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Disclaimer & Disclosures: This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. MCI (P) 126/02/2017 MCI (P) 069/06/2017
Indonesia Food & B
everagesO
ctober 2017Equities // C
onsumer &
Retail
Indonesia Food & BeveragesIntroducing a fresh way to look at the sector
Most Indonesian consumer stocks look expensive and growth in consumption has stalled – it’s time to take a fresh look at the sector
We introduce our “five fundamentals” framework to assess barriers to entry, structural changes, balance sheets, profitability and management/corporate governance
Unilever Indonesia and Kalbe Farma (both rated Hold) score the highest marks in our framework
EQUITIESCONSUMER & RETAILOctober 2017
By: Selviana Aripin
1
EQUITIES ● CONSUMER & RETAIL
October 2017
Why read this report?
Our “five fundamentals” framework offers a fresh way to
look at Indonesia’s F&B sector, in our view
We assess each company on barriers to entry, structural
changes, balance sheet strength, profitability and
management/corporate governance
We explain why Unilever Indonesia and Kalbe Farma score
the highest marks in our framework
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Exhibit 1: ASEAN food and beverage producers – valuation comparison
Bloomberg ticker Rating Currency
Latest price (lcy)
Target price (lcy)
Market cap
(USDm)
EPS growth 2017e
EPS growth 2018e
Dividend yield
FY2017e
PE (x) EV/EBITDA (x) Net debt/ equity
2016 ROE 2016 Name
3m ADTV (USDm) 2016a 2017e 2018e 2016a (x) 2017e (x) 2018e (x)
Century Pacific CNPF PM N.R. PHP 16.92 N.A. 0.6 1,183 7.0% 12.4% 1.2% 21.6 21.1 18.8 14.8 14.5 12.9 0.1 23% Charoen Pokphand CPIN IJ N.R. IDR 2,860.00 N.A. 1.4 3,465 17.4% 17.6% 1.3% 22.6 17.8 15.1 10.4 10.8 9.7 0.3 17% Delfi DELFI SP N.R. SGD 1.54 N.A. 0.4 689 -25.0% 33.3% 2.8% 37.6 25.2 18.9 18.3 13.2 11.4 -0.1 11% Indofood CBP ICBP IJ Reduce IDR 8,700.00 7,500.00 3.0 7,504 -1.7% 3.6% 2.5% 28.2 28.7 27.7 17.1 17.6 15.9 -0.3 22% Indofood Sukses Makmur INDF IJ Hold IDR 8,600.00 7,900.00 4.0 5,585 4.6% -0.3% 3.4% 18.2 17.4 17.5 8.6 8.3 7.8 0.2 15% Japfa Comfeed JPFA IJ N.R. IDR 1,255.00 N.A. 0.5 1,058 -36.2% 28.0% 1.8% 7.7 10.4 8.1 4.8 7.0 5.9 0.2 29% Kalbe Farma KLBF IJ Hold IDR 1,675.00 1,800.00 3.0 5,807 10.1% 9.9% 1.1% 34.1 31.0 28.2 22.3 20.1 18.2 -0.2 21% Mayora Indah MYOR IJ N.R. IDR 2,090.00 N.A. 0.3 3,453 4.5% 19.5% 0.8% 27.1 33.0 27.6 14.5 17.6 15.4 0.4 24% Nestle Malaysia NESZ MK N.R. MYR 84.80 N.A. 1.7 4,699 6.0% 6.6% 3.4% 28.8 29.5 27.6 19.9 20.3 19.0 0.4 94% PPB PPB MK N.R. MYR 16.82 N.A. 0.2 4,712 -3.8% 6.7% 1.5% 18.0 19.8 18.6 34.8 42.8 38.8 0.0 5% Thai President TF TB N.R. THB 268.00 N.A. 0.3 1,443 na na na 15.9 na na 10.0 na na -0.2 15% Thai Union TU TB N.R. THB 19.60 N.A. 4.9 2,799 -2.1% 15.5% 3.2% 17.3 16.5 14.3 15.1 14.7 12.7 1.6 13% Tiga Pilar Sejahtera Food AISA IJ N.R. IDR 895.00 N.A. 1.4 213 -39.6% 10.0% 0.9% 10.5 8.0 7.3 7.3 5.7 5.4 1.0 16% Unilever Indonesia UNVR IJ Hold IDR 50,825.00 45,100.00 6.0 28,683 20.1% 15.6% 1.9% 60.7 50.5 43.7 42.2 35.0 30.3 0.7 134% Universal Robina Corp URC PM Hold PHP 152.50 153.00 4.1 6,567 5.4% 16.4% 2.1% 26.1 24.8 21.3 15.5 14.7 13.1 0.2 17% Weighted Average 9.1% 12.1% 2.0% 37.9 33.6 29.7 26.4 24.0 21.2 Median 4.5% 14.0% 1.9% 22.6 23.0 18.9 15.1 14.7 13.0
Notes: Latest price as of 3 October 2017. N.R. = not rated, for non-covered companies. N.A. = not applicable Source: Thomson Reuters Datastream consensus forecasts for non-covered companies, HSBC estimates for covered companies
For more information on each of the four covered companies discussed in this report, please see our latest company-specific research, published on 6 October 2017.
3
EQUITIES ● CONSUMER & RETAIL
October 2017
Executive summary 4
Taking stock of Indonesian F&B 4
The “five fundamentals” framework 6
Other high conviction ideas from Asia 8
Solid fundamentals 10
The background 10
The “five fundamentals”
framework 12
A fresh approach 12
Barriers to entry 13
Vertical integration and product
differentiation appear key 13
Structural changes 17
Demographic and rising
health/nutritional trends the key 17
Balance sheet strength 24
Net cash with good capex and
dividend coverage appears key 24
Profitability 25
Highlighting high returns and strong
earnings growth 25
Management/corporate
governance 26
Room for improvement 26
Valuation and risks 28
Appendix 1 33
Combining Framework 1 and
Framework 2 33
Appendix 2 37
The macro backdrop 37
Valuation and risks: Other stocks
mentioned 39
Disclosure appendix 41
Disclaimer 44
Contents
EQUITIES ● CONSUMER & RETAIL
October 2017
4
Growth in consumer spending has stalled in Indonesia at a time when
the Food & Beverage sector is facing major shifts in consumer tastes
and preferences. We introduce a fresh way to look at the fundamentals
and the future direction of the four companies we cover.
Taking stock of Indonesian F&B
The four Indonesia’s F&B companies we cover – Indofood CBP (Reduce), Indofood Sukses
Makmur (Hold), Kalbe Farma (Hold) and Unilever Indonesia (Hold) – appear to be in pretty good
shape. In broad terms, over the past few years, they have recorded strong EPS growth while
maintaining strong cash positions and low levels of gearing. As a result, they have been
rewarded with higher PE multiples.
Today, the valuations of these companies are generally high. The F&B companies with the
exception of Indofood Sukses Makmur (INDF) trade at premiums relative to the Jakarta Stock
Exchange Composite Index (JCI) in terms of both PE and EV/EBITDA multiples. This is the
main reason behind our Hold ratings on three out of the four stocks under our coverage.
Against the backdrop of slower consumption growth in the first half of 2017, we believe it is time
to take a fresh look at the sector’s fundamentals and likely future direction. Thus, we introduce
what we call the “five fundamentals” framework to assess the fundamental strengths and
weaknesses of these companies without taking into account their individual valuations.
