2017F


0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

2013A 2014A 2015F 2016F 2017F


Rp

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

2013A 2014A 2015F 2016F 2017F

Avg: 22.2x

+1sd: 26.3x

+2sd: 30.3x

‐1sd: 18.2x

‐2sd: 14.2x

11.9

16.9

21.9

26.9

31.9


(x)

Avg: 4.57x

+1sd: 5.41x

+2sd: 6.25x

‐1sd: 3.74x

‐2sd: 2.9x

2.4

2.9

3.4

3.9

4.4

4.9

5.4

5.9

6.4

6.9


(x)


Company Guide


Segmental Breakdown

FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Rp bn) Noodles 17,322 19,916 21,120 22,612 24,557 Dairy 4,657 5,248 6,054 6,984 8,057 Snack Foods 1,714 2,002 2,016 2,201 2,450 Food Seasonings 1,397 1,146 1,285 1,468 1,617 Beverages 219 1,923 2,039 2,355 2,721 Others (214) (213) (273) (313) (367) Total 25,095 30,022 32,243 35,308 39,035 Operating Profit (Rp bn)

Noodles 2,311 2,976 3,274 3,324 3,610 Dairy 358 317 484 524 604 Snack Foods 18 25 101 110 123 Food Seasonings 85 87 90 103 113 Beverages (49) (352) (204) (47) 27 Others 49 75 12 12 13 Total 2,772 3,129 3,756 4,026 4,490 Operating Profit Margins (%)

Noodles 13.3 14.9 15.5 14.7 14.7 Dairy 7.7 6.0 8.0 7.5 7.5 Snack Foods 1.1 1.3 5.0 5.0 5.0 Food Seasonings 6.1 7.5 7.0 7.0 7.0 Beverages (22.5) (18.3) (10.0) (2.0) 1.0 Total 11.0 10.4 11.7 11.4 11.5


FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 25,095 30,022 32,243 35,308 39,035 Cost of Goods Sold (18,669) (21,963) (22,892) (25,245) (28,105) Gross Profit 6,426 8,060 9,350 10,063 10,930 Other Opng (Exp)/Inc (3,654) (4,931) (5,594) (6,037) (6,440) Operating Profit 2,772 3,129 3,756 4,026 4,490 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (11.3) (0.7) 0.0 0.0 0.0 Net Interest (Exp)/Inc 206 261 343 408 468 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 2,967 3,389 4,100 4,434 4,958 Tax (734) (857) (1,037) (1,121) (1,254) Minority Interest (9.8) 72.6 (87.8) (94.9) (106) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 2,224 2,604 2,975 3,218 3,598 Net Profit before Except. 2,225 2,604 2,975 3,218 3,598 EBITDA 3,279 3,748 4,534 4,888 5,421 Growth Revenue Gth (%) 15.6 19.6 7.4 9.5 10.6 EBITDA Gth (%) 0.2 14.3 21.0 7.8 10.9 Opg Profit Gth (%) (2.7) 12.9 20.1 7.2 11.5 Net Profit Gth (Pre-ex) (%) 2.1 17.0 14.2 8.2 11.8 Margins & Ratio Gross Margins (%) 25.6 26.8 29.0 28.5 28.0 Opg Profit Margin (%) 11.0 10.4 11.7 11.4 11.5 Net Profit Margin (%) 8.9 8.7 9.2 9.1 9.2 ROAE (%) 17.7 18.5 19.1 18.7 19.0 ROA (%) 10.5 10.5 11.2 11.3 11.7 ROCE (%) 11.9 11.6 12.9 12.8 13.2 Div Payout Ratio (%) 49.8 50.0 50.0 50.0 50.0 Net Interest Cover (x) NM NM NM NM NM


Others include: Nutritional and Special Foods, and elimination


Company Guide



FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 7,262 7,239 7,968 8,584 7,545 Cost of Goods Sold (5,180) (5,240) (5,617) (5,858) (5,229) Gross Profit 2,082 1,999 2,351 2,726 2,315 Other Oper. (Exp)/Inc (1,266) (1,413) (1,341) (1,543) (1,311) Operating Profit 815 586 1,010 1,183 1,004 Other Non Opg (Exp)/Inc 0.02 (3.1) 0.0 0.0 0.0 Associates & JV Inc 17.5 (10.1) (45.7) 2.59 (41.8) Net Interest (Exp)/Inc 115 99.6 33.4 59.5 (71.2) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 948 672 997 1,245 891 Tax (249) (149) (291) (279) (236) Minority Interest 11.3 10.7 90.2 (23.9) 50.9 Net Profit 711 534 797 942 706 Net profit bef Except. 711 534 797 942 706 EBITDA 974 749 1,176 1,355 1,180 Growth Revenue Gth (%) (11.1) (0.3) 10.1 7.7 (12.1) EBITDA Gth (%) (1.2) (23.1) 57.0 15.3 (12.9) Opg Profit Gth (%) (2.0) (28.2) 72.4 17.2 (15.1) Net Profit Gth (Pre-ex) (%) 7.6 (24.9) 49.2 18.2 (25.1) Margins Gross Margins (%) 28.7 27.6 29.5 31.8 30.7 Opg Profit Margins (%) 11.2 8.1 12.7 13.8 13.3 Net Profit Margins (%) 9.8 7.4 10.0 11.0 9.4


FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 4,844 5,839 6,361 6,998 7,568 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 5,101 5,468 5,468 5,468 5,468 Cash & ST Invts 5,598 7,403 8,214 8,956 9,911 Inventory 2,869 2,822 2,966 3,270 3,641 Debtors 2,772 3,081 3,151 3,457 3,814 Other Current Assets 82.5 298 298 298 298 Total Assets 21,267 24,910 26,457 28,447 30,700 ST Debt 979 1,548 1,548 1,548 1,548 Creditor 2,531 2,813 2,785 3,071 3,419 Other Current Liab 1,187 1,869 1,869 1,869 1,869 LT Debt 1,383 1,590 1,590 1,590 1,590 Other LT Liabilities 1,922 2,050 2,050 2,050 2,050 Shareholder’s Equity 12,587 14,078 15,565 17,174 18,973 Minority Interests 679 962 1,050 1,145 1,251 Total Cap. & Liab. 21,267 24,910 26,457 28,447 30,700 Non-Cash Wkg. Capital 2,006 1,518 1,760 2,084 2,464 Net Cash/(Debt) 3,236 4,265 5,076 5,818 6,774 Debtors Turn (avg days) 40.3 37.5 35.7 35.7 35.7 Creditors Turn (avg days) 50.9 48.1 46.0 46.0 45.9 Inventory Turn (avg days) 57.7 48.3 48.9 49.0 48.9 Asset Turnover (x) 1.2 1.2 1.2 1.2 1.3 Current Ratio (x) 2.4 2.2 2.4 2.5 2.6 Quick Ratio (x) 1.8 1.7 1.8 1.9 2.0 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) 81.8 37.1 41.4 47.8 47.8 Z-Score (X) 8.1 7.0 7.1 7.1 7.0



Company Guide



FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 2,967 3,389 4,100 4,434 4,958 Dep. & Amort. 507 619 778 863 930 Tax Paid (734) (857) (1,037) (1,121) (1,254) Assoc. & JV Inc/(loss) 11.3 0.69 0.0 0.0 0.0 Chg in Wkg.Cap. (633) 418 (242) (324) (380) Other Operating CF (125) 291 0.0 0.0 0.0 Net Operating CF 1,994 3,861 3,599 3,851 4,254 Capital Exp.(net) (1,934) (1,164) (1,300) (1,500) (1,500) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV (445) (218) 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 (368) 0.0 0.0 0.0 Net Investing CF (2,379) (1,750) (1,300) (1,500) (1,500) Div Paid (1,085) (1,108) (1,488) (1,609) (1,799) Chg in Gross Debt 996 686 0.0 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 297 135 0.0 0.0 0.0 Net Financing CF 208 (286) (1,488) (1,609) (1,799) Currency Adjustments 195 22.6 0.0 0.0 0.0 Chg in Cash 16.9 1,847 811 742 956 Opg CFPS (Rp) 450 590 659 716 795 Free CFPS (Rp) 10.2 463 394 403 472




S.No. DateClosing

PriceTarget Price

Rat ing

1: 17 Feb 15 14200 14300 HOLD

2: 03 Mar 15 14725 14300 HOLD

3: 23 Mar 15 14800 14300 HOLD

4: 08 May 15 13775 14300 HOLD

5: 15 Jul 15 12550 13500 HOLD

6: 10 Aug 15 12750 13500 HOLD

7: 02 Nov 15 13125 13500 HOLD


1

2

34

5

67

10687

11687

12687

13687

14687

15687


Rp


HOLD Last Traded Price: Rp3,685 (JCI : 4,491.74) Price Target: Rp3,300 (10% downside) (Prev Rp3,200) Potential Catalyst: Margin recovery, stronger-than-expected SSSG Where we differ: Neutral call among mostly bullish consensus calls Analyst Edwin Lioe +6221 3003 4936 [email protected] Edward Ariadi Tanuwijaya +6221 3003 4932 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rp bn) 2014A 2015F 2016F 2017F Revenue 11,822 12,832 14,153 15,697 EBITDA 1,088 1,059 1,215 1,371 Pre-tax Profit 192 100 267 452 Net Profit 74.1 70.3 187 317 Net Pft (Pre Ex.) 23.6 70.3 187 317 Net Pft Gth (Pre-ex) (%) (92.8) 198.5 165.9 69.3 EPS (Rp) 44.6 42.4 113 191 EPS Pre Ex. (Rp) 14.2 42.4 113 191 EPS Gth Pre Ex (%) (93) 198 166 69 Diluted EPS (Rp) 44.6 42.4 113 191 Net DPS (Rp) 4.52 4.29 11.4 19.3 BV Per Share (Rp) 1,530 1,569 1,670 1,841 PE (X) 82.6 87.0 32.7 19.3 PE Pre Ex. (X) 259.6 87.0 32.7 19.3 P/Cash Flow (X) 31.6 7.3 8.6 7.4 EV/EBITDA (X) 8.4 8.3 7.2 6.2 Net Div Yield (%) 0.1 0.1 0.3 0.5 P/Book Value (X) 2.4 2.3 2.2 2.0 Net Debt/Equity (X) 1.1 1.0 0.9 0.7 ROAE (%) 2.9 2.7 6.7 10.4 Earnings Rev (%): (57) (36) (36) Consensus EPS (Rp): 60.5 153 253 Other Broker Recs: B: 12 S: 6 H: 5

Source of all data: Company, DBS Vickers, Bloomberg Finance L.P

Looking for Telltale Signs

Maintain HOLD as margin recovery is yet to be seen. Inventory levels have already come off their highs and EBIT margin seems to have bottomed out in 2Q15, but rupiah weakness in 2H15 could present downside earnings surprises. Our sum-of-parts based TP ticked up slightly to Rp3,300 as we use higher EBITDA estimates for F&B segment (due to divestment of weaker brands) and department store segment (which has performed better than our initial expectation).

Revised down our earnings estimates. We cut our FY15F/16F/17F earnings estimates by 57%/36%/36% after: (1) accounting for the non-cash interest cost amortisation of Rp108bn p.a. for the Rp1.5tn zero-coupon bond across the next five years, (2) assuming a lower SSSG as we expect a more gradual recovery in demand, and (3) lowering our EBIT margin assumption for retail store segment (which accounts for c.65% of revenue) as our in-house view expects a further depreciation in the rupiah (c.10%) this year.

