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Kalbe Farma (KLBF IJ) Summary

Core Content

Kalbe Farma (KLBF IJ) is a pharmaceutical and consumer goods company based in Indonesia, with a current share price of IDR1,540 and a target price of IDR2,000, representing a 30% increase. The company's market capitalization is USD5.1B, and its average daily trading volume (ADTV) is USD4M. Maybank has reiterated its BUY recommendation with a reduced target price of IDR2,000, citing the company's long-term growth potential and solid fundamentals.

Main Points

• Revenue Recovery and Margin Pressure:

  • The prescription and distribution businesses are expected to show stronger growth in 2016F after recovering from a low base in 2015F.
  • The injection factory, which was closed for product recall investigations in 1Q15, is expected to restart operations in 4Q15F.
  • The slowdown in 2015F was due to a one-off contract termination.
  • IDR depreciation (-15% YTD) and rising competition may lead to margin pressure, particularly in the unbranded generic and nutritional segments.

• Long-Term Growth Potential:

  • KLBF is expanding into higher-priced, higher-margin businesses such as oncology, biosimilars, and renal clinics to counteract margin dilution.
  • It has completed an oncology drug plant and plans to start building a biosimilar plant in 2016F, with operations expected by 2018F.
  • The company is the first in Indonesia to plan for biosimilar expansion through partnerships with foreign players.
  • KLBF is a first-mover in the health food and beverage segment, which is still a niche in Indonesia, and commands better pricing power and a milder competition environment.

• Valuation and Fundamentals:

  • The company retains a BUY rating despite the lower target price of IDR2,000, which reflects a 10% discount to its DDM valuation.
  • Valuations are considered undemanding after the recent share price pull-back (-20% from its 12M peak).
  • The current P/E ratio is 37.6, and it is trading at around -1 SD of its 36M historical mean.

Key Information

• Market Performance:

  • 52-week high/low: IDR1,905 / IDR1,455
  • 3-month average turnover: USD4.0M
  • Free float: 45.0%
  • Issued shares: 46,875M
  • Market capitalization: IDR72.2T

• Major Shareholders:

  • PT Gira Sole Prima: 10.2%
  • PT Santa Seha Sanadi: 9.7%
  • PT Diptanala Bahana: 9.5%

• Financial Highlights:

  • Revenue: Expected to grow from IDR16,002.1B in FY13A to IDR23,965.3B in FY17E.
  • EBITDA: Projected to increase from IDR2,823.6B in FY13A to IDR4,257.2B in FY17E.
  • Core Net Profit: Projected to grow from IDR1,919.5B in FY13A to IDR2,908.7B in FY17E.
  • Core EPS: Expected to rise from IDR41 in FY13A to IDR62 in FY17E.
  • Net DPS: Projected to increase from IDR14 in FY13A to IDR40 in FY17E.
  • Core P/E: Drops from 37.6 in FY13A to 24.8 in FY17E.
  • P/BV: Drops from 8.9 in FY13A to 5.3 in FY17E.
  • Net Dividend Yield: Expected to increase from 0.9% in FY13A to 2.6% in FY17E.
  • ROAE: Expected to remain stable at around 22.5% in FY17E.
  • ROAA: Expected to remain stable at around 17.5% in FY17E.
  • EV/EBITDA: Drops from 20.6 in FY13A to 16.5 in FY17E.

• Dividend and Profitability:

  • Dividend Cover: Drops from 2.8 in FY13A to 1.6 in FY17E.
  • Current Ratio: Remains stable at around 3.7 in FY17E.
  • Net Debt/Equity: Net cash in all periods.
  • Debt/EBITDA: Drops from 0.2 in FY13A to 0.0 in FY17E.
  • Capex/Revenue: Expected to decrease from 5.9% in FY13A to 3.8% in FY17E.
  • Free Cash Flow: Expected to increase from -IDR1.9B in FY13A to IDR1,869.4B in FY17E.
  • Net Interest Income: Expected to increase from IDR21.8B in FY13A to IDR102.7B in FY17E.

• Growth Ratios:

  • Revenue Growth: Expected to grow from 17.3% in FY15E to 13.2% in FY17E.
  • EBITDA Growth: Expected to grow from 15.3% in FY15E to 13.1% in FY17E.
  • EBIT Growth: Expected to grow from 14.9% in FY15E to 13.0% in FY17E.
  • Pretax Profit Growth: Expected to grow from 11.5% in FY15E to 13.5% in FY17E.
  • Core Net Profit Growth: Expected to grow from 10.7% in FY15E to 13.7% in FY17E.

• Product Launches:

  • Over the past five years, KLBF has launched more than 30 new products/variants in the consumer health and nutritional business.
  • Notable products include Hydro Coco, Fitbar, Nitros, Nutrive Benecol, and Zee, which have gained strong market positions.

Key Figures

Strategic Outlook

KLBF is focused on maintaining healthy growth and margins by expanding into higher-margin segments and leveraging its first-mover advantage in health food and beverage. Despite short-term margin pressures due to IDR depreciation and competition, the company's long-term growth potential and solid fundamentals support the BUY rating. The recent share price pull-back has made valuations more attractive, with the current P/E ratio at 37.6 and P/BV at 5.3. The company's ability to innovate and maintain strong brand equity in its nutritional products is a key strength.