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Food & Beverages INDONESIA

December 2, 2011

Indofood CBP
ICBP IJ / ICBP JK Current Rp5,200 Rp5,000 Rp5,200 -3.8%
SHORT TERM (3 MTH) LONG TERM

Market Cap

Avg Daily Turnover

Free Float

Target Previous Target Up/downside

US$3,370m
Rp30,320,962m

US$2.13m
Rp18,774m

20%
5,831 m shares

Notes from the Field

An overcooked noodle market?


The instant-noodle market may be in for a rough ride given falling consumption and stiffening competition. Indofood can choose to sustain its margins or volume, but not both. Maintain Underperform.
Indofoods preference is volume though it expects stable margins. We are less sure, and cut our FY12-13 earnings by 4-5% and TP, still based on 13x CY13 P/E (market P/E). since. Our base case assumes noodle volume growth of 3% p.a., in line with guidance though we believe margins may take a hit, with 1-2% EBIT contraction over three years. Dairy growth may compensate for this.

Convicti on

Erwan Teguh
T (62) 21 30061720 E erwan.teguh@cimb.com

Irenne Achmad
T (62) 21 30061728 E irenne.achmad@cimb.com

History again?
As noodle margins continued to climb over the past three years despite declining volumes, an inflection may have been reached this year, with ICBP losing 5.1% volume in 9M11. Past occasions of too-high margins and intensifying competition had resulted in three years of both volume and margin declines.

Premium valuations at risk


Implied risk premium is 1% pt less than the market, in our calculations. This and tepid growth suggest that its premium of 20% to the market and 3% to consumer peers may give way sooner than later. De-rating catalyst are falling ASPs, catastrophic if volume falls as well, in our view.

Company Visit Channel Check

Expert Opinion Customer Views

to win competition, we will strengthen our brand equity and distribution channels in both urban and rural markets.
Werianty Setiawan, Director

Best year could be behind


Noodle volume hit a high in 2007 while EBIT margins peaked at 19.8% in 3Q10. Both have been declining

Price Close

Relative to JCI (RHS)

Financial Summary
111 109 106 104 101 99 96 94 91 89 86

6,100
5,600 5,100 4,600

40 4,100

40
20
Dec-10 Mar-11 Source: Bloomberg Jun-11 Sep-11

52-week share price range


5,200

4,325

6,000

5,000
Current Target

Revenue (Rpb) Operating EBITDA (Rpb) Net Profit (Rpb) Core EPS (Rp) Core EPS Growth FD Core P/E (x) DPS (Rp) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing P/BV (x) Recurring ROE % Change In Core EPS Estimates CIMB/consensus EPS (x)

Dec-09A 16,333 2,071 1,078 175.1 218% 29.69 0.0 0.00% 15.15 21.81 42.9% 23.70 58.0%

Dec-10A 17,960 2,937 1,728 278.6 59% 18.66 0.0 0.00% 9.48 NA (31.1%) 3.40 31.9%

Dec-11F 19,218 3,035 1,966 337.1 21% 15.43 99.4 1.91% 8.80 13.68 (38.5%) 2.97 20.6% 0.37% 1.00

Dec-12F 20,194 3,268 2,061 353.4 5% 14.71 114.6 2.20% 8.19 35.97 (34.6%) 2.64 19.0% (3.87%) 0.94

Dec-13F 21,746 3,446 2,204 378.0 7% 13.76 120.2 2.31% 7.32 12.81 (42.9%) 2.36 18.1% (4.74%) 0.90

Vol m

SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
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Indofood CBP
December 2, 2011

PEER COMPARISON

Research Coverage
Gudang Garam Indofood CBP Indofood Sukses Makmur Kalbe Farma Mayora Indah Bloomberg Code GGRM IJ ICBP IJ INDF IJ KLBF IJ MYOR IJ Market ID ID ID ID ID Recommendation OUTPERFORM UNDERPERFORM NEUTRAL NEUTRAL OUTPERFORM Mkt Cap US$m 14,134 3,370 4,757 4,007 1,184 Price 66,100 5,200 4,875 3,550 13,900 Target Price 67,400 5,000 6,400 4,000 17,400 Upside 2.0% -3.8% 31.3% 12.7% 25.2%

Rolling P/BV (x)


8 7

Rolling FD Core P/E (x)