Lowered assumptions on SSSG and EBIT margin. We adjusted our FY15F/16F/17F SSSG assumptions to 5%/6%/7% from 5%/6.5%/7.5% as we expect recovery in consumer demand to be gradual this year. We also cut our retail sales’ margin assumption to account for our in-house view of further weakness in the rupiah. This lowered our overall EBIT margin estimates to 3.5%/4.2%/4.7% from 4.1%/4.5%/5.5%. We remain cautious on the extent that MAPI could pass on cost increases (that is caused by rupiah depreciation) to consumers, given the fragile consumer demand.

Valuation:

Our sum-of-parts based TP is Rp3,300, which implies 5.3x/4.6x FY16F/17F EV/EBITDA, about -0.5SD of its 10-year mean valuation.


Rapid depreciation of the rupiah. More than 60% of MAPI’s costs are in US dollars. This makes margins susceptible to the weakening rupiah. At A Glance Issued Capital (m shrs) 1,660 Mkt. Cap (Rp bn/US$m) 6,117 / 442 Major Shareholders Satya Mulia Gema G (%) 55.0 Map Premier Indo (%) 6.0 Free Float (%) 39.0 3m Avg. Daily Val (US$m) 0.25 ICB Industry : Consumer Services / General Retailers



Mitra Adiperkasa Edition 1 Version 3 | Bloomberg: MAPI IJ | Reuters: MAPI.JK Refer to important disclosures at the end of this report

42

62

82

102

122

142

162

182

202

222

2,475.0

3,475.0

4,475.0

5,475.0

6,475.0

7,475.0

8,475.0

9,475.0

10,475.0


Relative IndexRp

Mitra Adiperkasa (LHS) Relative JCI INDEX (RHS)


Company Guide

Mitra Adiperkasa

Revised earnings and assumptions for MAPI

old FY15F new FY15F chg old FY16F new FY16F chg old FY17F new FY17F chg

Revenue 12,832 12,832 0% 14,195 14,153 0% 15,979 15,697 -2%

Gross profit 5,800 5,723 -1% 6,425 6,425 -1% 7,510 7,252 -3%

Operating profit 521 453 -13% 635 592 -7% 881 738 -16%

Net profit 162 70 -57% 293 187 -36% 494 317 -36%

Gross margin 45.2% 44.6% 45.7% 45.4% 47.0% 46.2%

Operating margin 4.1% 3.5% 4.5% 4.2% 5.5% 4.7%

Net margin 1.3% 0.5% 2.1% 1.3% 3.1% 2.0%

SSSG 5.0% 5.0% 6.5% 6.0% 7.5% 7.0%


Sum-of-parts valuation for MAPI

% effective shareholding

EV % of total Remarks

Retail sales 100.0% 2,828 40% 4x FY16F EV/EBITDA

Department stores 100.0% 1,282 18% 6x FY16F EV/EBITDA

Cafe and restaurant 100.0% 2,831 40% 10x FY16F EV/EBITDA

Others 100.0% 92 1% 8x FY16F EV/EBITDA

7,032

Net debt/ cash (1,007)

Sub-total 6,025

Holding co. discount 10% (602)

Equity value (IDR bn) 5,422

Equity value (IDR/share) 3,300



Company Guide

Mitra Adiperkasa


Earnings Drivers:

Growth of discretionary spending. Mitra Adiperkasa leads in Indonesia’s retail store segment with a presence in 30-40% of major shopping malls nationwide. Its stores mainly cater to the mid-high/ high income earners. Demand for its products normally picks up when the economy is growing and the macro front (i.e. interest rates, exchange rate, government policies) is not clouded by uncertainty. When there are too many uncertainties, consumers tend to reduce discretionary purchases. Strength of the rupiah against the US dollar. More than 60% of MAPI’s costs are in US dollars, meaning a rapidly depreciating rupiah will hurt margins and earnings. MAPI applies a 10-15% buffer in its selling prices, on top of its cost price that is based on the prevailing rupiah spot rate when the products arrive at the ports. This measure is effective when the rupiah depreciates moderately. But, in periods when the rupiah depreciates rapidly, margins will contract. When the rupiah weakened by 22% in the second half of 2013, MAPI’s operating margin averaged 4.5% in 2014 vs 7.6% in 2013. Limited expansion and mediocre SSSG will slow down revenue growth. Management has guided that they will rein in store expansion temporarily in order to maximize existing store efficiency, manage debt, and reduce inventory levels which has been excessively high in the past few years. MAPI plans to expand operating store space by 50,000 sqm this year, and is targeting 5-7% SSSG. We are assuming similar space expansion and 5.0% SSSG. Missing these targets means there will be downside to earnings. Tapping on growth of e-commerce. The company has ventured into the fast-growing e-commerce market in Indonesia by setting up online shop portals for some of its brands, i.e. planetsports.net and lineashoes.com. It developed its integrated e-commerce website, mapemall.com and has been made available to the public in 4Q15. This year, it aims to develop mobile apps and in-store pickup features to further strengthen its e-commerce value propositions. We are positive that given MAPI’s extensive store network and expertise in the retail space, the e-channel could be a significant earning contributor in the future.

