INDF Undervalued in Light of Stable Earnings 20180426 NHKS Company Report (English)

  Performance of Agribusiness Segment: 2017 Performance Bolster

• 10.3%

  INDF likely succeeds in maintaining a stable gross margin at the average of 55% estimated to be maintainable in 2018. The CBP segment dominating 70% of the instant noodle markets in Indonesia is one of the bolsters for stable earnings margin; thus, INDF finds no difficulties in control the selling price. Another to the CBP segment, the flour segment also sets the cost plus selling prices resulting in the maintainable earnings margin.

  Performance of Flour Segment: 2018 Performance Bolster We estimate that in 2018, the agribusiness segment’s sales likely nudges up by 2.2% lower than the hike in 2017’s sales. The slight increment is attributable to the likely stable CPO prices during 2018. Another to the stable CPO prices, the flour segment likely posting the incline of 7.9% in the 2018 sales underlined by the upbeat global flour prices is also the bolster for the 2018 growth. Stable Earnings Margin

  vs. Last Price +18.5% Shares data

  Last Price (IDR) 6,900 Price date as of Apr 24, 2018 52 wk range (Hi/Lo) 8,925/6,800 Free float (%)

  49.9 Outstanding sh.(mn) 8,780 Market Cap (IDR bn) 59,706 Market Cap (USD mn) 4,289 Avg. Trd Vol - 3M (mn)

  7.40 Avg. Trd Val - 3M (bn)

  55.27 Foreign Ownership 99.9%

  Consumer Staples Packaged Food & Agricultural Products Bloomberg

  INDF’s sales surged by 5.1% from IDR66.7 trillion in 2017 into IDR70.1 trillion in 2017. The biggest contributor to the 2017 overall sales was the surge of 9.4% in sales from IDR12.4 trillion in 2016 into IDR13.6 trillion in 2017 accomplished by the agribusiness segment. Meanwhile, the CBP and flour segments respectively posted the growth of 4.2% and 3.5% in sales.

INDF IJ

  joni.wintarja@nhsec.co.id

  Dividend yield 2.1% 3.1% 3.4% 3.6% Source: Company Data, Bloomberg, NHKS Research

  Target Price of IDR8,175 We use an estimate of forward P/E of 15.7x (the 3-year average) to obtain the target price of December 2018. The target price implies a 2018/E P/E of 16.4x. Now, INDF is traded at a 2018/E P/E of 13.9x.

  Please consider the rating criteria & important disclaimer NH Korindo Sekuritas Indonesia Company Report | Apr 26, 2018 Indofood Sukses Makmur Tbk (INDF) Undervalued in Light of Stable Earnings Buy Dec 2018 TP (IDR) 8,175 Consensus Price (IDR) 9,117 TP to Consensus Price

  Reuters

  INDF.JK Joni Wintarja

• 62 21 797 6202, ext:138

  Abs. Ret. -8.6% -3.5% -14.6% -14.0% Rel. Ret.

  12M

  3M

  1M

  Share Price Performance YTD

  P/E 16.8x 16.1x 13.9x 13.2x P/BV 1.6x 1.4x 1.2x 1.2x EV/EBITDA 9.6x 9.7x 8.5x 8.2x DPS (IDR) 168 235 236 248

  Indofood Sukses Makmur Tbk | Summary (IDR bn) 2016/12A 2017/12A 2018/12E 2019/12E

  8.0% 8.2% 8.1% 8.3%

  ROIC

  4.8% 4.9% 4.9% 4.9%

  ROE 9.5% 9.2% 9.1% 9.1% ROA

  6.2% 5.9% 5.9% 5.9%

  EPS growth 39.6% 0.6% 4.9% 4.7%

  EBITDA 10,614 10,528 11,600 12,368 Net profit 4,145 4,168 4,373 4,580 EPS (IDR) 472 475 498 522

  Sales growth 4.2% 5.1% 5.0% 5.0%

  Sales 66,750 70,187 73,699 77,420

  BVPS (IDR) 5,004 5,325 5,587 5,860 EBITDA margin 15.9% 15.0% 15.7% 16.0% NPM

• 6.9% -3.8%
• 8.7% -24.0%

  Company Report

  Apr 26, 2018

  A Glance at INDF Indofood (INDF) has transformed into a Total Food Solutions within the last two decades with the operational activities covering all phases of the processed food production — from raw materials processing into end products available in markets. Now, INDF has its credibility of a leading company in each of its business categories. Its operational activities gain benefits from economics scale and its robust business model consisting of 4 integrated strategic business categories (Group).