35

30
25

6
5 4

20
15

3
2 1

10
5 Jan-08 Jan-09 Jan-10 Jan-11 Indofood CBP Kalbe Farma

0 Jan-07

0 Jan-07

Jan-08

Jan-09

Jan-10

Jan-11 Indofood CBP Kalbe Farma

Gudang Garam Indofood Sukses Makmur Mayora Indah

Gudang Garam Indofood Sukses Makmur Mayora Indah

Peer Average: P/BV vs Recurring ROE


4.5 4.0 3.5 25% 22% 19%

Peer Average: FD Core P/E vs FD Core EPS Growth


25 20 15 10 5 80% 56% 32% 8% -16%

3.0
2.5 2.0 1.5 1.0 0.5

17%
14% 11% 8% 6% 3%

0.0 Jan-07

0%
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

0 Jan-07

-40%
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Rolling P/BV (x) (lhs)

Recurring ROE (rhs)

Rolling FD Core P/E (x) (lhs)

FD Core EPS Growth (rhs)

Valuation
FD Core P/E (x) Dec-10A Dec-11F 30.61 24.97 18.66 15.43 14.90 13.76 25.06 24.22 21.34 27.04 Dec-12F 21.43 14.71 13.11 21.51 14.92 Dec-10A 6.00 3.40 2.55 6.71 5.35 P/BV (x) Dec-11F 5.36 2.97 2.25 5.81 4.66 Dec-12F 4.76 2.64 2.03 5.05 3.64 Dec-10A 19.33 9.48 6.90 16.03 12.13 EV/EBITDA (x) Dec-11F 16.49 8.80 6.25 14.52 13.26 Dec-12F 14.16 8.19 5.57 12.62 8.79

Gudang Garam Indofood CBP Indofood Sukses Makmur Kalbe Farma Mayora Indah

Growth and Returns


FD Core EPS Growth Dec-10A Dec-11F Dec-12F 19.6% 22.6% 16.5% 59.1% 21.0% 4.8% 83.6% 8.3% 5.0% 38.4% 3.5% 12.6% 32.3% -21.1% 81.2% Recurring ROE Dec-10A Dec-11F 21.0% 22.7% 31.9% 20.6% 21.3% 17.4% 27.4% 25.7% 27.9% 18.4% Dec-12F 23.5% 19.0% 16.3% 25.1% 27.4% Dividend Yield Dec-10A Dec-11F 1.30% 2.00% 0.00% 2.25% 1.91% 2.76% 1.93% 2.22% 0.72% 0.91% Dec-12F 2.34% 2.59% 2.91% 2.52% 0.74%

Gudang Garam Indofood CBP Indofood Sukses Makmur Kalbe Farma Mayora Indah

SOURCE: CIMB, COMPANY REPORTS


Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

Indofood CBP
December 2, 2011

BY THE NUMBERS

Share price info


Share px perf. (%) Relative Absolute Major shareholders Indofood 1M 1.9 4.5 3M -0.3 -1.9 12M -2.5 2.0 % held 80

P/BV vs Recurring ROE


5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Jan-07 70% 63% 56% 49% 42% 35% 28% 21% 14% 7% 0% Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

FD Core P/E vs FD Core EPS Growth


25 1,000%

20
15 10

800%
600% 400%

5
0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

200%
0%

Rolling P/BV (x) (lhs)

Recurring ROE (rhs)

Rolling FD Core P/E (x) (lhs)

FD Core EPS Growth (rhs)

Profit & Loss

We expect EBIT margins to decline in FY12-13 as the company pursues volume growth.

(Rpb) Revenue Cost Of Sales Gross Profit Total Operating Costs Operating Profit Operating EBITDA Depreciation And Amortisation Operating EBIT Net Interest Income Exchange Gains Other Income Associates' Profit Profit Before Tax (pre-EI) Exceptional Items Pre-tax Profit Taxation Profit After Tax Minority Interests Net Profit Recurring Net Profit

Dec-09A 16,333 (12,420) 3,913 (2,335) 1,578 2,071 (493.0) 1,578 (56.7) 36.54 45.08 1,603 1,603 (430.1) 1,173 (94.1) 1,078 1,021

Dec-10A 17,960 (12,993) 4,967 (2,535) 2,432 2,937 (505.7) 2,432 (25.9) 31.84 81.73 2,519 2,519 (666.9) 1,852 (123.9) 1,728 1,625

Dec-11F 19,218 (14,238) 4,979 (2,403) 2,577 3,035 (458.2) 2,577 141.9 0.00 0.00 2,719 2,719 (666.1) 2,053 (87.0) 1,966 1,966