Sales Trend

Profitability Trend

Margins Trend

New stores (sqm)

Same-store growth (%)


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2013A 2014A 2015F 2016F 2017F

Rp bn


70

170

270

370

470

570

670

2013A 2014A 2015F 2016F 2017F

Rp bn


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2013A 2014A 2015F 2016F 2017F


80,227

18,702

50,000 50,000 50,000

0

10,100

20,200

30,300

40,400

50,500

60,600

70,700

80,800

2013A 2014A 2015F 2016F 2017F

10

9

5

6

7

0.0

2.0

4.0

6.1

8.1

10.1

2013A 2014A 2015F 2016F 2017F


Company Guide

Mitra Adiperkasa

Balance Sheet:

Rp1.5tr (US$105mn) zero-coupon bonds to pare down debt. MAPI has issued 5-year unsecured, zero-coupon bonds with a face value of Rp1.5tr (US$115mn). The proceeds will be used to pare down the company’s debt, and reduce its interest-bearing net gearing to 0.33x in FY15F from 1.12x in FY14. Inventory level has normalised. MAPI had expanded rapidly between 2012 and 2014, growing store space by more than 40% and almost doubling its store count. That caused inventory level to be elevated, and MAPI took on debt to fund its stretched cash flow, which hurt profits. MAPI also had to discount its products heavily to reduce inventory. But by May, inventory had reached the desired level, and the company subsequently reduced discounting and promotion activities, which would benefit margins.


Pickup in the economy, stable rupiah. Factors that will support MAPI’s share price include: (1) faster-than-expected economic recovery (i.e. stronger GDP growth), (2) a stronger rupiah on the back of an improving macro environment, and (3) taking on new initiatives/ brands that will lift margins.

Key Risks:

Rapid depreciation of the rupiah will crimp margins. More than 60% of MAPI’s costs are in US dollars and it does not hedge its foreign currency exposure. These make margins highly susceptible to a weak rupiah. The company applies a 10-15% buffer in its selling prices to address a moderate depreciation of the rupiah, but would be hurt by a sudden weakness of the rupiah. The sharp 22% depreciation of the rupiah in 2H13 crimped margins by over 300bps between 2013 and 2014.

Company Background

Mitra Adiperkasa operates department stores and specialty stores selling a broad range of goods including clothing, toys, food, and other merchandises.


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


1.2

1.3

1.4

1.5

1.6

1.7

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2013A 2014A 2015F 2016F 2017F


0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

1,000.0

2013A 2014A 2015F 2016F 2017F


Rp

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2013A 2014A 2015F 2016F 2017F

Avg: 102.1x

+1sd: 193.3x

+2sd: 284.5x

‐1sd: 10.9x

-72.3

27.7

127.7

227.7

327.7

427.7


(x)

Avg: 4.27x

+1sd: 5.45x

+2sd: 6.63x

‐1sd: 3.09x

‐2sd: 1.91x1.5

2.5

3.5

4.5

5.5

6.5

7.5


(x)


Company Guide

Mitra Adiperkasa

Key Assumptions

FY Dec 2013A 2014A 2015F 2016F 2017F New stores (sqm) 80,227 18,702 50,000 50,000 50,000 Same-store growth 10.0% 9.0% 5.0% 6.0% 7.0%

Segmental Breakdown

FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Rp bn) Retail sales 5,955 7,498 8,277 9,270 10,281 Department stores 2,370 2,599 2,695 2,831 3,139 Cafe and restaurant 1,277 1,547 1,703 1,911 2,119 Others 133 178 158 142 157 Total 9,734 11,822 12,832 14,153 15,697 Operating Profit (Rp bn)

Retail sales 638 498 281 371 483 Department stores 116 1.80 43.1 53.8 69.1 Cafe and restaurant (10.2) 18.5 123 162 180 Others 7.77 6.04 5.51 4.95 5.49 Total 751 525 453 592 738 Operating Profit Margins (%)

Retail sales 10.7 6.6 3.4 4.0 4.7 Department stores 4.9 0.1 1.6 1.9 2.2 Cafe and restaurant (0.8) 1.2 7.2 8.5 8.5 Others 5.9 3.4 3.5 3.5 3.5 Total 7.7 4.4 3.5 4.2 4.7


FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 9,734 11,822 12,832 14,153 15,697 Cost of Goods Sold (4,886) (6,352) (7,109) (7,727) (8,445) Gross Profit 4,849 5,470 5,723 6,425 7,252 Other Opng (Exp)/Inc (4,098) (4,945) (5,271) (5,833) (6,514) Operating Profit 751 525 453 592 738 Other Non Opg (Exp)/Inc (45.5) (14.1) 0.0 0.0 0.0 Associates & JV Inc 12.9 6.66 0.0 0.0 0.0 Net Interest (Exp)/Inc (233) (376) (352) (325) (286) Exceptional Gain/(Loss) 0.0 50.5 0.0 0.0 0.0 Pre-tax Profit 485 192 100 267 452 Tax (157) (119) (30.1) (80.1) (136) Minority Interest 0.0 0.82 0.0 0.01 0.02 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 328 74.1 70.3 187 317 Net Profit before Except. 328 23.6 70.3 187 317 EBITDA 1,215 1,088 1,059 1,215 1,371 Growth Revenue Gth (%) 28.3 21.4 8.5 10.3 10.9 EBITDA Gth (%) 9.0 (10.5) (2.6) 14.8 12.8 Opg Profit Gth (%) (1.3) (30.1) (13.7) 30.8 24.7 Net Profit Gth (Pre-ex) (%) (24.3) (92.8) 198.5 165.9 69.3 Margins & Ratio Gross Margins (%) 49.8 46.3 44.6 45.4 46.2 Opg Profit Margin (%) 7.7 4.4 3.5 4.2 4.7 Net Profit Margin (%) 3.4 0.6 0.5 1.3 2.0 ROAE (%) 13.5 2.9 2.7 6.7 10.4 ROA (%) 4.2 0.9 0.8 2.0 3.2 ROCE (%) 9.2 3.1 4.9 6.3 7.5 Div Payout Ratio (%) 10.1 10.1 10.1 10.1 10.1 Net Interest Cover (x) 3.2 1.4 1.3 1.8 2.6


