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ICBP - Earnings recovery momentum to continue

Akhmad Nurcahyadi 07 February 2023

We continue to like ICBP for its strong presence as the noodle market leader with a proven track record to balance growth and profitability. Margin expansion due to lower input cost prices, increasing minimum wage and higher ASP coupled with stable volume growth will overall act as ICBP’s catalysts, aside from solid purchasing power and the upcoming election which could positively impact spending behavior and the overall grassroots economy activities. ICBP looks attractive trading at 15.6x ‘23F P/E, or at its -1SD 5-year hist mean. Maintain BUY, with higher target price of IDR12,360 (18.4x ‘23F P/E). Expecting another solid qoq in 4Q22 Albeit its poor 9M22 result as a result of soaring forex losses, we still like ICBP due to its ability to maintain its top line growth at 15% yoy on the back of strong performance across the segment board. We expect its qoq turnaround earnings in 3Q22 at IDR1.39 tn from a net loss of IDR10.8 bn in the previous quarter to continue in 4Q22 and will carry FY22 earnings to arrive within our and street expectations. Our ‘22F PATMI forecast for ICBP at IDR5.53 tn (cons: IDR5.43 tn) will be supported by ‘22F revenue growth of 14.9% yoy (cons. : 15.1% yoy) which is mainly driven by noodles segment growth at 14.5% yoy (9M22 at 16.2% yoy) as well as snack foods and food seasoning division at 12% yoy and 15% yoy (9M22 at 15% yoy and 16% yoy), respectively. More tailwinds to underpin growth Entering 2023, Indonesia’s FMCG will enjoy strong tailwinds in our view. We might see another solid earnings growth momentum driven by improving purchasing power as a result of solid country’s minimum wage growth. We also anticipating lower raw material cost input as further catalysts for the sector, aside from the election event which could boost consumption. That said, we expect ICBP’s ‘23F earnings could reach IDR7.84 tn (cons : IDR7.87 tn), supported by 9.3% yoy growth in revenue (cons: 10.0% yoy). On segmentation basis, noodles will remain as the backbone with 10.1% yoy growth (‘22F at 14.5% yoy) while dairy and snack foods as the second growth driver at 6.8% yoy and 12.5% yoy (‘22F at 12.0% yoy and 15.0% yoy). Down trending trajectory cost input to boost earnings power Softer commodity prices likely to continue and this will become as the main bolster and benefiting some names in consumer universe including ICBP. Wheat and CPO prices continue to walked within the downhill path from its high in April and May 2022. With the expectation of further commodity price downtrend that already started in 4Q22, we believe ICBP’s margin in 4Q22 and 2023 will continue to improve. Furthermore, our economist expects weaker oil prices at USD60.84/barrel in 23F vs USD81.61/barrel in EOY 2022 which will drive logistic cost lower, thus should also benefit ICBP and translated into a stronger earnings growth, in our view. Revising up our PATMI growth Post revisiting our model, we came up with higher earnings growth forecast by 6.9% to 41.7% yoy (cons: 45.3% yoy) from 34.8% yoy previously. Net margin is expected to expand to 8.5% from 7.5% previously, as we assumed lower cost input by 1.87% in 2023F. Maintain BUY with higher target price of IDR12,360 We believe ICBP deserves higher valuation and expect a potential re-rating to its 5-year average historical mean of 18.6x. Maintain BUY, with higher target price of IDR12,360 (18.4x ‘23F P/E). Risks to our call: a) lower-than-expected purchasing power, sales volume and ASP adjustment, b) higher-than-expected soft commodity prices (Wheat & CPO), c) Depreciating Rupiah that will

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