Kalbe Farma (KLBF IJ)

Retaining our conservative FY24 view as soft purchasing power may limit revenue recovery

• Post FY23 earnings (broadly in-line vs our est.), KLBF guides for further improvements in FY24F revenues/ EPS growth at 6-7% and 13-15% yoy.
• Despite the management’s guidance, we see limited catalysts for revenue growth to improve beyond 2Q24 amid soft purchasing power.
• We keep our FY24-25F EPS growth forecast (3-10% yoy) and DCF-based TP of Rp1,600, with a Hold rating on the unexciting growth outlook.

Management FY24 guidance: expect margins and volume to improve.

KLBF management guides for 6-7% yoy top line growth in FY24, driven by Medical Devices (MD) (+13-15% yoy) and Pharma (+8-9% yoy) which combined with around +100bps expected higher gross margins (supported by lower API) to translate to around EPS growth ranging from 13-15% yoy. Meanwhile, it also guides for FY24 revenues of CH and Nutrition to be at +5-6% yoy, likely hinging on improvements in purchasing power. The management also expects a higher contribution from Biosimilar products of around 2.5% of FY24 revenue (vs. 1.3% in FY23) as more FDA approval in Indonesia and Southeast Asian countries (in 2023) should pave way for greater commercialization in 2Q24.

Our view: limited catalysts to support revenue beyond 2Q24

KLBF’s guidance of 13-15% yoy EPS growth in FY24 is higher than our FY24F growth forecast (+2.9% yoy) but lower than consensus estimates (+17.7% yoy). On a positive note, KLBF indicated better monthly revenue up to Jan-24, higher than the average revenue in 3Q23, with the trend expected to continue approaching the upcoming festivities. However, with consumers’ purchasing power lacking visibility post 1Q24 and still mainly dependent on social assistance, we see limited catalysts for KLBF’s revenue growth to sustain in 2Q24 onwards.

Waiting for further catalysts: Maintain HOLD

We maintain our FY24F-25F EPS growth forecast of 3-10% yoy and topline growth forecast of 5.8-7.4% yoy, respectively, mainly driven by volume (3-4% yoy). Based on the latest meeting, the management provides guidance of double-digit revenue growth for exports, biosimilar/oncology and MD, which in total only provide around 12-15% of total revenue. KLBF trades at 25.3x PE, reflecting a 6% discount to the 5Y historical average, but with slower net profit  2019-24F CAGR of 1.7%  (vs 2013-19: 5%). Upside risks to our view are a robust 1Q24 and onward margins improvement and continued strong volume in 2Q24 while downside risks are lower-than-expected volume growth with lower margins. Maintain Hold with an unchanged TP of Rp1,600.

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