Indofood CBP (ICBP IJ)

Inline 1Q24 earnings;  FY24 growth outlook intact from solid volumes and soft RM prices

 

  • Underpinned by solid sales volume and soft input prices, ICBP’s 1Q24 core profit surged 13% yoy to Rp3.3tn
  • We expect continued soft input prices, solid 4% yoy volume and 2% ASP growth to sustain high gross margins of 37% in FY24
  • Maintain FY24-25F est and Buy rating with TP Rp12,900 (FY24F PE: 14.9x) on potential further upside from intact growth outlook.

Low input price and 2% price adjustment to support FY24 high margins

ICBP’s 1Q24 volume growth was mixed across business segments with solid performance in Noodles (+4% yoy), Dairy (+8% yoy), Beverages (+10% yoy) whereas the other segments faced some challenges like Snack (-1% yoy) and Nutrition (-9% yoy), attributed to competition and reduced purchasing power. We expect the price outlook for major raw materials (i.e., wheat and CPO) to remain subdued in the coming quarters hence, we expect gross margins to be sustained at 37% level. Nonetheless, ICBP indicated it will adjust selling prices if input costs rise albeit still giving consideration to consumer purchasing power. Our FY24 forecast is based on the assumption +4.4% yoy volume growth and +2.4% yoy ASP increase (the latter is lower than average ASP growth of 3.5% yoy between FY14-19).

 

FY24-25F core profit growth of 8.3%/8.8% yoy.

We maintain our FY24-25 ASP/volume assumptions and estimate soft major input cost i.e Wheat (600cents/bu – end of FY24) and CPO (MYR3,852/metric ton – based on Bloomberg), to drive sustainable gross margin at 37%. We adjust our FY24F USD/IDR assumption to Rp15,875/USD (from Rp15,300/USD previously), resulting in FX loss (prev. FX gain) and higher financing cost. These led to minor revision to our FY24-25 core profit to Rp10tn (+8.3% yoy) and approximately Rp11tn (+8.8% yoy), respectively.

 

Maintain Buy with an unchanged TP of Rp12,900

ICBP trades at FY24 PE of 12.9x (vs. avg 5-y PE of 17.7x) and lower vs. peers of 15.7x. In recent weeks, its share price has appreciated (+~10%) supported by the expectation of a strong 1Q24 result. We see further room for rerating amid our expectation of continued solid 2Q24 result. We maintain our Buy rating with an unchanged TP of Rp12,900 implying FY24F PE of 14.9x. The downside risk to our rating includes further Rupiah depreciation and spikes in raw material prices leading to lower margins and weaker earnings.

 

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