Dec-12F 20,194 (14,779) 5,415 (2,723) 2,693 3,268 (575.6) 2,693 165.5 0.00 0.00 2,858 2,858 (700.3) 2,158 (97.1) 2,061 2,061

Dec-13F 21,746 (15,979) 5,767 (2,917) 2,851 3,446 (595.2) 2,851 204.2 0.00 0.00 3,055 3,055 (748.5) 2,306 (102.6) 2,204 2,204

Cash Flow
(Rpb) Pre-tax Profit Depreciation And Non-cash Adj. Change In Working Capital Tax Paid Other Operating Cashflow Cashflow From Operations Capex Disposals Of FAs/subsidiaries Acq. Of Subsidiaries/investments Other Investing Cashflow Cash Flow From Investing Debt Raised/(repaid) Equity Raised/(Repaid) Dividends Paid Net Cash Interest Other Financing Cashflow Cash Flow From Financing Total Cash Generated Change In Net Cash Free Cashflow To Equity Dec-09A 1,603 586.2 (79.0) (430.1) (596.0) 1,084 (371) 2.12 (324.5) (693) 1,000 6,294 0.0 (7,492) (198) 192 (808) 1,390 Dec-10A 2,519 563.5 (214.4) (666.9) 46.6 2,248 (361) (10.51) (273.2) (645) (4,995) 6,294 0.0 (190) 1,109 2,712 7,707 (3,392) Dec-11F 2,719 316.3 (88.8) (666.1) 150.8 2,431 (500) 0.00 (9.6) (510) 295 0 (681.6) 0 (387) 1,534 1,240 2,216 Dec-12F 2,858 410.1 (83.3) (700.3) 165.5 2,650 (1,800) 0.00 (7.4) (1,807) 0 0 (786.3) 0 (786) 57 57 843 Dec-13F 3,055 391.0 (122.2) (748.5) 204.3 2,780 (300) 0.00 (11.8) (312) (100) 0 (824.4) 0 (924) 1,543 1,643 2,368

Delayed capex in FY11 will be carried forward to FY12. Capex is largely for capacity expansion in the dairy business as well as instant noodles.

SOURCE: CIMB, COMPANY REPORTS

Indofood CBP
December 2, 2011

BY THE NUMBERS

Balance Sheet

Minimal debt on its books after IPO.

(Rpb) Fixed Assets Intangible Assets Other Long Term Assets Total Non-current Assets Total Cash And Equivalents Inventories Accounts Receivable Other Current Assets Total Current Assets Trade Creditors Short-term Debt Other Current Liabilities Total Current Liabilities Total Long-term Debt Other Liabilities Deferred Tax Total Non-current Liabilities Shareholders' Equity Minority Interests Preferred Shareholders Funds Total Equity

Dec-09A 2,180 3,969 273.8 6,423 705 1,311 1,448 336.8 3,801 907 1,360 5,112 7,378 41.63 541.5 637.6 1,221 1,279 345.5 1,625

Dec-10A 2,305 3,756 283.2 6,343 3,427 1,422 1,954 214.2 7,018 1,134 500 1,067 2,701 14.78 684.3 598.8 1,298 8,920 442.6 9,362

Dec-11F 2,480 3,614 292.8 6,386 4,942 1,559 2,091 234.0 8,826 1,243 795 1,143 3,181 14.78 684.3 598.8 1,298 10,204 529.6 10,733

Dec-12F 3,837 3,480 300.2 7,618 4,999 1,618 2,197 245.5 9,059 1,290 795 1,189 3,274 14.78 684.3 598.8 1,298 11,478 626.7 12,105

Dec-13F 3,675 3,347 312.0 7,334 6,542 1,749 2,366 264.5 10,922 1,395 695 1,282 3,371 14.78 684.3 598.8 1,298 12,858 729.4 13,587

Key Ratios
Revenue Growth Operating EBITDA Growth Operating EBITDA Margin Net Cash Per Share (Rp) BVPS (Rp) Gross Interest Cover Tax Rate Net Dividend Payout Ratio Accounts Receivables Days Inventory Days Accounts Payables Days ROIC (%) ROCE (%) Dec-09A 35.6% 208% 12.7% (119) 219 20.38 26.8% 0.0% 33.83 39.72 31.56 31.1% 54.4% Dec-10A 10.0% 42% 16.4% 499 1,530 29.11 26.5% 0.0% 34.57 38.39 28.67 30.8% 38.6% Dec-11F 7.0% 3% 15.8% 709 1,750 68.49 24.5% 29.5% 38.41 38.21 30.46 24.3% 25.7% Dec-12F 5.1% 8% 16.2% 718 1,968 55.87 24.5% 32.4% 38.86 39.34 31.36 23.3% 23.8% Dec-13F 7.7% 5% 15.8% 1,000 2,205 64.87 24.5% 31.8% 38.30 38.46 30.66 23.1% 22.8%