In the first half of 2017, most Indonesian consumer companies reported relatively weak
earnings growth y-o-y as consumption growth slowed. Annual GDP growth has been about
5.0% since 2014. While the rate was 5.0% in both 1Q and 2Q 2017, it was weaker than
expected in 2Q as HSBC’s economist had forecast 5.1%. Growth in private consumption was
relatively weak at 4.9% y-o-y. Another important factor that indicated just how weak
consumption was in 2Q 2017 was that Lebaran, a major national holiday associated with strong
consumer spending, was in 2Q in 2017 vs. 3Q in 2016. In August, Indonesia's central bank cut
its benchmark policy rate – the first change since October – in a bid to boost economic growth.
In this report, we discuss the four companies we cover:
Indofood CBP Sukses Makmur (ICBP) – this leading consumer staples company is
dominant in the instant noodles, which form part of the staple diet for a large part of the
population; the company also has a presence in dairy as well as snacks and beverages.
Indofood Sukses Makmur (INDF) –owns Indofood Consumer Branded Products (CBP),
Bogasari & Distribution (wheat flour) and Indofood Agri Resources (crude palm oil/CPO).
Unilever Indonesia (UNVR) – produces and markets fast-moving consumer goods
(FMCG) in the nutrition, hygiene and personal care categories as well as food & beverages.
Kalbe Farma (KLBF) – the largest pharmaceutical company in Indonesia with a significant
consumer arm.
Executive summary
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EQUITIES ● CONSUMER & RETAIL
October 2017
Exhibit 2A: ICBP – PE and EPS growth Exhibit 2B: INDF – PE and EPS growth
Source: Bloomberg Source: Bloomberg
Exhibit 3A: UNVR – PE and EPS growth Exhibit 3B: KLBF – PE and EPS growth
Source: Bloomberg Source: Bloomberg
Exhibit 4A: PE of the Indonesian F&B companies vs. the Index
Exhibit 4B: EV/EBITDA of the Indonesian F&B companies vs. the Index
Source: Bloomberg Source: Bloomberg
-5
0
5
10
15
20
25
0
5
10
15
20
25
30
35
2010 2011 2012 2013 2014 2015 2016 2017
P/E - LHS EPS growth % - RHS
-30
-20
-10
0
10
20
30
40
50
60
70
0
5
10
15
20
25
30
35
2010 2011 2012 2013 2014 2015 2016 2017
P/E - LHS EPS growth % - RHS
-5
0
5
10
15
20
25
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 2017
P/E - LHS EPS growth % - RHS
-10
-5
0
5
10
15
20
25
30
35
40
45
0
5
10
15
20
25
30
35
40
45
2010 2011 2012 2013 2014 2015 2016 2017
P/E - LHS EPS growth % - RHS
2327
19
57
34
0
10
20
30
40
50
60
70
JCI ICBP INDF UNVR KLBF
P/E
12
17
9
39
22
0
10
20
30
40
50
JCI ICBP INDF UNVR KLBF
EV/ EBITDA
EQUITIES ● CONSUMER & RETAIL
October 2017
6
The “five fundamentals” framework
Our framework assesses companies based on five metrics – barriers to entry, balance sheet
strength, structural changes, profitability and management/corporate governance. We rank each
on a scale of 1-5 with 5 the strongest. We think this approach lets investors assess whether
these F&B companies should be part their portfolios’ core holdings before making judgements
about valuations. As shown in the table below, Unilever Indonesia and Kalbe Farma tie with the
highest average scores based on our rankings. Below, we look at each metric in more detail.
Exhibit 5: Indonesian F&B – Rankings based on the “five fundamentals” framework
Scores are 1 through 5 with 5 being the strongest Barriers
to entry Structural
changes
Balance sheet
strength Profitability
Management/ Corporate
governance Average
Indofood CBP 4.2 2.5 4.0 4.0 3.0 3.5 Indofood Sukses Makmur 4.2 2.5 3.0 4.0 3.0 3.3 Unilever Indonesia 5.0 5.0 3.0 5.0 4.0 4.4 Kalbe Farma 4.2 5.0 4.0 5.0 4.0 4.4
Source: HSBC estimates
1) Barriers to entry
We assess the dominant players in the following areas: whether the company is operating in a
monopolistic/oligopolistic environment, regulatory barriers, distribution networks, the strength of
brands, relationships with suppliers, intellectual property, customer stickiness, level of vertical
integration, product differentiation and scale. We found that the four companies we cover all
score well in this category with barriers to entry generally high. We rank Unilever Indonesia the
highest with a score of 5.
Exhibit 6: Barriers to entry
Scores are 1 through 5 with 5 being the strongest
Dominant players
(monopoly/ oligopoly)
Distribution network
Strength of brand
Vertical integration
Extent of product
differentiation Scale Raw
score Score
(1-5)
Indofood CBP 83% 4.2 Indofood Sukses Makmur 83% 4.2 Unilever Indonesia 100% 5.0 Kalbe Farma 83% 4.2
Source: HSBC estimates
2) Structural changes
We list four structural changes – rising affluence, favourable demographics, rising
health/nutritional awareness and modern lifestyle/urbanization. We give Unilever Indonesia and
Kalbe Farma maximum points as we think they will benefit most.
Exhibit 7: Structural changes
Scores are 1 through 5 with 5 being the strongest Rising
affluence Favourable
demographics
Rising health/ nutritional awareness
Modern lifestyle/
urbanization Raw
score Score
(1-5)
Indofood CBP 50% 2.5 Indofood Sukses Makmur 50% 2.5 Unilever Indonesia 100% 5 Kalbe Farma 100% 5
Source: HSBC estimates
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EQUITIES ● CONSUMER & RETAIL
October 2017
3) Balance sheet strength
We believe the four F&B companies we cover all have sound balance sheets, based on our
analysis of their net debt/equity ratios, cash to market cap levels, capex and dividend coverage
as well as working capital efficiency ratios. We rank both Indofood CBP and Kalbe Farma at 4
out of 5.
Exhibit 8: Balance sheet strength
Scores are 1 through 5 with 5 being the strongest Net debt/
equity
Cash to market
cap
Capex plus dividend
coverage ratio
Inventory turnover
(days)
Receivables turnover
(days)
Payables turnover
(days)
Cash conversion
cycle (days) Score
Indofood CBP (0.37)x 8% 1.76x 48 39 42 46 4 Indofood Sukses Makmur 0.31x 18% 1.36x 65 25 27 63 3 Unilever Indonesia 0.62x 0% 0.88x 43 34 86 (9) 3 Kalbe Farma (0.22)x 4% 1.12x 123 50 42 131 4
Note: Based on 2016 financials. Source: Company data, HSBC estimates
4) Profitability
All four companies generally have good levels of profitability, based on our analysis. We looked
at returns on assets (ROA), operating income margins, cost efficiency (defined by opex adjusted
for advertising and promotions as a percentage of revenue), historical earnings growth and
future earnings growth. We rank Unilever Indonesia and Kalbe Farma at 5 out of 5.
Exhibit 9: Profitability
Scores are 1 through 5 with 5 being the strongest
Return on Assets
(ROA)
Operating income margin
Cost efficiency (Opex – A&P),
% revenue
Historical earnings growth
(2010-2016 6Yr CAGR)
Earnings growth forecast
(2016-19 3Yr CAGR) Score
Indofood CBP 12% 14% 13% 13% 4% 4 Indofood Sukses Makmur 5% 13% 14% 6% 1% 4 Unilever Indonesia 38% 22% 19% 11% 17% 5 Kalbe Farma 15% 15% 23% 10% 12% 5
Source: Company data, HSBC estimates
5) Management and corporate governance
None of the companies scores full marks for management and corporate governance. We
looked at the extent of related-party transactions and other well-reported incidents. We rank
Unilever Indonesia and Kalbe Farma at 4 out of 5.