  The consumer branded products (CBP) is supported by the strength of its products. The CBP group produces a diverse range of consumer branded products, such as instant noodles, dairy products, snacks, food seasonings, nutrition and special foods, and beverages.

  The Bogasari segment equipped with shipping and packaging business units has main business activity is to produce wheat flour and pasta. The agribusiness segment activities are researches and developments, seed breeding, cultivating and processing oil palm, as well as, production and marketing cooking oil, margarine, and shortening. This segment also cultivates and process rubber, sugar cane, and other plantations. The distribution segment has a main business activity to distribute most of consumer products manufactured by Indofood, its subsidiaries, and the third parties, to markets.

  Food Industry in ASEAN

  INDF has the lowest P/E of 13.9x among its peers in ASEAN. Having a low P/E, it has a high dividend yield of 3.4% — the basis for its popularity as the top pick for consumer staples in ASEAN.

  ASEAN Food Companies Market Total Asset Net Profit Net Profit Company Cap ROE P/E P/BV Dividend (USD mn) Growth Margin Yield (USD mn)

  INDF 4,571 6,472 4.9% 5.9% 9.1% 13.9x 1.2x 3.4%

  ICBP 7,197 2,327 14.4% 11.7% 20.2% 22.0x 4.2x 2.0%

  Malaysia

  NESTLE (MALAYSIA) BERHAD 9,092 630 1.4% 12.3% 100.3% 54.3x 54.8x 1.8% PPB GROUP BERHAD 5,881 5,636 15.4% 28.0% 5.8% 18.8x 1.1x 1.3%

  Thailand

  THAI UNION GROUP PCL 2,920 4,491 14.6% 4.4% 13.7% 14.9x 2.0x 3.5% THAI PRESIDENT FOODS PCL 1,917 903 0.6% 13.2% 15.1% 21.0x 3.0x 0.0%

• Source: Bloomberg, NHKS research

  Company Report

  Apr 26, 2018 Source: Company, NHKS Research

  INDF Sales Trend | FY2013 - FY2018E

  Source: Company, NHKS Research

  Sales Contribution Trend | 2014 - 2017 Agribusiness Division Sales Trend | 2014-2017

  Source: Company, NHKS Research

  CBP Division Sales Trend | 2014-2017

  Source: Company, NHKS Research

  Performance Highlights Flour Division Sales Trend | 2014-2017

  Source: Company, NHKS Research

  Distribution Division Sales Trend | 2014-2017

  Source: Company, NHKS Research

  Company Report

  Apr 26, 2018

  Multiple Valuation Forward P/E band | Last 3 years Dynamic Forward P/E band | Last 3 years

  Source: NHKS research Source: NHKS research

  Rating and target price update Target Price Revision Date Rating Target Price Last Price Consensus vs Last Price vs Consensus

  06/19/2017 Buy 10,275 (Dec 2017) 8,325 9,602 +23.4% +7.0% 09/22/2017 Buy 10,250 (Dec 2018) 8,725 9,464 +17.5% +8.3% 12/13/2017 Buy 9,825 (Dec 2018) 7,350 9,454 +33.7% +3.9% 04/26/2018 Buy 8,175 (Dec 2018) 6,900 9,117 +18.5% 10.3%

• Source: NHKS research, Bloomberg

  Analyst Coverage Rating Closing and Target Price

  Source: Bloomberg Source: NHKS research

  NH Korindo Sekuritas Indonesia (NHKS) stock ratings

  1. Period: End of year target price

  2. Rating system based on a stock’s absolute return from the date of publication : Greater than +15%

   Buy : -15% to +15%  Hold : Less than -15%  Sell

  Company Report

  Apr 26, 2018

  Summary of Financials

DISCLAIMER

INCOME STATEMENT BALANCE SHEET

  