Key Drivers
ASP (% chg, main prod./serv.) Unit sales grth (%, main prod./serv.) Util. rate (%, main prod./serv.) ASP (% chg, 2ndary prod./serv.) Unit sales grth (%,2ndary prod/serv) Util. rate (%, 2ndary prod/serv) ASP (% chg, tertiary prod/serv) Unit sales grth (%,tertiary prod/serv) Util. rate (%, tertiary prod/serv) Unit raw mat ASP (%chg,main) Total Export Sales Growth (%) Export Sales/total Sales (%) Dec-09A 4.5% 1.9% 70.7% 8.0% 8.1% 76.5% N/A N/A N/A N/A N/A N/A Dec-10A 3.8% 3.8% 73.4% 8.0% 4.0% 90.0% N/A N/A N/A N/A N/A N/A Dec-11F 3.0% -5.0% 69.7% 3.0% 5.0% 95.0% N/A N/A N/A N/A N/A N/A Dec-12F -2.0% 3.0% 71.8% 6.0% 10.0% 83.9% N/A N/A N/A N/A N/A N/A Dec-13F -1.0% 3.0% 74.0% 4.0% 15.0% 73.9% N/A N/A N/A N/A N/A N/A

SOURCE: CIMB, COMPANY REPORTS

Indofood CBP
December 2, 2011

Table of Contents
1. BACKGROUND 2. OUTLOOK 3. VALUATION AND RECOMMENDATION p.4 p.7 p.9

An overcooked noodle market?


1. BACKGROUND 1.1 Structural decline in noodle consumption
For the past 10 years, Indonesia had been ranked the worlds second-largest consumer of instant noodles per capita, trailing only South Korea. Its high consumption had been buoyed by noodles lower pricing than rice. However, in 2008, a series of price increases totaling more than 30% inevitably triggered a decline in noodle consumption. That year, wheat prices more than tripled to a record of over US$12/bushel, following severe droughts in key producing regions. Moreover, rapid growth in income per capita in recent years has enabled consumers to afford more protein, vegetables, fruits, and other wheat-based products, bread in particular, effectively reducing the demand for instant noodles.
Figure 1: Consumption per capita declined in 2008; volume growth has not been the same since
packs/yr 80 70 60 50 40
30

20 10 2001 2002
China & HK

2003

2004
Indonesia

2005
Japan

2006

2007
Vietnam

2008

2009
S Korea

2010

Thailand

Philippines

Malaysia

Taiwan

SOURCES: CIMB, WORLD INSTANT NOODLE ASSOCIATION

1.2 ICBPs noodle volume fell from peak in 2008, yet to recover
ICBP was no exception. Its noodle volume peaked in 2007 before shrinking by 10% the next year. Its volume has been growing marginally at 2-4% since but has not returned to the levels of 2008. 9M11 noodle volume dropped 5.1% yoy, though the successful launch of Sarimi Isi 2 (less premium brand, two noodle packages bundled with one at a lower effective price) in rural areas in 3Q had bolstered sales volume that quarter.

Indofood CBP
December 2, 2011

Figure 2: Companys noodle sales volume has not recovered from 2008
bn packs 14 12 10 8 6 4
2

Rp/pack 1,400 1,200 1,000 800 600 400


200

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 9M11

Cumulative volume

Noodle ASP (RHS)

