INDF Aug2023

INDF

Contact our analyst Eka

Buy, 37% upside
31th May 2023
Price Rp 7050
Target price Rp 9700

Lower Bogasari and Agribusiness margins

During 1H2023, INDF maintained a positive sales growth of +6.25% YoY, reaching IDR 56.08 trillion. This growth was primarily driven by strong performances and improved margins from ICBP and the distribution business. In 2Q2023, INDF sales recorded a slight growth of +0.8% YoY, amounting to IDR 25.54 trillion, while experiencing a decline of -16.4% QoQ.
ICBP witnessed a sales growth of +3.2% YoY, totaling IDR 5.7 trillion. ICBP's EBIT margin increased to 20.5% from 13.7% in 2Q2023, aligning with softer raw material prices.
Distribution revenue showed a positive increase of +13.3% YoY, reaching IDR 1.65 trillion, but with a lower EBIT margin of 4.8%.
However, the Bogasari and agribusiness segments faced declines in 2Q2023 due to softened commodity prices, particularly wheat and CPO.
Bogasari's sales decreased by -6.1% YoY or -20.3% QoQ, amounting to IDR 7.03 trillion, and its EBIT margin dropped to 7.2% from 8.9% in 2Q2022. This decline was attributed to lower wheat prices and some adjustments in selling price.
Similarly, agribusiness sales declined by -9.1% YoY or -11.9% QoQ, totaling IDR 3.54 trillion, with the Agribusiness EBIT margin decreasing to 4.3% due to lower CPO prices.
Looking ahead to 2H2023, we maintain an optimistic outlook due to anticipated higher demand. We expect INDF's top-line sales to reach IDR 117.6 trillion.

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2Q2023: Yearly Improvement

After gains from forex in 1Q2023 and slight gains in 2Q2023, INDF's net profit decreased slightly QoQ. However, it remained higher compared to 2Q2022, with +217% YoY growth to reach IDR 1.72 trillion in 2Q2023. The net profit margin (NPM) increased to 6.7%, up from last year's 2.1%.
INDF achieved a +7.7% YoY growth in gross profit, reaching IDR 7.82 trillion, with a higher YoY gross profit margin (GPM) of 30.6%, attributed to a -2.0% reduction in cost of sales.
Operating income also saw positive growth, increasing by +7.4% YoY or -21.7% QoQ to IDR 3.89 trillion in 2Q2023, accompanied by a higher operating profit margin (OPM) of 15.2%.
Taking into account the positive impact on margins from softer commodity prices and the growth in demand, we anticipate INDF's profit to reach IDR 10.18 trillion in 2023F, reflecting a +60% growth.

Valuation: Maintain BUY with TP 9,700

Our target for INDF is IDR 9,700, representing a potential upside of 37%, based on an 8x PE valuation over the next year. We maintain our BUY recommendation.

Previously

INDF May2023