Exhibit 10: Management/corporate governance
Scores are 1 through 5 with 5 being the strongest
Related-party transactions (source: 2016 annual reports)
Other well-reported
incidents Score
Indofood CBP Sales to related parties: 77% of revenue. Purchases from related parties: 27% of COGS.
3
Indofood Sukses Makmur Sales to related parties: 10% of revenue. Purchases from related parties: 6% of COGS.
3
Unilever Indonesia Sales to related parties: 6% of revenue. Purchases from related parties: 7% of COGS. Royalties (i.e. trademark, technology and service fees) payments to related parties: 7% of revenue.
4
Kalbe Farma Sales to and purchases from related parties: <1% 4
Source: Company data, HSBC estimates
EQUITIES ● CONSUMER & RETAIL
October 2017
8
Other high conviction ideas from Asia
In Korea, Karen Choi likes CJ Cheil Jedang (097950 KS, KRW 354,500, Buy, TP: KRW
480,000) with the lysine oversupply issue showing signs of gradual improvement. Furthermore,
with a larger contribution from the processed food division, she is expecting a turnaround from
3Q17, as seen in her latest report Korea Consumer: Back from the wilderness, dated 2 August
2017.
In China, Christopher Leung likes Uni-President China (220 HK, HKD7.70, Buy, TP: HKD8.80)
because the instant noodle market in China is very consolidated with high entry barriers. He
also likes Uni-President China for its margin expansion story, as seen in his latest report
Buy: Further margin upside likely, dated 3 October 2017.
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We apply our framework to the four Indonesian F&B companies under our coverage and plot out the results in pentagons. We note that we rank each metric on a scale of 1 to 5
where 1 is the weakest and 5 is the strongest. Our conclusion is that Unilever Indonesia and Kalbe Farma rank best on our metrics.
Exhibit 11A: ICBP Exhibit 11B: INDF
Source: HSBC estimates Source: HSBC estimates
Exhibit 12A: UNVR Exhibit 12B: KLBF
Source: HSBC estimates Source: HSBC estimates
1
2
3
4
5Barriers to entry
Structural changes
Balance sheet strengthProfitability
Management/ Corporategovernance
1
2
3
4
5Barriers to entry
Structural changes
Balance sheet strengthProfitability
Management/ Corporategovernance
1
2
3
4
5Barriers to entry
Structural changes
Balance sheet strengthProfitability
Management/ Corporategovernance
1
2
3
4
5Barriers to entry
Structural changes
Balance sheet strengthProfitability
Management/ Corporategovernance
EQUITIES ● CONSUMER & RETAIL
October 2017
10
The background
Against the backdrop of the weaker consumption appetite in 1H 2017, we expect EPS growth
for 2017 overall to be weaker than last year for the four companies we cover, except for UNVR.
Apart from INDF, the companies trade at premiums relative to the Jakarta Stock Exchange
Composite Index (JCI) on both PE and EV/EBITDA multiples. Given these valuation premiums,
we take stock of the companies’ fundamentals and long-term outlooks.
Indofood Consumer Branded Products (ICBP) – The company is one of the leading staples
companies in Indonesia and is dominant in instant noodles, part of the staple diet for a large
proportion of the population. This gives it more defensive characteristics, particularly when
compared with consumer discretionary and confectionary players. We like ICBP for its defensive
qualities and reasonably solid fundamentals in a slowing economy.
Indofood Sukses Makmur (INDF) – The company owns ICBP (instant noodle, dairy, snacks
and beverage division), Bogasari & Distribution (wheat flour division) and Indofood Agri
Resources (crude palm oil/CPO division). We see INDF as a value play on ICBP as we note
that INDF’s stock price implies that its Bogasari and distribution division has a negative
valuation after taking into account INDF’s stakes in ICBP and Indofood Agri (IFAR). INDF trades
at lower multiples due to its commodity-related businesses and the presence of foreign-currency
denominated debt, which mean its earnings are much more volatile.
Unilever Indonesia (UNVR) – We like the company due its strong cash generation, high ROE
(134% in 2016), and consistent dividend. We also think the company’s extensive distribution
network, brand strength and product differentiation, which present credible barriers to entry.
Furthermore, UNVR appears to benefit from a number of structural changes, including rising
affluence and favourable demographics. As a result, we think UNVR has a solid growth outlook.
In spite of all UNVR’s strengths, we have a Hold rating because we think that the expected
benefits from the improving macro environment are already reflected in the price.
Kalbe Farma (KLBF) – It is the largest pharmaceutical company in Indonesia. We consider
Kalbe Farma to be a best-in-class company with a leading market share by value in both
prescriptions and over-the-counter drugs. KLBF is benefitting from structural changes such as
rising affluence and favourable demographics. We view Kalbe as fairly valued as its valuations
appear to be in line with its recent history, reflecting the margin compression in the
pharmaceutical segment we expect as a result of the roll-out of the universal healthcare.
Solid fundamentals
All four of the Indonesian F&B companies we cover have sound
fundamentals, in our view, and have recorded strong EPS growth in
recent years
PE multiples have expanded to reflect companies’ earnings power
We present our investment thesis for each of the four companies we
cover as well as our bull- and bear-case scenarios
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EQUITIES ● CONSUMER & RETAIL
October 2017
Exhibit 13A: ICBP – PE and EPS growth Exhibit 13B: INDF – PE and EPS growth
Source: Bloomberg Source: Bloomberg
Exhibit 14A: UNVR – PE and EPS growth Exhibit 14B: KLBF – PE and EPS growth
Source: Bloomberg Source: Bloomberg
Exhibit 15A: PE multiples of the Indonesian F&B companies vs. index
Exhibit 15B: EV/EBITDA of the Indonesian F&B companies vs. the index
Source: Bloomberg Source: Bloomberg
-5
0
5
10
15
20
25
0
5
10
15
20
25
30
35
2010 2011 2012 2013 2014 2015 2016 2017
P/E - LHS EPS growth % - RHS
-30
-20
-10
0
10
20
30
40
50
60
70
0
5
10
15
20
25
30
35
2010 2011 2012 2013 2014 2015 2016 2017
P/E - LHS EPS growth % - RHS
-5
0
5
10
15
20
25
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 2017
P/E - LHS EPS growth % - RHS
-10
-5
0
5
10
15
20
25
30
35
40
45
0
5
10
15
20
25
30
35
40
45
2010 2011 2012 2013 2014 2015 2016 2017
P/E - LHS EPS growth % - RHS
2327
19
57
34
0
10
20
30
40
50
60
70
JCI ICBP INDF UNVR KLBF
P/E
12
17
9
39
22
0
10
20
30
40
50
JCI ICBP INDF UNVR KLBF
EV/ EBITDA
EQUITIES ● CONSUMER & RETAIL
October 2017
12
A fresh approach
We introduce a framework to assess the fundamentals of the companies regardless of their
stocks’ valuations. Our framework assesses the companies based on five metrics:
Barriers to entry: We look at the monopolistic/oligopolistic environment, regulatory
barriers, distribution networks, brand strength, supplier agreements, intellectual property,
customer loyalty, vertical integration and the extent of product differentiation.
Structural changes: We examine whether a company is a beneficiary of structural
changes in the industry or the country or whether it is losing out to these changes. We also
examine the extent to which the companies are innovating in response to these market
shifts.
Balance sheet strength: We look at leverage levels, the amount of cash to market
capitalization and the flexibility to raise cash.
Profitability: We look at returns on assets (ROA) and operating income margins.
Management and corporate governance: We assess management’s strategy and quality
as well as whether the practices adopted by the company are favourable to minority
shareholders.