Lowest EBIT margin since MAPI’s IPO in 2004


Company Guide

Mitra Adiperkasa


FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 3,162 3,158 2,965 3,137 3,299 Cost of Goods Sold (1,803) (1,655) (1,628) (1,767) (1,822) Gross Profit 1,359 1,503 1,337 1,370 1,477 Other Oper. (Exp)/Inc (1,290) (1,341) (1,220) (1,298) (1,362) Operating Profit 69.1 162 118 72.2 115 Other Non Opg (Exp)/Inc (10.7) (16.2) (2.1) (30.8) (20.3) Associates & JV Inc 1.50 (1.7) (3.4) (4.3) (4.7) Net Interest (Exp)/Inc (91.2) (114) (94.4) (98.5) (91.8) Exceptional Gain/(Loss) 49.3 1.27 0.0 86.9 0.0 Pre-tax Profit 17.9 31.3 17.8 25.6 (1.6) Tax (5.4) (74.1) (7.5) (9.9) (4.4) Minority Interest 0.0 0.82 1.99 (2.0) 7.35 Net Profit 12.5 (42.0) 12.3 13.7 1.37 Net profit bef Except. (36.8) (43.3) 12.3 (73.2) 1.37 EBITDA 212 308 265 222 266 Growth Revenue Gth (%) 11.8 (0.1) (6.1) 5.8 5.1 EBITDA Gth (%) (31.9) 45.2 (14.0) (16.1) 19.5 Opg Profit Gth (%) (59.3) 134.6 (27.3) (38.7) 59.7 Net Profit Gth (Pre-ex) (%) (165.1) 17.7 (128.4) (696.0) (101.9) Margins Gross Margins (%) 43.0 47.6 45.1 43.7 44.8 Opg Profit Margins (%) 2.2 5.1 4.0 2.3 3.5 Net Profit Margins (%) 0.4 (1.3) 0.4 0.4 0.0


FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 2,600 2,636 2,580 2,516 2,454 Invts in Associates & JVs 22.2 93.5 93.5 93.5 93.5 Other LT Assets 722 795 795 795 795 Cash & ST Invts 369 513 737 866 1,095 Inventory 2,942 3,203 3,311 3,536 3,794 Debtors 415 496 494 545 605 Other Current Assets 739 950 950 950 950 Total Assets 7,808 8,686 8,960 9,301 9,786 ST Debt 1,729 1,567 1,567 1,567 1,567 Creditor 1,830 1,726 1,990 2,163 2,363 Other Current Liab 437 549 549 549 549 LT Debt 1,048 1,858 1,805 1,805 1,805 Other LT Liabilities 338 377 377 377 377 Shareholder’s Equity 2,428 2,541 2,604 2,772 3,056 Minority Interests 0.02 68.9 68.9 68.9 68.8 Total Cap. & Liab. 7,808 8,686 8,960 9,301 9,786 Non-Cash Wkg. Capital 1,829 2,375 2,217 2,320 2,437 Net Cash/(Debt) (2,408) (2,913) (2,636) (2,507) (2,278) Debtors Turn (avg days) 13.1 14.1 14.1 13.4 13.4 Creditors Turn (avg days) 113.4 102.1 95.4 98.1 97.8 Inventory Turn (avg days) 181.5 176.5 167.2 161.7 158.4 Asset Turnover (x) 1.2 1.4 1.4 1.5 1.6 Current Ratio (x) 1.1 1.3 1.3 1.4 1.4 Quick Ratio (x) 0.2 0.3 0.3 0.3 0.4 Net Debt/Equity (X) 1.0 1.1 0.4 0.4 0.3 Net Debt/Equity ex MI (X) 1.0 1.1 0.4 0.4 0.3 Capex to Debt (%) 31.2 18.3 16.3 16.6 16.9 Z-Score (X) 2.6 2.6 2.7 2.8 3.0



Company Guide

Mitra Adiperkasa


FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 485 192 100 267 452 Dep. & Amort. 464 563 606 623 633 Tax Paid (157) (119) (30.1) (80.1) (136) Assoc. & JV Inc/(loss) (12.9) (6.7) 0.0 0.0 0.0 Chg in Wkg.Cap. (589) (575) 158 (102) (118) Other Operating CF (81.9) 140 0.0 0.0 0.0 Net Operating CF 108 194 834 708 832 Capital Exp.(net) (866) (628) (550) (560) (570) Other Invts.(net) 6.64 5.75 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 56.8 0.0 0.0 0.0 Div from Assoc & JV 8.00 12.0 0.0 0.0 0.0 Other Investing CF (52.2) (52.2) 0.0 0.0 0.0 Net Investing CF (904) (606) (550) (560) (570) Div Paid (71.4) (33.2) (7.1) (18.9) (32.1) Chg in Gross Debt 799 645 (53.0) 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (87.4) (52.4) 0.0 0.0 0.0 Net Financing CF 640 559 (60.1) (18.9) (32.1) Currency Adjustments (2.1) (3.0) 0.0 0.0 0.0 Chg in Cash (158) 144 224 129 230 Opg CFPS (Rp) 420 463 407 488 572 Free CFPS (Rp) (457) (262) 171 89.1 158



Source: DBS Vickers

S.No. DateClosing

PriceTarget Price

Rat ing

1: 08 May 15 5300 5620 HOLD

2: 08 Jun 15 5700 5620 HOLD

3: 15 Jul 15 4990 5625 HOLD

4: 10 Aug 15 4680 5625 HOLD

5: 23 Sep 15 2885 3200 HOLD

6: 02 Nov 15 3365 3200 HOLD


1

2

34

5

6

2612

3112

3612

4112

4612

5112

5612

6112


Rp


FULLY VALUED Last Traded Price: Rp35,150 (JCI : 4,374.19) Price Target : Rp30,000 (15% downside) (Prev Rp35,400) Potential Catalyst: Lower raw material prices, stronger rupiah Where we differ: One of the lowest among consensus Analyst

