Kalbe Farma 4Q12 results were impressive

Kalbe Farma: Clearer growth feasibility (KLBF, Rp1,250, Neutral, TP: Rp1,275)

We upgrade KLBF from Sell to Neutral. 4Q12 results were impressive. Continuous efforts to build up branding through aggressive promotion started to be fruitful. FY12 promotion/sales ratio rose 0.4ppt to 8.8%, but we also saw a significant pick-up in the YoY sales growth of consumer health and nutrition divisions to 44.9-49.7% in 4Q12, from 12.7-12.8% in 3Q12, despite minimal ASP increase. Valuation is not cheap at 29x FY13F PE, yet we see a much improved earnings growth feasibility, at 15-19% level p.a. over the next 2 years.

KLBF guided for 15-18% sales and NPAT growth this year. With 2-3% ASP increase and less volatile IDR, we expect gross margin to be 0.7ppt higher this year, but operating margin is unchanged as promotion expenses would remain high, in line with management strategy. KLBF also expects to grow its exports sales by 20% this year. Under the leader of Mr. Ongky, who earned his success in developing Mayora Indah (MYOR)’s international business, we think that KLBF should do well too.

We also raised FY13F capex to Rp1,350bn, in line with management’s budget of Rp1-1.5tn, versus from Rp783bn in FY12A. Our revised capex budget of 8.5% of sales is the highest historically (versus 5-year average of 4.7%), denoting management’s bullishness over the company’s outlook. Three new factories are being built, each for OTC, nutrition, and consumer health division.

Astra International Key takeaways from results briefing

Astra International: Key takeaways from results briefing (ASII, Neutral, Rp8,050, TP: Rp7,900)

ASII held an Analyst Briefing yesterday, discussing the recently released FY12 results and the outlook for 2013. In overall, management’s broad outlook is similar to our view, with neither significant upside nor downside apparent to our and consensus earnings forecast for 2013. We are reiterating our Neutral call and Rp7,900 TP (refer to our latest Company Focus report “No surprises in 4Q12” on 1 March 2013). Key highlights from the analyst briefing are summarized below.

Where are we heading in 2013? Management in overall remains cautious on 2013, underpinned by challenges faced in the 2W division on the full implementation of LTV ruling towards sharia financing, and the heavy equipment division. 4W is likely to remain the key engine together with the financial services division. On a positive note, management indicated its optimism that this year’s high investment (Rp15tn capex budget versus Rp13bn actual spending in FY12) would be fruitful for 2014 performance.

4W outlook – Management admitted the rising competition in the 4W space, with massive investments coming from new and existing auto principals. ASII would focus on strengthening its value added services and continuous products innovation to maintain its market share. It was further indicated that a new improvement in best-selling Toyota Avanza/Daihatsu Xenia is underway. On a positive note, management mentioned that the rising competition would benefit its auto components subsidiary as almost all auto principals have decided to make Indonesia as another production base.

LCGC update – Management confirmed that the LCGC regulation has been finalized, pending final approval from the President. Mr. Sudirman M. Rusdi, the CEO of Astra Daihatsu Motor and the Chairman of Gaikindo, commented that the final signing of the Presidential Decree is expected to come through in mid-March, after the President’s return from his overseas trip. He stated further that the Ministerial Decree would follow suit a month after, which means that ASII would start delivering Daihatsu Ayla and Toyota Agya to consumers starting early May, about two months from now. Since the cars were launched in September 2012, backlog orders have reached about 30,000 units as of mid-January 2013, which is considered strong. ASII nevertheless decided to stop selling the cars since then, following delays on the government regulation. With first delivery in May, management conservatively expects to book around 40,000-50,000 units of sales for LCGC this year (versus 30k backlog as of mid-January), compared to our 60,000 units assumption. Despite the lower ASP, management clarified that LCGC should generate similar operating margins given the lower operating expenses.

2W outlook – Since the new LTV ruling was implemented last year, management admitted that it has used sharia loophole as the solution. As a precaution, however, ASII decided to increase the sharia down-payment from 8% on average to 13%. Thus, the company is quite confident that this precautionary step would help mitigating the impact from the closing of sharia loopholes starting 1 April, which require a 20% DP on 2W financing (another 7% more from the current average DP). Maintaining a solid market share amidst industry decline would be the key focus for Astra Honda Motor. As such, it plans to strengthen its market share on the less-sensitive upper-segment motorcycles model (i.e. scooter and sports segment), as well as continuously launch new products. In overall, Honda’s market share is targeted to increase to 60% this year (from 58% in FY12 and 53% in FY11), slightly higher than our 59% target.