We rank each company on each metric on a scale of 1 to 5 in which 5 is the strongest. Unilever
Indonesia and Kalbe Farma record the highest scores on our rankings. In the following
sections of this report, we look at our findings in more detail by each fundamental ranking.
The “five fundamentals”
framework
We introduce a framework to assess the F&B companies
Irrespective of valuations, our framework looks at barriers to entries,
structural changes, balance sheet strength, profitability and
management/corporate governance
Unilever Indonesia and Kalbe Farma rank most favourably of the four
Indonesia F&B companies we cover
13
EQUITIES ● CONSUMER & RETAIL
October 2017
Vertical integration and product differentiation appear key
Barriers to entry are generally high, but Unilever Indonesia enjoys the highest
The four F&B companies under our coverage generally enjoy high barriers to entry. They are
the dominant players in their own fields with strong distribution networks, and some enjoy a
degree of vertical integration.
Exhibit 16: Barriers to entry
Scores are 1 through 5 with 5 being the strongest
Dominant players
(monopoly/ oligopoly)
Distribution network
Strength of brand
Vertical integration
Extent of product
differentiation Scale Raw
score Score
(1-5)
Indofood CBP 83% 4.2 Indofood Sukses Makmur 83% 4.2 Unilever Indonesia 100% 5.0 Kalbe Farma 83% 4.2
Source: HSBC estimates
Dominant players
While all four companies are dominant players within their own industries, we highlight the
strength of Indofood CBP’s presence in instant noodles, where it has a 72% market share
(Exhibit 17). It derives 79% of its operating margin (after eliminations) from the instant noodle
segment, a category that is largely a duopoly.
Exhibit 17: Instant noodles: Market shares of Top 3 players by country in Asia (2016)
Source: Euromonitor, HSBC
71.7%60.6% 55.2% 49.1% 47.5% 43.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Indonesia South Korea Thailand Taiwan Japan ChinaPlayer #1 Player #2 Player #3
Barriers to entry
Most F&B companies we cover are dominant in their sectors with
good distribution networks, strong brands and substantial scale
The difference between the strong and the strongest appears to be in
terms of vertical integration and product differentiation
Unilever Indonesia scores the highest mark on this metric
EQUITIES ● CONSUMER & RETAIL
October 2017
14
Relative to global instant noodle producers, Indofood CBP is one of the biggest in terms of sales
(Exhibit 22). In addition, its operating profit margin of about 17% is significantly higher than the
10% of global peers. Its dominance allows the company to reap the benefit of scale and, to a
certain extent, pricing power.
Distribution networks
Setting up distribution networks in Indonesia is a challenging task given the country’s geography
and size. In addition, most products are still distributed through general trade channels – small
retailers handling small amounts of merchandise in small stores. While there is a gradual shift to
modern trade, the companies that already have extensive distribution networks enjoy significant
barriers to entry. Indeed, it is difficult for new competitors to enter the market so most of the big
F&B companies appear favourably placed.
Exhibit 18: Indonesia Food – Product distribution through general trade (GT) (2016)
Source: Euromonitor, HSBC
Exhibit 19: Indonesia Beverages – Product distribution through general trade (GT), (2016)
Source: Euromonitor, HSBC
Brand strength
Brand strength is a barrier to entry because of customers’ strong association between the brand
and the product. It represents both an objective and subjective perception of the product’s
quality, reliability, safety and benefits. As a result, brand recognition generates customer loyalty
and product stickiness. We highlight the example of Unilever Indonesia. UNVR’s strong brand
across a number of products is due to its investment in advertising and promotions (A&P). In
2016, UNVR spent 11% of its revenue on A&P – more than any other Indonesian FMCG
company.
80% 78%72% 68%
64% 64%
51% 47% 43% 40%
26%18% 18% 14%
6% 4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
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BreakfastC
ereals
73% 72%66% 64%
60%56% 53%
47%41% 40%
28%
0%
10%
20%
30%
40%
50%
60%
70%
80%
RT
D T
ea
Asian
SpecialityD
rinks
Carbonat
es
Bottled
Water
Tea
Coffee
Juice
Other hotdrinks
Concentrates
Sports/
Energy
Drinks
RT
DC
offee
15
EQUITIES ● CONSUMER & RETAIL
October 2017
Exhibit 20: Indonesian F&B companies – advertising and promotional expenses, % revenue (2016)
Source: Company data, HSBC
Vertical integration
A vertically integrated structure linking upstream and downstream operations can be a mutually
beneficial arrangement. The integration can exist within the same listed entity or with an unlisted
entity that often has the same majority shareholder.
Take the example of Indofood CBP and Indofood Sukses Makmur. Bogasari, which is owned by
holding company Indofood Sukses Makmur, is the largest flour miller in Indonesia with a 52%
market share (World-Grain.com, 10 April 2017) and meets ICBP’s flour needs. The extremely
close relationship between ICBP and Bogasari serves as a barrier to entry because it prevents
other competitors from growing quickly.
Product differentiation
Product differentiation helps to drive customer stickiness – personal products are a good
example.
Scale
Scale allows companies to run operations more efficiently, spreading higher volumes over fixed
costs. We highlight the example of Indofood CBP whose dominance in instant noodles
generates EBIT levels that are higher than peers’. We think this margin is largely sustainable
(with minimal deterioration) despite the recent fall in market share because the significant lead
that Indofood CBP enjoys over second-place Wings is unlikely to create any pricing pressure.
Exhibit 21: Instant noodles – Comparison of the global players
Source: Company data, HSBC
0%
3%
5%
8%
10%
13%
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
Kalbe Farma (1,747, 9%)
Company (A&P expense (IDRb), A&P expense as % of revenue)
A&P expense (IDRb)
A&
Pex
pen
se a
s a
% o
f re
ven
ue Mayora Indah (1,680, 9%)
Multi Bintang (259, 8%)
Ultrajaya (288, 6%)
Indofood CBP (1,467, 4%)
Indofood Sukses (1,643, 2%)
Unilever Indonesia (4,263, 11%)
0%
4%
8%
12%
16%
20%
0 500 1,000 1,500 2,000 2,500 3,000 3,500
Ottogi Corporation
Thai President FoodsIndofood CBP
Toyo Suisan Kaisha
Uni-President China
Nissin Foods
Sales from instant noodles division (USDm)
Op
erat
ing
mar
gin
(in
stan
t n
oo
dle
s)
Tingyi
EQUITIES ● CONSUMER & RETAIL
October 2017
16
Exhibit 22: Instant noodles: A comparison of global players
Company Division Reporting currency
Sales for 2016 (reporting currency)
Sales for 2016 (USDm)
Operating margin
Uni-President China Instant noodles RMBm 8,221 1,237 4% Tingyi Instant noodles USDm 3,239 3,239 7% Nissin Foods All, excluding chilled and frozen foods and
others segment JPYm 365,580 3,374 10%
Toyo Suisan Kaisha Domestic instant noodles + overseas instant noodles
JPYm 199,104 1,838 11%
Ottogi Corp Noodles KRWm 641,960 553 6% Thai President Food Instant noodles THBm 9,759 277 19% Indofood CBP Instant noodles IDRm 22,539,655 1,694 17% Average 10%
Source: Company data, HSBC
17
EQUITIES ● CONSUMER & RETAIL
October 2017
Demographic and rising health/nutritional trends the key
We list four structural changes impacting Indonesian F&B – rising affluence, favourable
demographics, rising health/nutritional awareness and modern lifestyle/urbanization. We rate
Unilever Indonesia and Kalbe Farma at 5 out of 5 because we think that they will benefit the
most. We note that structural changes may not impact all companies in the same ways.