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errors, omissions, misstatements, negligence, inaccuracy arising herefrom. All rights reserved by PT NH Korindo Securities Indonesia ^{INDF Summary Last Price (IDR) 6,900}

^{Target Price (IDR) 8,175 2016/12A 2017/12A 2018/12E 2019/12E}

^{Rating: Buy ROE 9.5% 9.2% 9.1% 9.1% ROA 4.8% 4.9% 4.9% 4.9% ROIC 8.0% 8.2% 8.1% 8.3% EBITDA/Equi ty 24.4% 23.2% 24.2% 24.6%}

^{in IDR Bn 2016/12A 2017/12A 2018/12E 2019/12E EBITDA/As s ets 4.8% 4.9% 4.9% 4.9%}

^{Sales 66,750 70,187 73,699 77,420 Ca s h Di vi dend IDR bn) 1,475 2,063 2,076 2,178}

^{Growth (% y/y) 4.2% 5.1% 5.0% 5.0% Di vi dend Yi el d (%) 2.1% 3.1% 3.4% 3.6%}

^{COGS (47,322) (50,318) (52,820) (55,496) Pa yout Ra ti o (%) 49.7% 49.8% 49.8% 49.8%}

^{Gross Profit 19,428 19,869 20,879 21,924 DER 51.0% 52.0% 52.0% 52.0%}

^{Gross Margin 29.1% 28.3% 28.3% 28.3% Net Gea ri ng 44.4% 47.8% 56.0% 59.7%}

^{Opera ti ng Expens es (11,053) (11,475) (12,045) (12,654) LT Debt to Equi ty 27.1% 24.8% 25.3% 25.3%}

^{EBIT 8,376 8,393 8,833 9,270 Ca pi ta l i za ti on Ra ti o 33.8% 34.2% 34.2% 34.2%}

^{EBIT Margin 12.5% 12.0% 12.0% 12.0% Equi ty Ra ti o 53.5% 53.2% 53.6% 53.8%}

^{Depreci a ti on 2,239 2,135 2,767 3,098 Debt Ra ti o 27.3% 27.7% 27.9% 28.0%}

^{EBITDA 10,614 10,528 11,600 12,368 Fi na nci a l Levera ge 211.0% 181.2% 183.6% 182.0%}

^{EBITDA Margin 15.9% 15.0% 15.7% 16.0% Current Ra ti o 150.8% 150.3% 140.2% 131.9%}

^{Interes t Expens es (1,483) (1,396) (1,478) (1,569) Qui ck Ra ti o 93.5% 86.6% 76.4% 69.1%}

^{EBT 7,385 7,609 7,988 8,365 Ca s h Ra ti o 69.5% 63.3% 52.7% 45.4%}

^{Income Ta x (2,533) (2,513) (2,638) (2,762) Ca s h Convers i on Cycl e 63.3 66.9 67.0 67.0 Mi nori ty Interes t (708) (927) (977) (1,023) Pa r Va l ue (IDR) 100 100 100 100}

^{Net Profit 4,145 4,168 4,373 4,580 Tota l Sha res (mn) 8,780 8,780 8,780 8,780}

^{Growth (% y/y) 39.6% 0.6% 4.9% 4.7% Sha re Pri ce (IDR) 7,925 7,625 6,900 6,900}

^{Net Profit Margin 6.2% 5.9% 5.9% 5.9% Ma rket Ca p (IDR tn) 69.6 67.0 60.6 60.6 In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E}

^{Ca s h 13,362 13,690 11,763 10,681 Pri ce /Ea rni ngs 16.8x 16.1x 13.9x 13.2x}

^{Recei va bl es 4,617 5,040 5,292 5,559 Pri ce /Book Va l ue 1.6x 1.4x 1.2x 1.2x}

