YP KLBF TP 1740

Slow but sure

FY13 Financial performance overview

In 2013, Kalbe Farma (KLBF) delivered indicated revenue of IDR16.0tr (growing 17.4% YoY). This implies a run-rate of 100.7% of our full year estimates. Main contributor of KLBF’s indicative revenue up till FY13 was distribution & logistic business. On the margin side, KLBF’s gross profit margin remained stable at 47.9%. The increase in marketing & selling expenses and research & development expenses were key culprits behind the decline in KLBF’s indicative operating profit margin which came in at 15.9%. Despite KLBF’s indicated pre-tax profit rose 10.8% to IDR2.6tr pre-tax margin declined from 16.9% in 2012 to 16.0% in 2013, partly reflecting the impact of weak Rupiah. KLBF’s indicative net profit was IDR1.9tr (up 10.8% from IDR1.7tr in 2012), while net profit margin in decreased to 12.0% from 12.7 in 2012.

Slow but sure

We note that the stability of Indonesia’s economic environment underpinned the strong performance of Indonesia’s pharmaceutical and consumer health industries. Indonesia’s sustainable economic growth in recent years has created a massive middle income population with rising disposable income. The rise of consumer purchasing power and low healthcare penetration are major factors of pharmaceutical and consumer health industries’ growth. This growth is expected to accelerate with the roll-out of mandated universal healthcare this year. National healthcare insurance system will be available for more people, especially for the lower income class.

Sustainable financial performance was achievable through KLBF’s long-term strategies. These strategies consist of maintaining revenue growth through a mixture of organic and inorganic strategies, expanding product portfolio through diligent product launching and improving health benefits and consumers’ convenience. Despite relatively slow, KLBF’s financial performance has been growing continuously. KLBF’s net profit growth has brought value to shareholders through dividend payment. KLBF has set aside capital expenditure budget of IDR1.0-1.2tr, mostly to be used when expanding production capacity.

Reiterate Buy recommendation; Revise up TP to IDR1,740

We are revising up our 2014F/2015F revenue estimate to IDR18.8tr/IDR22.5tr from IDR18.6tr/IDR22.1tr, respectively to reflect 1) solid indicative result in 2013, 2) potential growth in KLBF’s nutritional business and 3) the implementation of National Social Security System (Sistem Jaminan Sosial Nasional; SJSN) this year. While we maintain our Buy rating on KLBF, we are revising up our target price from IDR1,400 to IDR1,740. In deriving our target price, we assigned an equal weighting of 50% to DCF and 50% to RV method. Our target price is based on a P/E multiple of 35.5x against our 2014F EPS and implies a 20.9.8% upside. Historically, KLBF’s P/E is on an uptrend. KLBF has been trading within a P/E range of 18x to 40x since 2011.

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Best regards,

Andrew Argado

PT Daewoo Securities Indonesia

Equity Tower Floor 50th SCBD Lot.9

Jl. Jend. Sudirman Kav.52-53, Jakarta

12190, Indonesia

Phone: +6221 515 1140

Email  : andrew.argado@dwsec-id.com

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