ICBP
Contact our analyst Eka
Buy, 29% upside
30th July 2020
Price Rp 9125
Target price Rp 11800
30th July 2020
Price Rp 9125
Target price Rp 11800
Negative Acquisition Sentiment
- ICBP plans to acquire Pinehill Company Limited (PCL) Group from Pinehill Corpora Limited (PCoL) and Steele Lake Limited (SLL) and the value of the proposed transaction is USD 2.99 billion or equivalent to IDR 41.68 trillion (using the exchange rate of IDR 13,901/ USD).
- There is negative sentiment because the value is pricey compared to the book equity of USD 2.65 billion or equivalent to IDR 39.8 trillion.
- After this transaction, ICBP ‘s debt will surge with additional debt of around IDR 37 trillion. The funds will come from internal cash of USD 300 million and external funds (bank loans) of USD 2.69 billion or IDR 37 trillion.
- PCL is owned 49% by Anthony Salim, and primary engages in the instant noodle industry as a producer and holder of Indomie brand licenses in Saudi Arabia, Nigeria, Ghana, Turkey, Egypt, Kenya, Marocco, and Serbia. With the acquisition, ICBP will therefore enlarge its global market.
- ICBP is still waiting for investor approval through a second EGM on 3 August, after the EGM on July 15 was postponed.
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Double Digit Growth
- Despite the covid-19 outbreak, ICBP net sales grew 7% to IDR 12 trillion. In 1Q2020. Noodles are still the largest contributor at 63.7%, followed by Diary at 18%, Snack Foods at 6.2%, Food Seasonings at 6.9%, Nutrition & Special Foods at 2.1% and Beverages at 3.3%.Snack Foods and Beverage recorded positive operating income in 1Q2020 of IDR 97 billion and IDR 17 billion respectively after experiencing operating losses for the last 3 years.
- Snack food and beverage EBIT margins improved from -4% and -10.3% in 1Q2019 to 12.6% and 4.1% respectively.
- Gross profit recorded double digit growth of 10.4% to IDR 4.18 trillion as cost of sales was well managed with 4.8% growth. This resulted in a higher GPM of 34.8% in 1Q2020.
- Operating income also grew 24.6% to IDR 2.8 trillion helped by gains on foreign exchange of IDR 584.2 billion. OPM was higher at 23.3% compared to 17.4% in 1Q2019.
- This all resulted in double-digit bottom line growth of 48.3% to IDR 1.9 trillion.
- We target ICBP can maintain single digit sales growth to IDR 45.5 in 2020F as they enlarge their market. We do expect higher interest costs because of higher debt from the acquisition.
- We are targeting ICBP to reach IDR 11,800 or 29% upside, which is a 23x PE valuation within one year. Maintain BUY.
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