^{Inventori es 8,470 9,691 10,173 10,688 Pri ce/Sa l es 1.0x 1.0x 0.8x 0.8x}

^{Total Current Assets 28,985 32,515 31,311 31,011 PE/EPS Growth 0.4x 27.8x 2.8x 2.8x}

^{Net Fi xed As s ets 35,095 39,476 43,959 48,477 EV/EBITDA 9.6x 9.7x 8.5x 8.2x}

^{Other Non Current As s ets 18,094 15,949 16,217 16,083 EV/EBIT 12.2x 12.1x 11.2x 10.9x}

^{Total Assets 82,175 87,939 91,487 95,571 EV (IDR bn) 101,918 101,795 98,551 100,883}

^{Pa ya bl es 3,538 4,076 4,269 4,490 Sa l es CAGR (3-Yr) 6.2% 3.3% 4.8% 5.1%}

^{ST Ba nk Loa n 10,534 12,713 13,112 13,754 EPS CAGR (3-Yr) 18.3% 1.9% 13.8% 3.4%}

^{Other Current Liab. 5,147 4,849 4,948 5,273 Ba s i c EPS (IDR) 472 475 498 522}

^{LT Debt 11,888 11,605 12,401 13,008 Di l uted EPS (IDR) 472 475 498 522}

^{Other Non Current Li a b. 7,126 7,940 7,704 7,590 BVPS (IDR) 5,004 5,325 5,587 5,860}

^{Total Liabilities 38,233 41,183 42,433 44,115 Sa l es PS (IDR) 7,602 7,994 8,394 8,817}

^{Shareholders' Equity 43,941 46,757 49,054 51,456 DPS (IDR) 168 235 236 248}

^{In IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E}

^{Net Income 4,145 4,168 4,373 4,580 DCF (IDR bn)}

^{Deprec & Amorti za ti on 2,239 2,135 2,767 3,098 NOPAT 5,503 5,621 5,917 6,209}

^{Chg. In Worki ng Ca pi ta l 792 205 (431) (236) +Depr./Amor. 2,239 2,135 2,767 3,098}

^{CFO 7,176 6,508 6,710 7,442 -CAPEX (3,121) (6,823) (7,250) (7,616)}

^{Ca pex (3,121) (6,823) (7,250) (7,616) -Incr. (Decr.) i n Worki ng Ca p. 792 205 (431) (236)}

^{CFI (963) (6,058) (7,755) (7,596) (Unl evered) FCFF 5,413 1,137 1,003 1,455}

^{Di vi dends Pa i d (1,475) (2,063) (2,076) (2,178) WACC}

^{Net Borrowi ng (PMT) (3,957) 2,404 1,195 1,249 Cos t of Debt (Ta x Adj.) 7.7% 5.3% 5.7% 5.7%}

^{CFF (5,927) (122) (881) (929) Cos t of Equi ty (COE) 9.9% 11.1% 9.6% 9.6%}

^{Net Changes in Cash 286 328 (1,927) (1,083) WACC (%) 9.4% 9.5% 8.5% 8.4% RIM Sprea d (FROE-COE) (%) -0.3% -1.6% -0.3% -0.3% Res i dua l Income (IDR bn) (137) (689) (131) (146)}

^{By Geography % Shareholders % Equi ty Cha rge 4,282 4,857 4,504 4,726}

^{Seychel l es 81.9 Fi rs t Pa ci fi c Comp. Ltd. 50.1 EVA Uni ted Sta tes 10.6 Va ngua rd Group 1.8 Inves ted Ca pi ta l (IDR bn) 70,727 66,364 71,074 74,567 Luxembourg 2.0 Di mens i ona l Fund 1.8 ROIC-WACC (%) -1.6% -1.1% -0.2% -0.1% Irel a nd 1.2 Bl a ckrock 1.7 EVA (IDR mn) (1,139) (702) (111) (85)}

  OWNERSHIP PROFITABILITY & STABILITY _{April 24, 2018 Dec 2018}

  ^{Analyst: Joni Wintarja} CASH FLOW STATEMENT DCF, RIM & EVA