SOURCES: CIMB, COMPANY REPORTS

1.3 Changing competitive landscape


As demand declines, competition could get worse as players try to preserve their sales volumes. At the same time, lower cooking oil prices and abundant flour supply next year could lower barriers to entry for regional players. Indonesias flour production capacity is projected to jump 42% to 5.2m tonnes as existing producers expand capacities and new players enter the market. As the instant-noodle business is neither capital- nor technology-intensive, it may lure the entry of small regionally-focused players like Alhami of North Sumatera or even Wings Groups Mie Sedaaap in East Java, potentially chipping away ICBPs market share. Although ICBP still dominates national consumption with a 79% market share, regional players provide strong competition in their home turfs. Both Alhami and Mie Sedaaap reportedly may have 30-40% shares of their markets, as their products cater to the local tastebuds.
Figure 3: Launched in 2003, competitor Mie Sedaap has taken away a big chunk of ICBPs market share, before eventually settling at 79%
bn packs 16 14 12 10 8 6 4 2 0 2002 2003 2004 2005 Industry volume 2006 2007 2008 2009 2010 Wings Group's Mie Sedaap took away market share 94% 91% 88% 85% 82% 79% 76% 73% 70%

Indofood market share (RHS)

SOURCES: CIMB, COMPANY REPORTS, WORLD INSTANT NOODLE ASSOCIATION

Indofood CBP
December 2, 2011

2. OUTLOOK 2.1 Falling noodle ASPs a distinct possibility


A shrinking market coupled with potentially fiercer competition may force ICBP to roll back its noodle ASPs to give volume a kick. In the last decade, it had slashed its prices substantially twice: in 2000 when deregulation in the flour industry introduced new players to the noodle market and in 2003-07 when Mie Sedaaap entered the market and quickly gobbled up its market share. Indofood lost 13% market share from 2003 through 2005 and resorted to slashing its prices by a cumulative of 20%. Its ASP cuts might not necessarily take the form of outright price reductions, but included discounts and other sales promotions (freebies, bundling, etc). In any case, discounts and sales promotions eventually ate into its margins. Our recent discussions with management reaffirm our view that the company will likely prioritise volume over margins next year.
Figure 4: Two major events during the last decade prompted ICBP to slash its noodle ASPs substantially
Rp/pack 1,300 50%

1,150

40%

Sharp price increases post1,000 98 crisis coupled with new competitors in the market from flour industry deregulation resulted in ASP drop

850

Competition against Wings compelled Indofood to cut its ASP, though revamp in distribution partially offset some of the ASP decline

30%

20%

700

10%

550

0%

400 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9M11

-10%

Change in ASP (RHS)

Implied ASP

SOURCES: CIMB, COMPANY REPORTS

2.2 Looking back at history


Prior to 2000, the government had banned flour imports. As a result, Bogasari reigned in the flour industry with more than 90% of the market. Likewise, Indofood controlled more than 90% of the instant-noodles market, booking an average 21% EBIT margin, among the highest in the world. Those were its heyday. Deregulation of the flour industry following the 1997/98 Asian crisis allowed flour imports, ushering new players into the instant-noodles market. In 2000, Indofood cut its noodle ASPs by 8%. Price cuts in combination with a weaker rupiah dragged down Indofoods noodle margins from 20.5% to 19.8%, one of the lowest in its history. After 2000, its noodle margins never emerged above 20% and continued to slide.

2.3 New era, strong competitor


In 2003, Wings introduced Mie Sedaap into the market, priced at discounts to Indofoods products. Within two years, Mie Sedaap snatched up 13% of the market from Indofood, prompting the latter to give up margins to defend its market share. From 2005 through 2007, Indofood slashed its retail prices by 20%, though a revamp of its distribution system reduced distributors' margins (providing Indofood with higher ASPs) and helped Indofood average out some of the impact. Furthermore, from 2003 through 2007, Indofood's selling expenses ballooned to 8.3-9.5% of sales (from a 7% average). Noodle margins sank for five consecutive years, before bottoming at 2.2%.

Indofood CBP
December 2, 2011

Figure 5: Noodle margins have slowly receded over the years from the deregulation of the flour market and fierce competition
Rpbn 14,000 12,000 10,000 8,000 6,000 4,000
2,000

28% Deregulation of wheat flour market Price war against Wings Group's Mie Sedaap 24% 20% Indofood dominates more than 90% of both wheat flour and noodle markets 16% 12% 8%
4%

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9M11 Noodle sales EBIT margin (RHS)

0%

SOURCES: CIMB, COMPANY REPORTS

2.4 What will it do now?


Fast forward to 2011, an inflection could be hit again after three years of strong margins. The fact remains that low barriers to entry and high margins may induce new entrants. ICBPs noodle volume dropped by 5.1% in 9M11 and management has no plans to increase selling prices; both could serve as evidence of higher competition. One should not be surprised if ICBP chooses volume over margins and resorts to offering discounts/promotions (as it had done several years ago when Mie Sedaap entered the market). This in turn could put a lid on its revenue growth and decimate its margins.

