Indonesian Food Producers in Focus: Indofood CBP Sukses Makmur
Packaged food producer Indofood CBP Sukses Makmur, subsidiary of Indofood Sukses Makmur, is expected to see rising profit in the second half of 2016 on the back of lower prices of raw materials (particularly wheat flour, the key ingredient for instant noodles), the stronger rupiah and improved purchasing power of Indonesia's consumer force. Meanwhile, the company may manage to curb losses that originate from the beverage segment. Indofood CBP Sukses Makmur has 6 business segments: noodles, dairy, snack foods, food seasoning, nutrition and special food products, and beverages.
Improved purchasing power in Indonesia is supported by stable inflation (+3.21 percent y/y in July 2016) and rising incomes (particularly outside the island of Java). Rising incomes in the outer islands come on the back of rebounding coal and crude palm oil (CPO) prices.
In anticipation of improving purchasing power and consumer confidence, Indofood CBP Sukses Makmur had already launched several new (premium) products in the second quarter of the year, including new instant noodles, processed milk, and snacks. Meanwhile, prices of basic materials have declined, most importantly prices of wheat flour. Wheat flour is one of the most important materials used by the company (especially for the manufacturing of instant noodles) and accounts for about 30 percent of total production costs for the manufacturing process of instant noodles. So far this month the price of wheat flour has fallen 3 percent, hence boosting the company's profit margin.
Indofood CBP Sukses Makmur is also supported by the stronger rupiah exchange rate (versus the US dollar). The stronger rupiah curtails production costs as nearly 70 percent of the company's production costs are US dollar-denominated (namely for the import of raw materials), while the company's sales are nearly all rupiah-denominated.
Indofood is known for being the market leader in the instant noodles sector of Indonesia. In fact, Indofood may be the world's biggest instant noodles producer. In Indonesia these cheap and delicious noodles are extremely popular. Being the clear market leader, Indofood can basically determine the prices because a (limited) price hike will not push consumers to purchase instant noodles of competitors. So far this year, Indofood has raised prices of its instant noodles by an average of 6 percent. Higher sales prices in combination with cheaper prices of raw materials means double advantage for the company. This has a big impact on the company's corporate earnings because instant noodles account for about 64 percent of the company's total sales.
The Power of Instant Noodles in Indonesia:
| What Explains the Popularity of Instant Noodles in Indonesia (esp. Indomie & Mie Sedaap)? |
| • available across the Indonesian archipelago |
| • affordable (also by the poorer segments of the population) |
| • wide range of flavors (often new flavors come on the market: innovation) |
| • it is a practical meal (quick and easy to make) |
| • aggressive advertising campaigning in various media (especially television) |
Securities firm RHB OSK Securities set its target price for Indofood CBP Sukses Makmur's shares at IDR 10,200 a piece, implying that it advises investors to purchase the company's shares. On Tuesday (30/08), Indofood CBP Sukses Makmur's shares surged 2.11 percent to IDR 9,700 per share. So far this year the company's shares have soared a whopping 43.97 percent.
Stock Quote Indofood CBP Sukses Makmur - ICBP:
In the first half of 2016, Indofood CBP Sukses Makmur's profit surged 11.76 percent (y/y) to IDR 1.97 trillion, while net sales rose 9.8 percent (y/y) to IDR 18.17 trillion from the same period one year earlier.
Future Projection Financial Highlights of Indofood CBP Sukses Makmur:
| 2014 | 2015 | 2016F | 2017F | 2018F | |
| Net Sales | 30,022.5 | 31,741 | 37,358.0 | 42,596.0 | 48.791.0 |
| Net Income | 2,604.2 | 3,001 | 3,700.0 | 4,282.0 | 5,120.0 |
| P/E Ratio (x) | 40.3 | 35.6 | 28.8 | 24.9 | 20.8 |
| P/BV (x) |
7.8 | 6.9 | 6.1 | 5.3 | 4.6 |
in billion IDR rupiah, except stated otherwise
Source: Ciptadana Securities (30/08/2016)