Exhibit 23: Structural changes
Scores are 1 through 5 with 5 being the strongest Rising
affluence Favourable
demographics
Rising health/ nutritional awareness
Modern lifestyle/
urbanization Raw
score Score
(1-5)
Indofood CBP 50% 2.5 Indofood Sukses Makmur 50% 2.5 Unilever Indonesia 100% 5 Kalbe Farma 100% 5
Source: HSBC estimates
Rising affluence
Rising affluence allows consumers to purchase discretionary items. Ice cream is a good
example. Ice cream in Indonesia is often sold in a single servings, and purchases are often
impulse driven. The market leaders are Unilever Indonesia, Campina, Diamond Cold Storage,
and Indofood CBP. Unilever has a 69.5% market share, according to Euromonitor.
Any new competition in this category would likely need deep pockets and be well resourced
because ice cream is a capital-intensive sector (a recent new entrant is Wing Group, which has
partnered with Glico). The key barrier to faster growth is the rolling out of the ice boxes needed
to facilitate distribution.
Structural changes
Most Indonesian F&B companies are benefitting from the trends of
rising affluence and the shift to modern lifestyle/urbanization
The main differentiator is whether a company is leveraged to
demographic developments and rising health awareness
Unilever Indonesia and Kalbe Farma appear most poised to benefit
from structural changes
EQUITIES ● CONSUMER & RETAIL
October 2017
18
Exhibit 24: Ice cream in Asia – Market shares of the Top 3 players (2016)
Source: Company data, HSBC
Exhibit 25: Ice cream in Asia – Market shares of the Top 3 players (2016)
Country Player
No. 1 Player
No. 2 Player
No. 3 Market shares
of Top 3 (2016) Players
Indonesia 69.5% 17.7% 7.6% 94.8% Unilever, Campina Ice Cream, Diamond Cold Storage Thailand 62.8% 13.0% 6.4% 82.2% Unilever, Nestle, Thai Beverage Philippines 54.6% 29.5% 8.3% 92.4% Unilever, Froneri, San Miguel Singapore 46.7% 19.6% 12.8% 79.1% Unilever, General Mills, Thai Beverage South Korea 43.1% 24.3% 14.9% 82.3% Lotte Group, Binggrae Co, Crown Confectionery Malaysia 36.4% 34.5% 17.1% 88.0% Nestle, Unilever Group, Thai Beverage UK 36.3% 5.1% 4.8% 46.2% Unilever, Mondelez, Froneri Taiwan 24.2% 15.5% 11.7% 51.4% Namchou Group, Xiao Mei, Meiji USA 23.6% 14.8% 6.6% 45.0% Unilever, Nestle, General Mills India 17.8% 9.8% 6.2% 33.8% Gujarat Co-operative, Unilever, Vadilal China 16.3% 8.4% 7.5% 32.2% Inner Mongolia Yili, China Mengniu, Unilever Japan 14.0% 11.0% 9.9% 34.9% Lotte Group, Ezaki Glico, Morinaga
Source: Euromonitor, HSBC
Demographics
Indonesia has a favourable demographic profile, in our view. This includes its large population,
high fertility rate, relatively high percentage of the population between aged 0 and 14, and
increase in the GNI per capita. We think that these trends favour some F&B producers more
than others, especially those that make products consumed by children (e.g. baby food).
Exhibit 26A: Comparison of fertility rates Exhibit 26B: Comparison of populations
Source: World Bank Source: World Bank
69.5%62.8%
54.6%46.7% 43.1%
36.4% 36.3%24.2% 23.6% 17.8% 16.3% 14.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Indo Thai Phil Sing SKorea Malay UK Taiwan USA India China JapanPlayer #1 Player #2 Player #3
0
0.5
1
1.5
2
2.5
3
3.5
Phil
Indo
India
Malay
UK
US
Chn
Thai
Japan
S.K
orea
Sgp
Fertility rate (births per woman) - 2015
-
200
400
600
800
1,000
1,200
1,400
1,600
Chn
India
US
Indo
Japan
Phil
Thai
UK
S.K
orea
Malay
Sgp
Population, total (M) - 2015
19
EQUITIES ● CONSUMER & RETAIL
October 2017
Exhibit 27A: Comparison of increases in population aged between 0 and 14
Exhibit 27B: Comparison of increases in GNI per capita for 2006-15, sorted by the highest increase to the lowest increase
Source: World Bank Source: World Bank
Baby food: The main competitors in this category include Danone, Nestle, Friesland Campina,
and Kalbe Farma (via a JV with Morinaga). Foreign producers dominate because their products
are perceived to have greater levels of technological innovation and better food safety
standards. Of the companies we cover, Kalbe Farma is the only one with a significant exposure
to the segment. However, a comparison of KLBF’s operating margins with rivals is not available
because KLBF does not disclose the operating margins for its nutritionals business. This
business is KLBF’s fastest-growing segment and generated 29% of revenue in 2016.
Exhibit 28A: KLBF – Revenue contributions
Exhibit 28B: KLBF – gross margin for nutritionals
Source: Company data, HSBC Source: Company data, HSBC
Rising health/nutritional awareness
Rising levels of awareness about health and nutrition are making consumers more discerning
about the food they buy. We highlight the two examples of how this is driving demand for dairy
products and may also be negative for the long-term demand of certain edible oils.
Dairy: While dairy is not a traditional part of the Indonesian diet, it is becoming more popular
due to the increased awareness about the benefits of milk. At the same time, the dairy industry
is shifting from sweetened condensed milk products to milk-based products. We think
consumption of sweetened condensed milk products will grow at a slower rate given the rise in
health awareness – a potentially slower development for Indofood CBP whose legacy dairy
portfolio includes condensed milk products.
0%
5%
10%
15%
20%
25%
30%
35%
Phil
India
Indo
Malay
US
UK
Thai
Chn
Sgp
S.K
orea
Japan
Population ages 0-14 (% total) - 2015
-
10,000
20,000
30,000
40,000
50,000
60,000
Chn
Indo
Phil
India
Thai
Malay
S.K
orea
Sgp
US
Japan
UK
GNI per capita, Atlas (current '000 USD) -2006
24% 24% 25% 24% 23%
16% 16% 17% 17% 18%
22% 24% 26% 29% 29%
38% 36% 32% 30% 30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016
Pharmaceuticals Consumer Health Nutritionals Distribution & Logistics
48.0%
50.0%
52.0%
54.0%
56.0%
58.0%
60.0%
62.0%
64.0%
2012 2013 2014 2015 2016 2017e 2018e 2020e
Gross Margin - Nutritionals
EQUITIES ● CONSUMER & RETAIL
October 2017
20
The main players include Royal FrieslandCampina, Indofood CBP, Ultrajaya (ULTJ IJ, not
rated), Nestle and Yakult Honsha. This is a relatively crowded segment in which the top five
control only 68% of the market share. The drivers of dairy product consumption are 1) the
association with a western lifestyle through the consumption of cheese, milk, and yoghurt and 2)
better health awareness.
Exhibit 29A: Dairy – Breakdown of the sub-categories of dairy
Exhibit 29B: Dairy – 5-yr CAGR of dairy sub-segments
Source: Euromonitor Source: Euromonitor
Edible oils: This is big business in Indonesia. For example, Indofood Sukses Makmur derived
22% of its 2016 revenue and 21% of its operating income from edible oils. The issue here is that
deep-fried food is very popular in a country, which also has one of the highest levels of mortality
due to cardiovascular diseases. As people become more health conscious, they are also
becoming more discerning about the type of edible oils they purchase. We think that unless
Indofood addresses this issue, its edible oil business could suffer. The warning signs are
already there – INDF’s market share of the edible oil sector has fallen from 51.2% in 2011 to
41.0% in 2016, according to data from Euromonitor.
