Equity Research

Equity Research

Thursday , 11 Apr 2019 05:13

PT KALBE FARMA TBK 

Sustainable Margin Amid IDR Pressure

KLBF booked a total sales of Rp21.01 trillion during 2018, grew 4.4% YoY from Rp4.2 trillion in 2017, which was in line with our expectation, made up 99.5% of our FY18F Rp21.18 trillion. The net income came in Rp2.46 trillion (+2.2% YoY) formed only 98.1% our FY18F Rp2.5 trillion, mostly due to much lower than expected GPM (-190bps YoY) related to weak Rupiah, despite ASP increaseof selected OTC and Nutritional products by 3-4% in 3Q18. We maintain our NEUTRAL recommendation on the stock.

Sluggish 2018’s Performance as a Result of  Moderate Consumption

Despite the 5-year high GDP growth in FY18 of 5.17% (vs 5.07% in FY17) and relatively low inflation of 3.13%, the consumption during the period remained moderate. This, resulted in slowdown in KLBF non-pharma sales growth, particularly the sales of nutritionals division of Rp6.3 trillion (+3.4% YoY vs 3yr-avg growth of c.10%), and consumer health sales of Rp3.57 trillion (+4.4% YoY vs 3-yr avg growth of c.5.5%). Meanwhile, the pharma division sales slightly grew by 2.8% YoY in which the contribution of unbranded generics sales were up by 1% to 19% given the wider implementation of JKN.

Control Margins through Opex Efficiencies

Albeit with a 3-4% ASP increase of selected OTC and nutritional products in 3Q18, the FY18’s GPM squeezed by 190bps, mainly attributable to 1) product mix; 2) combination of weak Rupiah (-6.05% YoY), global oil price improvement, and environmental regulation In China that led to heavier RM costs by 120bps); 3) increase in skim milk powder price by more than 16% YoY, and 4) higher contribution of lowest-margin unbranded generics (note that in this segment, the company’s room to pass through its pricing is very limited due to increasing price competition related to BPJS Kesehatan program). In order to compensate the drop in GPM, the company cut its opex, i.e promotion expenses particularly in 4Q18 (promotion/ sales ratio declined from 8.9% FY17 to 7.7% in FY18). This resulted in slight decline in both EBIT margin and NPM by only 40bps YoY to 15.2% and -30bps YoY to 11.7%, respectively.

More Optimistic View

Considering the competitive landscape and current fluctuation in Rupiah, the company targeteda sales/EPS growth by 6-8% this year (vs 5-7% growth target last year), while maintaining its operating profit marginbetween 14.5%-15.5%. Total capex plan is around Rp 1.5–2.0tn, inwhich Rp1-1.5 trillion will be used for construction ofproduction facility in Myanmar (commenced in Feb19), BintangToedjoe’s OTC Production factory and Enseval distribution center in Deltamas, while the remaining Rp500 billion is budgeted for development of raw material and biological factory.

NEUTRAL–HigherTP atRp 1,400 per share (prev TP Rp1,300/ share)

We made a slight upward adjustment in our projection particularly in 2019F onwards, as we believe the Rupiah will continue to strengthen following the Fed rate policy and US-China trade war that is expected to reach agreement this year, as well as stronger CCI during 1Q19, which indicates a better consumption. Thus, we come up with new higher TP of Rp1,400/ share, which implies PER and EV/EBITDA 2019F of 24.8x and 16.9x, respectively. Based on yesterday’s closing price, KLBF was traded at a valuation of 27.3x PER and 18.6x EV/EBITDA 2019F. Despite an upgrade in our TP, we remain NEUTRAL on the stock.

 

 

Financial Summary

 (Rp billion)

2017A

2018A

2019F

2020F

2021F

Revenue

 20,182

 21,074

 22,499

 24,034

 25,793

EBITDA

 3,562

 3,639

 3,720

 4,072

 4,467

Net profit

 2,404

 2,457

 2,649

 2,910

 3,205

EPS (Rp)

 51

 52

 57

 62

 68

PER (x)

 30.0

 29.4

 27.3

 24.8

 22.5

BVPS (Rp)

 296

 326

 357

 393

 433

PBV (x)

 5.2

 4.7

 4.3

 3.9

 3.6

EV/EBITDA (x)

 19.6

 19.1

 18.6

 16.9

 15.2

Dividend yield (%)

 1.5

 1.6

 1.6

 1.8

 1.9

RoE (%)

 18.2

 16.8

 16.5

 16.5

 16.5

 

Source: Company data and Lotus Andalan Research