2.5 For now, best days may be behind


A sharp rise in flour production next year, coupled with lower noodle consumption, could provide Indofood with another challenge. Margins are likely to be sacrificed for volume growth. Based on our sensitivity analysis, every 1% cut in ASPs will reduce its noodle EBIT margins by 80-85bp, assuming all else is equal.

2.6 Noodle margins substantially higher than peers


ICBP generates higher margins than the other instant-noodle producers in the region due to a lower level of competition, we believe. Its noodle EBIT margins have been remarkably resilient this year (16.6% in 9M11) thanks to minimal price increases from Bogasari following strong competition in the flour market. Its Chinese peer, Tingyi, for instance, posted an 8.1% 9M11 EBIT margin as elevated wheat and CPO prices crimped margins. During normal times, its margins are considerably lower than Indofoods, averaging 13%. Given that a structural decline in consumption may result in flat/lower noodle ASPs, we do not rule out the possibility that ICBP noodle margins may drift down to settle at 12-13%, closer to peers. Competition would dictate how fast and by how much its margins fall.

Indofood CBP
December 2, 2011

Figure 6: ICBPs noodle margins are higher than regional peers

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Indofood Tingyi HK * estimate; segment EBIT not disclosed Uni-President HK Nissin JP Toyo Suisan JP Nongshim KS* Average: 9%

SOURCES: CIMB, COMPANY REPORTS

3. VALUATION AND RECOMMENDATION 3.1 At premium to the market


ICBP has outperformed the JCI (by 8%) and its parent Indofood Sukses Makmur (INDF IJ), as margins held up well despite escalating commodity prices, thanks to minimal flour price increases at Bogasari. ICBP is trading at a 20% premium to the JCI and 3% premium to its consumer peers, based on our estimates. Its premiums and slower earnings growth expected compared with consumer peers underpin our Underperform rating.
Figure 7: ICBP has outperformed the JCI and Indofood so far this year
140

130

120

110

100

90

80 Dec-10

Jan-11

Mar-11

Mar-11

Apr-11 ICBP

May-11 INDF

Jun-11 JCI

Jul-11

Aug-11 Jakcons

Sep-11

Oct-11

Nov-11

SOURCES: CIMB, BLOOMBERG

Indofood CBP
December 2, 2011

Figure 8: ICBP is trading at a 20% premium to the JCI


20x 19x 18x 17x 16x 15x 14x 13x
12x

Figure 9: and a 3% premium to its consumer peers


40% 36% 32% 28% 24% 20% 16% 12% 12x
8%

20x 19x 18x 17x 16x


15x

Title: Source:

40% 36% 32% 28% 24%


20%

Please fill in the values above to have them entered in your rep

14x 13x

16% 12% 8% 4% 0%
Dec-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11

11x 11x 10x Oct-10 Dec-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 ICBP prem (disc.) to Consumer (ex-UNVR) ICBP prem (disc) to JCI (RHS) ICBP P/E (LHS) JCI P/E (LHS) Consumer (ex-UNVR) P/E (LHS) ICBP P/E 4% 0% 10x Oct-10

SOURCES: CIMB, COMPANY REPORTS

SOURCES: CIMB, COMPANY REPORTS

3.2 on a lower inferred risk premium to market


Assuming a risk-free rate of 6.75% and a beta of 0.98x, ICBP is commanding a risk premium of 7-8%, slightly lower than our market risk premium of 8.5%. There is downside to its share price should its risk premium be aligned to that of the market, or if its earnings momentum wanes. We think theres more downside than upside.
Figure 10: Inferred risk premiums
Stock price (Rp/sh) Implied disc rate Implied MRP 4,000 22.5% 16.0% 4,200 20.9% 14.4% 4,400 19.4% 12.9% 4,600 18.0% 11.5% 4,800 16.7% 10.2% 5,000 15.5% 8.9% 5,200 14.3% 7.7% 5,400 13.2% 6.6% 5,600 12.2% 5.6%

SOURCES: CIMB, COMPANY REPORTS

Figure 11: Target prices sensitivity to noodles margin and volume growth
Noodle margin expansion (%pt change) -5% -5% 3,750 -4% 3,774
Noodle volume growth

