Kalbe Farma To Cancel All Treasury Stocks

Kalbe Farma: To cancel all treasury stocks and distribute Rp19 DPS (KLBF, Rp1,540, Neutral, TP: Rp1,275)

At yesterday’s AGM, shareholders gave the green light for KLBF to cancel its entire 3.9mn of treasury stocks, equivalent to 7.7% of its paid-up capital. Therefore, total outstanding shares post-cancellation would be reduced to 46,875mn from 50,780mn. The cancellation would have no financial impact to the company, but would be EPS accretive to shareholders given the lower paid-up capital. Our current EPS forecasts have nevertheless factored this cancellation into account.

KLBF also received approval to distribute Rp19/share of dividend (1.2% yield), equivalent to a 51% payout – in-line with its minimum 50% payout policy, but lower than FY12’s payout at 65% and our payout assumption of 60%.

KLBF also reiterated its Rp1-1.5tn capex plans for this year, which would be used to finance production capacity expansion across the board, as well as for its distribution arms. On a newspaper today, Mr. Vidjongtius (Corporate Secretary) was quoted saying that the company plans to acquire 4-5 companies operating in the consumer health and nutrition segment this year.

for Indonesia Market Summaries 21 May 2013

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.