Edwin Lioe +6221 3003 4936 [email protected] Andy Sim +65 6682 3718 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Rp bn) 2014A 2015F 2016F 2017F Revenue 34,512 36,761 39,571 43,617 EBITDA 8,137 8,238 8,416 8,989 Pre-tax Profit 7,677 7,688 7,832 8,345 Net Profit 5,739 5,747 5,854 6,238 Net Pft (Pre Ex.) 5,739 5,747 5,854 6,238 Net Pft Gth (Pre-ex) (%) 752 753 767 818 EPS (Rp) 752 753 767 818 EPS Pre Ex. (Rp) 7 0 2 7 EPS Gth Pre Ex (%) 7 0 2 7 Diluted EPS (Rp) 752 753 767 818 Net DPS (Rp) 722 723 737 785 BV Per Share (Rp) 603 633 664 696 PE (X) 46.7 46.7 45.8 43.0 PE Pre Ex. (X) 46.7 46.7 45.8 43.0 P/Cash Flow (X) 41.5 42.7 42.3 39.9 EV/EBITDA (X) 33.0 32.6 32.0 30.0 Net Div Yield (%) 2.1 2.1 2.1 2.2 P/Book Value (X) 58.3 55.5 53.0 50.5 Net Debt/Equity (X) 0.1 0.1 0.2 0.2 ROAE (%) 124.8 119.0 115.6 117.4 Earnings Rev (%): (2) (7) (8) Consensus EPS (Rp): 775 860 965 Other Broker Recs: B: 2 S: 13 H: 9


Revaluing the Pricey One

Cut TP to Rp30,000 on lower earnings and PE multiple We maintain our FULLY VALUED call on Unilever Indonesia with a lower TP of Rp30,000, pegged to 39x FY16F earnings (from 43x previously), which is +1SD of its average valuation in the past ten years. The stock has de-rated to c.46x FY16F PE from c.50x during our re-initiation back in June 2015. We believe that further de-rating could be warranted given the company’s slowing earnings growth on the back of lower revenue, tight competition, and weaker rupiah.

Revenue and earnings growth to remain soft in 2016 We expect progressive recovery in consumer sentiment next year, but we believe it will come later in the year rather than sooner. We estimate that sales volume growth next year will remain weak at c.3% y-o-y, similar to what is expected this year. Increase in selling price is expected to be minimal given the fragile purchasing power among consumers. Similarly, a weaker rupiah could put pressure on margins as more than 60% of its raw materials are palm oil and its derivatives; although this could be partially negated by the low CPO price.

Valuation too high given slowing growth Unilever has posted compounded annual earnings growth rate of c.15% between 2009-13 which led its stock to re-rate from c.20x PE to c.40x PE during that period. However, slowing revenue growth and tightening competition has led earnings growth to weaken and we estimate compounded annual growth of just c.3% between 2014-17F. Accordingly, we believe that its current valuation is too high (at c.46x FY16F PE, about +2SD of its 10-year mean valuation) and potential de-rating should be expected.

Valuation:

We value Unilever Indonesia at Rp30,000 per share based on 39x FY16F PE, which is +1SD of its 10-year average valuation.


Faster-than-expected recovery of the domestic economy. Our in-house projection for 2016 GDP growth is at 5.2% y-o-y, in line with the World Bank’s forecast of 5.3%. A faster-than-expected pickup in Unilever’s earnings could lead us to upgrade our recommendation.

At A Glance Issued Capital (m shrs) 7,630 Mkt. Cap (Rp bn/US$m) 268,195 / 19,105 Major Shareholders Unilever Indonesia Holding BV

85.0

Free Float (%) 15.0 3m Avg. Daily Val (US$m) 4.1 ICB Industry : Consumer Goods / Personal Goods

DBS Group Research . Equity 15 Dec 2015


Unilever Indonesia Edition 1 Version 2 | Bloomberg: UNVR IJ | Reuters: UNVR.JK Refer to important disclosures at the end of this report

ed: TH / sa: MA

86

106

126

146

166

186

206

15,570.0

20,570.0

25,570.0

30,570.0

35,570.0

40,570.0

45,570.0

Dec-11 Dec-12 Dec-13 Dec-14 Dec-15

Relative IndexRp

Unilever Indonesia (LHS) Relative JCI INDEX (RHS)


Company Guide

Unilever Indonesia


Earnings Drivers:

Domestic GDP growth. The health of the domestic economy is generally reflected in consumption of basic necessities as well as Fast Moving Consumer Goods (FMCG). For 2016, our Central Bank projected the economy to grow between 5.2-5.6%, which is in line with the World Bank’s growth estimate of 5.3%. Slowing exports, low commodity prices, and unrealised infrastructure spending have contributed to the weak economic growth. A recovery in these areas would positively impact FMCG companies like Unilever. Strength of the rupiah against US dollar. More than half of Unilever’s raw material costs are denominated in US dollars, which means a weaker rupiah will hurt its margins. Currently, the rupiah is trading at Rp14,000 to the dollar because of the weak macro backdrop, as well as in anticipation of the Fed tightening its monetary policy by year-end, which will strengthen the dollar. Our in-house assumption for the rupiah is Rp15,000 to the dollar by end of 2016, suggesting further downside to earnings. CPO price. About 60% and 30% of Unilever’s COGS are spent on raw materials and packaging respectively, which mostly uses palm oil and its derivatives as ingredients. Currently, the price of crude palm oil (CPO) is hovering at its lowest in five years because of excess supply. However, our plantation analyst expects CPO price to rebound towards year-end, as inventory levels normalise. This could put upward pressure on costs, and if the rupiah weakens simultaneously, margins could contract further. Earnings to grow by 0%/2% in FY15F/16F.We project earnings growth will be flat in 2015 at 0.1%. This is based on slowing revenue growth as well as a 1.5% increase in royalty fees this year. We estimate that gross margin will fall by c.70bps in 2016 following the shift in revenue mix, cost pressure, as well as difficulty in passing on cost-increases to consumers during the time of fragile demand.