-4% 3,960 3,985 4,011 4,037 4,063 4,088 4,114 4,140 4,166 4,192 4,217

-3% 4,169 4,197 4,225 4,253 4,281 4,309 4,337 4,365 4,393 4,421 4,449

-2% 4,379 4,409 4,439 4,469 4,499 4,530 4,560 4,590 4,620 4,650 4,681

-1% 4,588 4,621 4,653 4,686 4,718 4,750 4,783 4,815 4,847 4,880 4,912

0% 4,798 4,833 4,867 4,902 4,936 4,971 5,005 5,040 5,075 5,109 5,144

1% 5,007 5,044 5,081 5,118 5,155 5,191 5,228 5,265 5,302 5,339 5,375

2% 5,217 5,256 5,295 5,334 5,373 5,412 5,451 5,490 5,529 5,568 5,607

3% 5,427 5,468 5,509 5,550 5,591 5,633 5,674 5,715 5,756 5,797 5,839

4% 5,636 5,680 5,723 5,766 5,810 5,853 5,897 5,940 5,983 6,027 6,070

5% 5,846 5,891 5,937 5,983 6,028 6,074 6,119 6,165 6,211 6,256 6,302

-3% 3,797 -2% 3,821 -1% 3,844 0% 3,868 1% 3,891 2% 3,915 3% 3,939 4% 3,962 5% 3,986

SOURCES: CIMB, BLOOMBERG

3.3 Cutting FY12-13 earnings by 4-5%


We cut our FY12-13 earnings forecasts by 4-5%, leaving FY11 largely unchanged. We raise our FY12-13 noodle volume-growth assumptions to 3% from 1%, incorporating 1-2% lower ASPs than in FY11, with noodle EBIT margins declining slightly from 17.5% in 3Q11 to 15.9-15.7%. Additionally, we decrease our cost assumptions for dairy following lower skimmed milk prices, which

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December 2, 2011

bumps up our FY12 EBIT margins by 10bp to 13.2%. FY13 EBIT margins are unchanged at 13.1%.