Commodities arm – Management’s target for Komatsu sales volume remains unchanged at 5,000 units, in-line with our heavy equipment’s analyst forecast of 4.9k units assumption. Admitting the uncertain coal mining outlook, UNTR would continue to focus on increasing the revenue contribution from spare parts sales and services, as well as heavy equipment demand from the infrastructures development that normally picks up one-year ahead of the election. On AALI side, management mentioned that it is completing a 700,000 tons p.a. CPO refinery in West Sulawesi next year.

Infrastructures division – Management expects earnings contribution from this division to go up, driven by the contribution from the toll road division. In FY12, its Tangerang-Merak concession (72.5km) reported a 15% rise in traffic volumes to 37mn vehicles, while ASII also expects the commencement of the Mojokerto-Kertosono section (41km) in 2014. Asides from the power plant business, management further mentioned over possibilities of extending its business towards industrial estate.

Article related: Astra International: 4Q12 in-line, final DPS proposed at Rp150

Vale Indonesia Robust 4Q12 earnings

Vale Indonesia: Robust 4Q12 earnings, FY12 results below consensus (Under review)

• FY12 results below consensus – INCO reported FY12 net profit of US$67mn (-80%YoY), about 20% below consensus, as operating profit down 75% YoY to US$115mn with margin compressed to 12% from 37% in FY11, mostly due to lower ASP which dropped 26%YoY to US$13,552/t and higher project development cost (related to Bahodopi development, project CEPAT and operational maintenance improvement program) which up by 32%YoY to US$39mn and 3 times higher finance cost of US$15.5mn as the grace period of the loan facility end in late 2011. FY12 production volume grew modestly by 6% to 70,717 tons.

• All-time high production in 4Q12 with excellent efficient operations boost bottom line – Robust 4Q12 bottom line of US$39mn (+178%YoY, +65%YoY) as operating margin improved to 20% vs 10% in 4Q11 or 15% in 3Q12. All-time high production volume in 4Q12 at 21,306tons (+55% YoY, +4%QoQ) led to stronger economic of scale with excellence efficient operation in fuel consumption supported by higher power contribution from hydropower (see exhibit 3). 4Q12 ASP was US$13,176/t (-12%YoY, +5%QoQ).

2013 Outlook – Annualizing 4Q12 production capacity would come out at 84k tons full-year capacity. However, due to seasonality and ongoing maintenance program, Company only expects 10% growth volume or about 77k tons production in 2013. Further details for 2013 business plan & guidance will be discussed with the BoD in the conference call on Monday, 4 March 2013 at 4pm Jkt time.
Currently, we’re reviewing our rating and forecasts on the counter. With consensus top line of US$1,120mn, it implies ASP of US$14.5k/ton which is 12% lower than current LME nickel spot price of US$16.5/t and expecting 24% operating margin. Based on consensus INCO trades at 14.7x P/E for 2013.

Related article: Vale Indonesia: Key takeaways from conference call with the BoD

Astra International 4Q12 in-line

Astra International: 4Q12 in-line, final DPS proposed at Rp150 (ASII, Neutral, Rp7,950, TP: Rp7,900)

ASII reported FY12 NPAT at Rp19,421bn (+9.2%yoy), in-line with our (100%) and consensus (101%) expectation. Stripping-out the Rp215bn FX losses, core profit came at Rp19,636bn (+11.1%yoy), also in-line with our core profit estimates of Rp19,478bn (101%).

Sales (+15.7%yoy), gross profit (+13.0%yoy), operating profit (+11.4%yoy), and pretax profit (+8.2%yoy) also met our and consensus estimates. Margins slightly declined compared to FY11, which happened almost across the board with the exception of 4W division, thanks to its strong volume growth.

Contribution of automotive NPAT edged up to 48.8% from 46.5% in FY11, posting a 14.6%yoy growth led by the 4W (+34.2%yoy) and components (+5.2%yoy), offsetting the weak 2W (-11.2%yoy). Contribution from infrastructures and IT, albeit small, also edged up to 3.5% and 0.7% from 3.4% and 0.6%, respectively in 2011.

4Q12 NPAT came at Rp4,750bn (-4.9%qoq; +9.3%yoy), translated down from the top as margins were relatively unchanged.  Weak QoQ performance is expected, as auto sales volumes are seasonally weaker leading to year-end. Notable pick-up, nevertheless, was seen in the net margin of the auto components subsidiary that led to a 20.0%qoq growth in its NPAT.

ASII will hold an analyst meeting on Monday. We currently have a Neutral call on ASII. The stock now trades at 14.5x FY13F PE. Management would propose a final DPS of Rp150 (1.8% yield) at the upcoming AGM in April, bringing total DPS of Rp216 including the interim paid in November 2012.