Exhibit 30: Proportional mortality due to cardiovascular disease
Source: WHO
For example, Bimoli, INDF’s flagship brand, is marketed simply as a high quality cooking oil
while it competitors are promoting the health benefits of avoiding high-fat products. We think
Topical, which is owned by Bina Karya Prima, and Sania, which is owned by Sari Agrotama
Persada, present credible threats. Tropical, whose market share has risen from 13.6% in 2011
to 18.6% in 2016, is marketed as having a high unsaturated fatty acid content, which is believed
13%
5%
54%
6%
22%
Yoghurt and SourMilk Products
Cheese
Drinking MilkProducts
Butter andMargarine
Other Dairy
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Yoghurtand Sour
MilkProducts
Cheese DrinkingMilk
Products
Butter andMargarine
OtherDairy
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
CHN INA MAS PHI VIE SGP USA GBR THA JPN KOR IND
21
EQUITIES ● CONSUMER & RETAIL
October 2017
to lower blood cholesterol. Topical is also promoted as being good for the heart because it has
gone through a double refining processes. Sania, whose market share has increased from 8.7%
in 2011 to 13.7% in 2016 is marketed as a healthy choice due to its zero use of preservatives,
its high content of Omega-6 and Omega-9 and its zero cholesterol content.
Modern lifestyle and urbanization
Changing lifestyles and growing urbanisation offer benefits to all four F&B companies. These
are apparent in a wide range of experiences, including the rising importance of convenience
foods, the consumption of a western-style diet (dairy, pizza, pasta, snack food, processed food
and juices) as well as the growing demand for a greater choice of products. Here we look at
these changes in more detail.
RTD tea: Convenience is the key to a more modern lifestyle as illustrated by the rise in
popularity of ready-to-drink (RTD) tea. This product has seen the most significant shift among all
the F&B categories in Indonesia in recent years. Usually, dominant brands become more
dominant, but RTD is the exception. The market leader, Sinar Sosro, lost its dominant position
between 2011 and 2014 as the market became an oligopoly rather than something close to a
monopoly. In 2011, Sinar Sosro had a market share of 72.4%. By 2016, the market share of the
top four companies – Orang Tua Group, Sinar Sosro, Tirta Fresindo, and Beverage Partners –
ranged between 13.8% and 29.3%. Although none of the companies covered in this report has
a presence in this category (other than Indofood CBP through its JV with Asahi), we think RTD
offers a fine example of how markets can change.
Exhibit 31A: RTD tea: Market share of the top 3 players
Exhibit 31B: RTD tea: Evolution of market share
Source: Euromonitor, HSBC Source: Euromonitor, HSBC
Savoury snacks: More people are switching from traditional Indonesian snacks, which are
often home-made or produced locally in limited quantities, to factory-made savoury food. The
two biggest operators are Garudafood (privately held) and PepsiCo, which operates a joint
venture with Indofood CBP. Indofood CBP derived 7% of its 2016 revenue and 2.5% of its 2016
operating income from snack food.
ICBP’s snack food division has low margins. Its EBIT margin for 2016 was 5.4% vs. 14.3% for
the company as a whole. We forecast an EBIT margin of 4% for 2017, and management guides
for 4-6%. Two forces are at play here – this category is highly competitive and the company
appears to be focusing on volume. It is no surprise to us that margins are lower than those of its
local and international peers.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Top 3 Outside Top 30
20
40
60
80
100
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Orang Tua Sinar Sosro
Tirta Fresindo Beverage Partners
Wings Corp
EQUITIES ● CONSUMER & RETAIL
October 2017
22
In Indonesia, the operating margins of the producers of savoury snacks and confectionary are
similar at about 11%. Globally, savoury food divisions have margins of about 16% and
confectionary food and sweet biscuit producers of about 11%.
We think Indofood CBP’s margins are lower than Indonesian peers’ such as Siantar Top and
Tiga Pilar because:
Higher input costs. ICBP uses higher-priced raw materials (corn flour and potato) than its
rivals, who use lower-priced flour as their product portfolios are weighted towards extruded
snacks.
Focus on volume. Until ICBP’s market share stabilises, we think the company is unlikely to
raise prices. Wings’ recent entry into the savoury snack category (in partnership with
Calbee) is likely to keep ICBP’s focus on volume.
Exhibit 32: Savoury snacks: Comparison of global leaders
Source: Company data, HSBC
Exhibit 33: Savoury snacks – Comparison of global leaders
Company Division Currency
(Local) Sales for 2016
(Local currency) Sales for 2016
(USDm) Operating
margin
Indofood CBP Snack Foods IDRm 2,288,962 172 5% Siantar Top* Consolidated IDRm 2,544,278 191 12% Tiga Pilar Food Manufacturing IDRm 2,497,599 188 19% Universal Robina Branded Consumer Food PHPm 93,231 1,963 14% Want China Rice Crackers RMBm 5,449 820 20% TaoKaeNoi Consolidated THBm 4,705 133 21% PepsiCo Frito Lay North America USDm 15,549 15,549 30% Kellogg’s US Snacks USDm 3,198 3,198 10% Hup Seng Biscuit Manufacturing Division MYRm 209 50 21% Synder's Lance Consolidated USDm 2,109 2,109 5% Average 16%
Note: *For Siantar Top, the numbers are based on annualized 9M2016 financials because the FY12/2016 is not available. Source: Company data, HSBC
0%
5%
10%
15%
20%
25%
30%
35%
0 500 1,000 1,500 2,000 2,500 3,000 3,500
Indofood CBP
15,500
Siantar Top
Tiga Pilar
TaoKaeNoi
Hup Seng
Want Want
Universal Robina
Synder's Lance
Kellogg's
PepsiCo
Sales from savoury snacks division (USDm)
Op
erat
ing
mar
gin
(sav
ou
ry s
nac
ks)
23
EQUITIES ● CONSUMER & RETAIL
October 2017
Exhibit 34A: ICBP – snack food segment; revenue and revenue growth
Exhibit 34B: ICBP – snack food segment: segment EBIT (%)
Source: Company data, HSBC estimates Source: Company data, HSBC estimates
Processed meat and seafood: This category is also highly competitive with the top three
players controlling about 50% of the market. Malvolia/Japfa Comfeed, Charoen Pokphand
Indonesia (CPIN IJ, not rated) and Sierad Produce (SPID IJ, not rated) are integrated players
that also have upstream operations. None of the companies under our ASEAN equity coverage
has a presence in these categories.
Juice: The main competitors are The Coca-Cola Company (KO US, USD45.19, Buy, TP:
USD52), privately-owned Wings Corp, Unilever Indonesia, Kalbe Farma and Takeda
Pharmaceutical. In the past decade, there has been a rise in the popularity of drinks containing
real fruit pulp (Coca-Cola’s Minute Maid and Wings’ Floridina), alternative juices (Kalbe Farma’s
coconut water) and hybrid juices (Takeda Pharmaceutical’s YOU C1000, which combines juice
and isotonic drinks). The big loser has been Unilever Indonesia, which saw its market share fall
from 26.2% in 2007 to 8.9% in 2016, according to Euromonitor. We think UNVR did not react to
the change in trends quickly enough.