Sales Trend

Profitability Trend

Margins Trend

Revenue Trend

CPO Price (RM/MT)


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2013A 2014A 2015F 2016F 2017F

Rp bn


5,352

5,852

6,352

6,852

7,352

7,852

8,352

2013A 2014A 2015F 2016F 2017F

Rp bn


13.0%

15.0%

17.0%

19.0%

21.0%

23.0%

25.0%

2013A 2014A 2015F 2016F 2017F


-10%

-5%

0%

5%

10%

15%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2Q20

13

3Q20

13

4Q20

13

1Q20

14

2Q20

14

3Q20

14

4Q20

14

1Q20

15

2Q20

15

3Q20

15

Revenue Revenue Growth % (QoQ)

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15


Company Guide

Unilever Indonesia

Balance Sheet:

Low leveraged company. Unilever has strong operating cash flow as well as free cash flow, and has consistently pared down bank loans at the end of its fiscal year. The loans are mainly used to fund working capital and largely denominated in rupiah. This eliminates foreign exchange risks associated with its debt. And, the company’s size and healthy balance sheet have allowed it to secure favourable lending rates. In 2014, net gearing ratio stood at <0.1x and average loan interest rate was c.8%, which is close to prime rate. Share Price Drivers:

Recovery in economic growth. Indonesia’s 3Q15 GDP growth remained weak at 4.73% and full-year GDP growth is expected to be at 4.7-4.8%. For next year, pickup in domestic economy is expected, but no major improvement is expected. The Central Bank projected that GDP growth will be at the range of 5.2-5.6% with a bias towards the lower range. Fruition of government stimulus packages as well as execution of government projects will be keys to spur the growth in domestic economy as well as boosting consumer confidence. Key Risks:

Slower-than-expected economic growth A slower-than-expected economic recovery would

slow consumption further and hurt the company’s top line and bottom line.

Weaker rupiah, higher raw material prices

These would pressure the company’s margins, and in turn, our earnings estimates.

Difficulty in passing on cost increases to consumers

Slowing consumption and weak consumer sentiment are driving consumers to be more selective. This would limit the company's ability to pass on cost increases to consumers, which means margins would be eroded eventually.

Company Background

PT Unilever Indonesia Tbk manufactures soaps, detergents, margarine, oil, and dairy-based foods, tea-based beverages, ice cream, and cosmetics.


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


2.4

2.5

2.5

2.6

2.6

2.7

2.7

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

2013A 2014A 2015F 2016F 2017F


920.0

940.0

960.0

980.0

1,000.0

1,020.0

1,040.0

1,060.0

1,080.0

1,100.0

1,120.0

1,140.0

2013A 2014A 2015F 2016F 2017F


Rp

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2013A 2014A 2015F 2016F 2017F

Avg: 40.3x

+1sd: 47.5x

+2sd: 54.7x

‐1sd: 33x

‐2sd: 25.8x23.2

28.2

33.2

38.2

43.2

48.2

53.2

58.2

63.2


(x)

Avg: 52.22x

+1sd: 60.11x

+2sd: 67.99x

‐1sd: 44.34x

‐2sd: 36.45x

32.1

37.1

42.1

47.1

52.1

57.1

62.1

67.1

72.1

77.1


(x)


Company Guide

Unilever Indonesia

Segmental Breakdown

FY Dec 2013A 2014A 2015F 2016F 2017F Revenues (Rp bn) Home and Personal Care 22,415 24,634 25,669 27,003 29,164 Foods and Refreshment 8,343 9,878 11,093 12,568 14,453 Total 30,757 34,512 36,761 39,571 43,617 Gross Profit (Rp bn)

Home and Personal Care 12,137 12,943 13,733 14,312 15,457 Foods and Refreshment 3,642 4,156 4,714 5,279 6,070 Total 15,778 17,099 18,447 19,590 21,527 Gross Profit Margins (%)

Home and Personal Care 54.1 52.5 53.5 53.0 53.0 Foods and Refreshment 43.7 42.1 42.5 42.0 42.0 Total 51.3 49.5 50.2 49.5 49.4


FY Dec 2013A 2014A 2015F 2016F 2017F Revenue 30,757 34,512 36,761 39,571 43,617 Cost of Goods Sold (14,979) (17,412) (18,314) (19,981) (22,090) Gross Profit 15,778 17,099 18,447 19,590 21,527 Other Opng (Exp)/Inc (8,614) (9,337) (10,661) (11,674) (13,085) Operating Profit 7,164 7,762 7,786 7,917 8,442 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (5.6) (85.6) (98.4) (85.0) (97.0) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 7,159 7,677 7,688 7,832 8,345 Tax (1,806) (1,938) (1,941) (1,977) (2,107) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 5,353 5,739 5,747 5,854 6,238 Net Profit before Except. 5,353 5,739 5,747 5,854 6,238 EBITDA 7,680 8,137 8,238 8,416 8,989 Growth Revenue Gth (%) 12.7 12.2 6.5 7.6 10.2 EBITDA Gth (%) 11.5 5.9 1.2 2.2 6.8 Opg Profit Gth (%) 10.3 8.3 0.3 1.7 6.6 Net Profit Gth (Pre-ex) (%) 10.6 7.2 0.1 1.9 6.6 Margins & Ratio Gross Margins (%) 51.3 49.5 50.2 49.5 49.4 Opg Profit Margin (%) 23.3 22.5 21.2 20.0 19.4 Net Profit Margin (%) 17.4 16.6 15.6 14.8 14.3 ROAE (%) 125.8 124.8 119.0 115.6 117.4 ROA (%) 42.1 40.2 38.1 37.2 37.7 ROCE (%) 90.7 87.0 78.2 77.1 79.6 Div Payout Ratio (%) 95.8 96.0 96.0 96.0 96.0 Net Interest Cover (x) 1,271.0 90.7 79.1 93.1 87.1