3.4 Maintain Underperform


We lower our target price following our earnings downgrade. Our target is still based on 13x CY13 earnings, the markets P/E. We will turn positive on the stock if: 1) ICBP can achieve 3-4% volume growth next year without giving way on ASPs; 2) valuations dip below 10x CY13 P/E, providing more upside than the JCI; and 3) there is an accretive acquisition, which may happen sooner than later given its debt-free position and pressure on its core business.
Figure 12: Sector comparisons
Company Indofood CBP Gudang Garam Indofood Sukses Makmur Kalbe Farma Mayora Indah Unilever Indonesia Indonesia average British American Tobacco Carlsberg Brewery (M) Cocoaland Holdings Guinness Anchor MSM Malaysia Holdings Nestle (Malaysia) JT International QSR brands Malaysia average Cerebos Pacific Petra Foods Singapore average Charoen Pokphand Foods Thai Union Frozen Products Thailand average Average (all) CPF TB TUF TB Outperform Outperform 33.00 57.00 43.00 72.00 8,039 1,766 CER SP PETRA SP Outperform Neutral 4.65 1.75 6.65 1.62 1,145 832 ROTH MK CAB MK GUIN MK MSM MK RJR MK QSR MK Neutral Outperform Neutral Neutral Neutral Outperform 48.10 7.55 2.04 11.72 4.81 52.20 6.50 5.92 44.90 8.15 1.76 11.70 5.00 44.10 7.25 7.00 4,374 741 111 1,128 1,077 3,899 541 571 Bloomberg Ticker Recom. Dividend Yield Target 3-year P/BV (x) Recurring ROE (%) EV/EBITDA (x) Market Cap Core P/E (x) (%) Price EPS (US$ m) (local curr) (local curr) CY2011 CY2012 CAGR (%) CY2011 CY2012 CY2011 CY2012 CY2013 CY2011 CY2012 CY2011 CY2012 Price 5,200 66,100 4,875 3,550 13,900 17,800 5,000 67,400 6,400 4,000 17,400 20,300 3,370 14,134 4,757 4,007 1,184 15,094 15.4 25.0 13.8 22.4 27.0 33.5 23.5 20.0 14.7 24.5 19.1 12.4 26.3 13.2 15.3 19.3 16.7 12.9 12.9 14.7 13.0 13.0 22.0 14.7 21.4 13.1 19.9 14.9 30.1 20.9 19.6 14.0 14.2 18.2 12.3 25.7 12.7 14.3 18.7 12.0 11.0 11.0 13.1 12.1 12.1 19.8 11.0% 19.9% 9.8% 17.4% 23.3% 16.9% 16.0% 0.4% 10.0% 39.5% 7.9% 6.8% 9.5% 1.8% 5.7% 5.2% -2.5% 23.6% 23.6% 14.8% 37.2% 37.2% 12.8% 2.97 5.36 2.25 5.81 4.66 28.84 5.76 27.65 3.58 1.88 6.67 1.62 19.56 3.86 6.49 7.43 3.28 2.47 2.47 3.31 2.33 2.33 5.85 2.64 4.76 2.03 5.05 3.64 28.84 5.15 3.25 1.72 6.32 1.56 19.81 3.49 8.54 7.14 2.99 2.17 2.17 2.93 2.04 2.04 5.29 20.8% 22.7% 17.4% 25.2% 18.4% 90.0% 25.6% 25.7% 8.0% 36.2% 15.9% 62.6% 31.5% 38.8% 41.0% 20.1% 20.5% 20.5% 24.5% 19.0% 19.0% 27.9% 18.5% 23.5% 16.3% 25.4% 27.4% 25.8% 24.3% 12.6% 36.0% 13.0% 76.6% 28.9% 51.5% 39.0% 26.2% 21.1% 21.1% 23.7% 18.0% 18.0% 27.8% 18.1% 24.9% 17.0% 25.0% 27.8% 26.8% 23.2% 12.5% 35.3% 12.7% 78.9% 27.4% 77.4% 38.6% 25.4% 20.5% 20.5% 23.8% 18.2% 18.2% 28.3% 8.7 16.5 6.1 15.7 13.3 24.3 13.8 13.6 10.1 9.9 11.7 7.3 18.9 7.6 3.8 11.8 8.7 9.0 9.0 11.6 9.9 9.9 13.1 8.3 14.2 5.5 13.5 8.8 21.2 12.1 13.5 9.6 5.7 11.3 7.4 18.8 7.3 3.8 11.6 6.6 8.3 8.3 11.2 9.1 9.1 11.7 1.9% 1.7% 2.3% 1.9% 0.8% 2.1% 1.9% 5.1% 4.1% 1.5% 4.6% 4.0% 3.7% 4.6% 2.5% 4.3% 5.4% 3.1% 3.1% 3.0% 2.2% 2.2% 2.5% 2.2% 2.0% 2.5% 2.1% 0.6% 2.8% 2.3% 4.8% 4.3% 1.5% 4.7% 5.7% 3.8% 5.2% 2.5% 4.4% 5.4% 3.7% 3.7% 3.3% 2.1% 2.1% 2.9%

ICBP IJ Underperform GGRM IJ INDF IJ KLBF IJ MYOR IJ UNVR IJ Outperform Neutral Neutral Outperform Trading Buy

95.7% 109.7%

25.39 140.6% 134.8% 125.9%

COLA MK Underperform

NESZ MK Underperform

SOURCES: CIMB, COMPANY REPORTS

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Recommendation Framework #1 *

Stock
OUTPERFORM: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 3 months. relevant relevant relevant relevant relevant

Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons. CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

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Indofood CBP
December 2, 2011

Recommendation Framework #2 **

Stock
OUTPERFORM: Expected positive total returns of 15% or more over the next 12 months. NEUTRAL: Expected total returns of between -15% and +15% over the next 12 months. UNDERPERFORM: Expected negative total returns of 15% or more over the next 12 months. TRADING BUY: Expected positive total returns of 15% or more over the next 3 months. TRADING SELL: Expected negative total returns of 15% or more over the next 3 months.

Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +15% (or better) or -15% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +15% to -15%; both over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2010.
ADVANC - Excellent, AMATA - Excellent, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Very Good, BCP - Excellent, BEC - Very Good, BECL Excellent, BGH - Very Good, BH - Very Good, BIGC - Very Good, BTS - Good, CCET - Very Good, CK - Very Good, CPALL - Very Good, CPF - Excellent, CPN - Excellent, DELTA Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, ITD - Very Good, IVL - not available, KBANK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Very Good, PSL - Excellent, PTT Excellent, PTTAR - Excellent, PTTCH - Excellent, PTTEP - Excellent, QH - Very Good, RATCH - Excellent, ROBINS - Excellent, ROJNA - Very Good, SAMART - Excellent, SAMTEL - Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Good, STEC - Very Good, TASCO - Very Good, THAI Very Good, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TTA - Excellent, TTW - Very Good, TUF - Very Good.

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