-5%
0%
5%
10%
15%
20%
25%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2013 2014 2015 2016 2017e 2018e 2019e
Revenue - Snack Food (IDRbn) - RHSRevenue growth - Snack Food - LHS
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2013 2014 2015 2016 2017e 2018e 2019e
Operating profit margin - Snack Food
EQUITIES ● CONSUMER & RETAIL
October 2017
24
Net cash with good capex and dividend coverage appears key
The four F&B companies we cover all have sound balance sheets, based on their net
debt/equity ratios, cash to market cap levels, capex and dividend coverage as well as working
capital efficiency ratios. We rank both Indofood CBP and Kalbe Farma at 4 out of 5.
Exhibit 35: Balance sheet strength
Scores are 1 through 5 with 5 being the strongest Net debt/
equity
Cash to market
cap
Capex plus dividend
coverage ratio
Inventory turnover
(days)
Receivables turnover
(days)
Payables turnover
(days)
Cash conversion
cycle (days) Score
Indofood CBP (0.37)x 8% 1.76x 48 39 42 46 4 Indofood Sukses Makmur 0.31x 18% 1.36x 65 25 27 63 3 Unilever Indonesia 0.62x 0% 0.88x 43 34 86 (9) 3 Kalbe Farma (0.22)x 4% 1.12x 123 50 42 131 4
Note: Based on 2016 financials. Source: Company data, HSBC estimates
Net debt/equity
Indofood CBP and Kalbe Farma are in net cash positions. Although Unilever Indonesia has the
highest net debt/equity ratio, we are not concerned as we think it is a function of the company’s
high dividend payout ratio (>90% in recent years). Having said that, we think that its low cash
level does prevent UNVR from reacting quickly to market changes.
Cash to market capitalization
Indofood Sukses Makmur maintains the highest cash to market capitalization ratio, ensuring the
company has ample liquidity.
Capex plus dividend coverage ratio
Indofood CBP and Indofood Sukses Makmur maintain higher capex plus dividend coverage
ratios, suggesting that both can use their internal cash to cover their capex and dividend needs.
Unilever Indonesia appears to have a funding gap, based on our analysis, given that its cash
flow from operations (CFFO) falls below its capex and dividend needs.
Cash conversion cycle (days)
Unilever Indonesia operates a negative cash conversion cycle and appears to be the most
efficient in terms of working capital management. We think this is due its ability to stretch
payable days, allowing the company to enjoy favourable payment terms from suppliers. KLBF
has the longest cash conversion cycle, mainly as a result of its long inventory turnover cycle.
Balance sheet strength
Most companies under our coverage could cover their capex and
dividend needs using their cash flows from operations…
…while leverage, as indicated by net debt/equity level, appears to be
generally at manageable levels
Indofood CBP and Kalbe Farma lead on this metric
25
EQUITIES ● CONSUMER & RETAIL
October 2017
Highlighting high returns and strong earnings growth
All four companies we cover generally have good levels of profitability. We look at returns on
assets (ROA), operating income margins, cost efficiency (defined by opex adjusted for
advertising and promotions as a percentage of revenue), historical earnings growth and future
earnings growth. We rank Unilever Indonesia and Kalbe Farma at 5 out of 5.
Exhibit 36: Profitability
Scores are 1 through 5 with 5 being the strongest
Return on Assets
(ROA)
Operating income margin
Cost efficiency (Opex – A&P),
% revenue
Historical earnings growth
(2010-2016 6Yr CAGR)
Earnings growth forecast
(2016-19 3Yr CAGR) Score
Indofood CBP 12% 14% 13% 13% 4% 4 Indofood Sukses Makmur 5% 13% 14% 6% 1% 4 Unilever Indonesia 38% 22% 19% 11% 17% 5 Kalbe Farma 15% 15% 23% 10% 12% 5
Source: Company data, HSBC estimates
Returns on assets (ROA)
Unilever Indonesia and Kalbe Farma register the highest and the second-highest returns on
assets, based on our analysis.
Operating income margin
Unilever Indonesia and Kalbe Farma register the highest and the second-highest operating
income margins, based on our analysis.
Cost efficiency
We define cost efficiency as operating expenses, excluding advertising and promotions
expenses, as a percentage of revenue. We exclude A&P expenses from our definition of cost
efficiency to account for situations in which we may incorrectly favour companies with relatively
low operating expenses because these companies underinvest in A&P expenses, which may
reduce their long-term growth outlook. Indofood CBP and Indofood Sukses Makmur have the
highest levels of cost efficiency, spending 13-14% of their revenues on selling, general and
administrative expenses, based on our analysis.
Historical earnings growth and future earnings growth forecasts
Indofood CBP and Unilever Indonesia registered the highest and second-highest levels of
earnings growth based on our analysis, but we think that the growth outlook is stronger for
Unilever Indonesia and Kalbe Farma (see table for details).
Profitability
Consistent ROAs with double-digit historical earnings growth rates
Companies that score well on profitability have high ROAs and are
expected to register strong double-digit earnings growth
Unilever Indonesia and Kalbe Farma score highest on profitability
EQUITIES ● CONSUMER & RETAIL
October 2017
26
Room for improvement
None of the four companies we cover scores full marks for management and corporate
governance. We looked at the extent of related-party transactions and other well-reported
corporate government incidents. We rank Unilever Indonesia and Kalbe Farma at 4 out of 5.
Exhibit 37: Management/corporate governance
Scores are 1 through 5 with 5 being the strongest
Related-party transactions (source: 2016 annual reports)
Other well-reported
incidents Score
Indofood CBP Sales to related parties: 77% of revenue. Purchases from related parties: 27% of COGS.
3
Indofood Sukses Makmur Sales to related parties: 10% of revenue. Purchases from related parties: 6% of COGS.
3
Unilever Indonesia Sales to related parties: 6% of revenue. Purchases from related parties: 7% of COGS. Royalties (i.e. trademark, technology, and service fees) payments to related parties: 7% of revenue.
4
Kalbe Farma Sales to and purchases from related parties: <1% 4
Source: Company data, HSBC estimates
Related-party transactions
We looked at the extent of related-party transactions as disclosed in the respective companies’
2016 annual reports. Kalbe Farma scored well with sales to and purchases from related parties
contributing 1% of the total.
Other well-reported incidents
We looked at well-reported incidents and the potential impact on the companies.
Indofood Sukses Makmur/Indofood CBP – In a filing to the Hong Kong Stock Exchange on
11 November 2016, First Pacific (142 HK, not rated) stated that Indofood Sukses Makmur had
an agreement with Anthoni Salim-related entities granting them exclusive licences, or sales of
finished goods, subject to caps of USD256m in 2017 (4% of 2016 INDP’s revenue), USD317m
in 2018, and USD387m in 2019. In another filing in Hong Kong on 7 June 2017, First Pacific
stated that Indofood Sukses Makmur had purchased land on which Salim Ivomas’ factory sits
Management/corporate
governance
All four companies we cover have some management/corporate
governance issues, in our view
The companies that score best in our rankings have lower levels of
related-party transactions
Unilever Indonesia and Kalbe Farma score the highest marks
27
EQUITIES ● CONSUMER & RETAIL
October 2017
from Mr Salim. First Pacific is a Hong-Kong listed holding company controlled by Mr Salim, who
holds a portfolio of companies, including Indofood Sukses Makmur and Indofood CBP.
Unilever Indonesia: The service and royalty expenses being charged by the head office
increased from 3.4% of domestic revenue in 2012 to 4.5% in 2013, to 6.0% in 2014 and to 7.4%
in 2015, according to data from the Annual Report.
Kalbe Farma: The company disclosed in its 2015 annual report that it had product recalls. The
products involved were Buvanest and Tranexamic Acid. Following complaints, Kalbe voluntarily
recalled the products and temporarily suspended all production activities at the production line
facility. The production line was reopened by end-2015.
