KLBF

Contact our analyst Eka

4% Upside
28th September 2018
Price Rp 1355
Target price Rp1410

Increasing ASP

The Rupiah has depreciated sharply against the USD since June 2018. In June 2017 the Rupiah was IDR 13,941 and has increased 7.7% to reach IDR 15,013 in September 2018. The Impact of the weakening Rupiah on KLBF’s COGS is around 3.5% for every 10% rupiah depreciation. If the depreciation is above 5%, it will start to impact KLBF’s gross margin.
To maintain the gross margin, KLBF plans to increase ASPs in the nutritional and consumer health divisions as most of raw materials (like skim milk powder) are imported.
We are targeting the company to maintain GPM in 2018F at 48%.

Expecting Stable Revenue and Profit

We revise KLBF’s target revenue based on 1H2018 result and Rupiah depreciation, to IDR 20.8 trillion which is slight growth of 3.2% yoy.
Earlier in 2018, KLBF target for revenue growth was around 7%-9% and has been revised to around 5% - 7%. With operating margin at around 14.5% - 15.5%, EPS growth will be around 5%-7%.
In 1H2018, KLBF booked revenue of IDR 10.4 trillion up 3.12% yoy. Net profit decreased slightly -0.03% to IDR 1.215 billion.

Focus on biology based Prescription Pharmaceutical

KLBF will focus on biology based prescription pharmaceuticals (Biosimilar) as their Biosimilar plant has been inaugurated in February 2018.
With the new Biosimilar plant, KLBF has produced speciality-drugs such as Erythropoietin (EPO) a hormone that can produces red blood cells. Later KLBF will be the first to produce insulin in Indonesia.
We expect the ability to produce speciality-drugs, will help to boost the performance of the pharmaceutical segment.

Valuation: HOLD TP 1,410 with 4% upside

We targeting a stable KLBF’s performance in 2018F as KLBF has revised their own target under pressure from Rupiah depreciation.
Using DCF valuation with WACC at 12.30% We are targeting KLBF to trade at 26x 2019F PE within a year. Target Price is IDR 1,410 which represents 4% upside. HOLD