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Friday , 15 May 2020 08:55

PT KALBE FARMA TBK 

STEADY GROWTH DESPITE UNCERTAINTIES
 
KLBF 1Q20 sales/ net profit of Rp 5,7tn (+8% YoY)/ Rp 669 mn (+12,4% YoY) came in-line as expected, made up to 26,8% of FY20 Rp 2,49 tn our forecast. GPM remained stable at 45% YoY. However, the economic slowdown largerly impact consumer shopping pattern and puts pressure for earnings growth this year. We continue to believe long-term positive growth for KLBF as sizeable liquidity for good company healthcare. We maintain BUY recommendation with lower TP of Rp 1,600/share (vs Rp 1,800/share) this implies PER and EV/EBITDA 2020F of 22.7x and 15.3x, respectively.
 
Earnings broadly in-line due one off gain
KLBF booked 1Q20 revenue remained somewhat stable of IDR5.7tn (-0.2% QoQ, +8.0% YoY) which is in-line with our and consensus estimates at 26% of full year forecast.  Segment-wise; 1) Nutritional’s revenue grew +5.4% YoY (vs. 5% in FY19). GPM also  stable at 54% in 1Q20. We estimates KLBF’s various product innovations in the premium segment managed to nudge growth. 2) Pharmaceutical’s revenue sales grew 5.3% YoY (vs. 7.1% in FY19). We see that unbranded generics and licensed drugs to contribute to the growth, meanwhile branded generics was flat YoY. GPM flat at 54% in 1Q20, as KLBF has stocked up raw material inventory in Jan’20. 3) Consumer health grew 6.9% YoY,  followed the gradual improvement on pharmacy, as well as pantry-stocking amid Covid-19 outbreak. KLBF highlighted that several OTC products performed well in 1Q20 that boost ASP. GPM inched up 100bps to 56.1%. In bottom-line company’s booked 1Q20 net profit of IDR669bn (+13.2% QoQ, +12.5% YoY), made up to 26,8% of FY20 estimates. Nevertheless the strong earnings growth was driven by operating income of IDR57.9bn, includes a one-off net forex gain of IDR48.8bn in 1Q20.
 
Decent growth guidance due Covid-19 outbreak
The Covid-19 pandemic having a severe impact of consumer shopping pattern. Increasing in consumer health products sales largerly expected following rising health concern (i.e OTC products, multivitamins, and home care). However, the prolonged Covid-19 lead to weak purchasing power and distrupting supply chain.We conservatively estimate a lower FY20 GPM to 45,3% (vs FY19: 46,7%) and trimmed down our net profit FY20 forecasts to IDR 2,49 tn (+5,3%) or below KLBF management guidance (6-8%).  
 
BUY with lower TP Rp 1.600/share
We continue to believe long-term positive growth for KLBF as sizeable liquidity for good company healthcare and  higher demand for prescription products to serve the social security programme (BPJS). Consequenly,  we also see a positvif outlook for KLBF to secure Active Pharmaceutical Ingredients (API) from China contracts until June, despite the possibility of higher prices due to Rupiah depreciation.  KLBF’s continued its discipline in managing costs by reducing certain ineffective promotional expenses. While the result is still on track, but higher risk  we maintain buy recommendation with a lower TP of Rp 1.600/share.  This implies PER and EV/EBITDA 2020F of 22.7x and 15.3x, respectively.  Based on yesterday’s closing price, KLBF was traded at a valuation of 27.4x PER and 18.7x EV/EBITDA 2020F.  
 
Key Risks: 1) Raw material costs fluctuation,  2.) USD and IDR volatility, and 3.) changing regulation from government
 

Financial Summary

 (Rp billion)

2017A

2018A

2019A

2020F

2021F

 Revenue

35,607

38,413

42,923

44,524

46,313

 EBITDA

6,553

6,746

10,955

11,387

12,339

 Net profit

3,797

4,576

7,533

7,755

8,406

 EPS (Rp)

918

917

987

1,016

1,102

 PER (x)

43.03

43.08

40.01

38.74

35.74

 BVPS (Rp)

617

678

993

692

869

 EV/EBITDA (x)

16.69

16.20

14.48

13.21

11.97

 Dividend yield (%)

2.04

2.03

2.68

2.07

2.13

 RoE (%)

135.40

120.21

142.62

116.95

108.50

 

Source: Company data and Lotus Andalan Research