Earnings growth slows down


Company Guide

Unilever Indonesia


FY Dec 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 Revenue 8,507 8,422 9,413 9,388 8,745 Cost of Goods Sold (4,406) (4,053) (4,610) (4,662) (4,311) Gross Profit 4,101 4,369 4,803 4,726 4,435 Other Oper. (Exp)/Inc (2,450) (2,090) (2,710) (2,871) (2,732) Operating Profit 1,651 2,278 2,094 1,855 1,703 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (29.3) (22.0) (31.3) 3.32 (25.2) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 1,622 2,256 2,062 1,859 1,678 Tax (421) (567) (471) (520) (425) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 1,201 1,690 1,592 1,339 1,253 Net profit bef Except. 1,201 1,690 1,592 1,339 1,253 EBITDA 1,765 2,327 2,219 1,943 1,859 Growth Revenue Gth (%) (4.0) (1.0) 11.8 (0.3) (6.8) EBITDA Gth (%) (14.9) 31.8 (4.6) (12.4) (4.3) Opg Profit Gth (%) (16.1) 38.0 (8.1) (11.4) (8.2) Net Profit Gth (Pre-ex) (%) (19.2) 40.7 (5.8) (15.9) (6.5) Margins Gross Margins (%) 48.2 51.9 51.0 50.3 50.7 Opg Profit Margins (%) 19.4 27.1 22.2 19.8 19.5 Net Profit Margins (%) 14.1 20.1 16.9 14.3 14.3


FY Dec 2013A 2014A 2015F 2016F 2017F Net Fixed Assets 6,874 7,348 7,897 8,397 8,851 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 611 595 595 595 595 Cash & ST Invts 261 859 1,173 893 628 Inventory 2,084 2,326 2,158 2,354 2,602 Debtors 2,796 3,052 3,173 3,415 3,764 Other Current Assets 76.3 99.8 99.8 99.8 99.8 Total Assets 12,703 14,281 15,095 15,754 16,541 ST Debt 977 1,250 1,800 1,800 1,800 Creditor 3,765 4,632 4,666 5,091 5,628 Other Current Liab 3,033 2,983 2,983 2,983 2,983 LT Debt 0.0 0.0 0.0 0.0 0.0 Other LT Liabilities 674 817 817 817 817 Shareholder’s Equity 4,255 4,599 4,829 5,063 5,312 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 12,703 14,281 15,095 15,754 16,541 Non-Cash Wkg. Capital (1,841) (2,137) (2,220) (2,206) (2,145) Net Cash/(Debt) (716) (391) (627) (907) (1,172) Debtors Turn (avg days) 33.2 32.3 31.5 31.5 31.5 Creditors Turn (avg days) 95.0 99.2 95.3 95.4 95.4 Inventory Turn (avg days) 52.6 49.8 44.1 44.1 44.1 Asset Turnover (x) 2.4 2.4 2.4 2.5 2.6 Current Ratio (x) 0.7 0.7 0.7 0.7 0.7 Quick Ratio (x) 0.4 0.4 0.5 0.4 0.4 Net Debt/Equity (X) 0.2 0.1 0.1 0.2 0.2 Net Debt/Equity ex MI (X) 0.2 0.1 0.1 0.2 0.2 Capex to Debt (%) 115.0 80.6 55.6 55.6 55.6 Z-Score (X) 24.6 22.0 20.3 19.6 18.9


Revenue growth continues to be on a downward trend


Company Guide

Unilever Indonesia


FY Dec 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 7,159 7,677 7,688 7,832 8,345 Dep. & Amort. 516 375 451 499 547 Tax Paid (1,806) (1,938) (1,941) (1,977) (2,107) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 232 277 83.0 (14.2) (60.3) Other Operating CF 136 72.1 0.0 0.0 0.0 Net Operating CF 6,236 6,463 6,281 6,339 6,724 Capital Exp.(net) (1,124) (1,007) (1,000) (1,000) (1,000) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (1,124) (1,007) (1,000) (1,000) (1,000) Div Paid (5,059) (5,127) (5,517) (5,620) (5,989) Chg in Gross Debt (63.2) 273 550 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF (5,122) (4,854) (4,967) (5,620) (5,989) Currency Adjustments 40.7 (4.4) 0.0 0.0 0.0 Chg in Cash 31.5 598 314 (281) (264) Opg CFPS (Rp) 787 811 812 833 889




S.No. DateClosing

PriceT arget Price

Rat ing

1: 30 Jun 15 39500 35400 FULLY VALUED

2: 15 Jul 15 40225 35400 FULLY VALUED

3: 10 Aug 15 38450 35400 FULLY VALUED

4: 25 Sep 15 36250 35400 FULLY VALUED

5: 29 Oct 15 37200 35400 FULLY VALUED


12

3 4

5

29165

31165

33165

35165

37165

39165

41165

43165

45165

47165

Dec-14 Apr-15 Aug-15 Dec-15

Rp

Industry Focus


DBS Vickers recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

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Industry Focus


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