EQUITIES ● CONSUMER & RETAIL
October 2017
28
Valuation and risks
Valuation Risks
Indofood CBP
ICBP IJ
Current price:
IDR8,700
Target price:
IDR7,500
Up/downside:
-13.8%
We value Indofood CBP using a discounted cash flow (DCF)
valuation. Our DCF assumptions are a free cash flow CAGR for
2017-26e of 24.8%, FCF CAGR for 2018-26e of 5.2%, risk free rate
of 2.5%, beta of 1.00, equity risk premium of 6.5%, Indonesia cost of
equity 9.0%, WACC of 9.0%, terminal growth rate of 5% and tax
rate of 25%. Our target price implies 13.8% downside; we rate the
stock Reduce as we think that intensifying competition across
various segments (including instant noodles and snacks) will
increase A&P expenses and translate into higher capex as ICBP
rolls out new products.
Key upside risks: Accretive acquisitions, such as its
acquisition of Milkuat; a strengthening of the IDR against the
USD for which we estimate that every 10% appreciation
against the USD, ICBP’s PBT would rise by 2.2% all other
variables held equal; accelerating economic growth in the
form of faster GDP growth that would boost consumption;
faster non-noodle-division organic growth; and faster
operational profitability growth for the beverages division.
Reduce
Selviana Aripin*, CFA | [email protected] | +65 6658 0610
Indofood
Sukses
Makmur
INDF IJ
Current price:
IDR8,600
Target price:
IDR7,900
Up/downside:
-8.1%
We value Indofood Sukses Makmur using a sum-of-the-parts
approach. We values its two listed subsidiaries, Indofood CBP
Indofood Sukses Makmur, at our target prices. We value the
Bogasari and distribution arm using a discounted cash flow (DCF)
valuation. Our key DCF assumptions are a free cash flow CAGR for
2017-26e of 2.9%, risk free rate of 2.5%, beta of 1.00, equity risk
premium of 6.5%, Indonesia cost of equity of 9.0%, WACC of 8.8%,
terminal growth rate of 5% and tax rate of 25%. We also apply a 15%
conglomerate discount to the resulting fair value to arrive at our target
price of IDR7,900. We apply a 15% discount to account for the lack of
efficiencies in the valuation of conglomerates as well as to take into
account INDF’s corporate governance practices. Our target price
implies 8.1% downside and we downgrade our rating from Buy to
Hold. Our Hold rating reflects the risks associated with the corporate
governance issues and uncertainties around input costs and forex.
Key upside risks: A stronger IDR against major foreign
currencies as we estimate that every 10% appreciation
against the foreign currencies of its borrowings, Indofood’s
PBT would increase by 14.4% all other variables held equal;
stronger production yields from its agri-business unit as well
as a higher average selling price; and decreasing
competition for Bogasari, which could lead to a higher ASP.
Key downside risks: A weakening of the IDR against major
foreign currencies as we estimate that for every 10%
depreciation against the foreign currencies of its borrowings,
Indofood’s PBT would decline by 14.4% all other variables
held equal; weak production yields from its agri-business
unit as well as a lower ASP; and increasing competition for
Bogasari, which could lead to a lower ASP.
Hold
Selviana Aripin*, CFA | [email protected] | +65 6658 0610
Unilever
Indonesia
UNVR IJ
Current price:
IDR50,825
Target price:
IDR45,100
Up/downside:
-11.3%
We value Unilever Indonesia using a discounted cash flow (DCF)
valuation. Our key assumptions are a free cash flow CAGR for
2017-31e of 16.5%, risk free rate of 2.5%, beta 1.00, equity risk
premium of 6.5%, Indonesia cost of equity of 9.0%, WACC of 9.0%,
terminal growth rate of 5% and tax rate 25%. Our price target
implies 11.3% downside; we rate the share Hold because we
believe any expected operational improvements is already mostly
in the price, and while valuations look fairly rich, we believe that
this is sustainable given the company’s strong fundamentals.
Key upside risks: Stronger-than-expected GDP growth may
be positive for consumption and purchasing power;
consolidation or mergers may ease the competitive
environment; improving sentiment towards Indonesia may
result in inflows to the stock given that UNVR has a significant
weighting in JCI; better-than-expected top-line growth and cost
saving initiatives; acquisitions that are earnings accretive may
be positive for Unilever Indonesia; faster-than-expected
penetration; and domination of new product categories.
Key downside risks: Implementation of plastic bottles and
packing; increasing competition particularly in the Food and
Refreshment segment; weaker-than-expected GDP growth
may be negative for consumption; under-investment in
advertising and brand building may be negative for the long-
term growth; failure to consistently innovate and launch new
products/expand existing categories; acquisitions that are
not earnings accretive; and health/food safety issues that
may result in lost revenues, loss of reputation and
impairment of brand values.
Hold
Selviana Aripin*, CFA | [email protected] | +65 6658 0610
Kalbe Farma
KLBF IJ
Current price:
IDR1,675
Target price:
IDR1,800
Up/downside:
+7.5%
We value Kalbe Farma using a discounted cash flow (DCF)
valuation. Our key assumptions are a free cash flow CAGR for
2017-26e of 14.5%, risk free rate of 2.5%, beta of 1.00, equity risk
premium of 6.5%, Indonesian cost of equity of 9.0%, WACC of
9.0%, terminal growth rate of 5% and tax rate of 23%. Our price
target implies 7.5% upside. We rate the share Hold as we expect a
weak outlook in the pharmaceutical segment as the BPJS roll-out
puts pressure on players.
Key upside risks: Accretive transformational acquisitions;
faster organic growth than forecast; strengthening of the IDR
against the USD; better-than-expected implementation of
universal healthcare; limited liberalisation of the
pharmaceutical industry, which would limit competition; and
regulatory reforms friendlier to branded generics.
Key downside risks: Slowing economic growth; weakness
in the IDR/USD; adverse regulatory developments; drug
pricing pressure from universal healthcare; greater
competition; disruptions in the supply chain; and suboptimal
implementation of universal healthcare.
Hold
Selviana Aripin*, CFA | [email protected] | +65 6658 0610
Notes: Priced at 3 October 2017. *Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations. Source: HSBC estimates
29
EQUITIES ● CONSUMER & RETAIL
October 2017
Financial statements
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Profit & loss summary (IDRbn)
Revenue 34,466 37,108 39,432 41,787
EBITDA 5,519 5,534 6,088 6,337
Depreciation & amortisation -754 -818 -1,131 -1,156
Operating profit/EBIT 4,765 4,716 4,958 5,181
Net interest 224 190 127 160
PBT 4,989 4,906 5,085 5,341
HSBC PBT 4,989 4,906 5,085 5,341
Taxation -1,358 -1,335 -1,384 -1,454
Net profit 3,600 3,540 3,669 3,854
HSBC net profit 3,600 3,540 3,669 3,854
Cash flow summary (IDRbn)
Cash flow from operations 4,585 3,830 4,507 4,751
Capex -1,065 -3,537 -1,352 -1,339
Cash flow from investment -1,560 -3,537 -1,352 -1,339
Dividends -1,544 -2,531 -2,496 -2,703
Change in net debt -1,479 2,626 -640 -689
FCF equity 3,320 852 3,479 3,705
Balance sheet summary (IDRbn)
Intangible fixed assets 2,330 2,330 2,330 2,330
Tangible fixed assets 9,369 12,088 12,309 12,492
Current assets 15,571 12,756 13,968 15,243
Cash & others 8,372 5,566 6,309 7,104
Total assets 28,902 28,806 30,239 31,697
Operating liabilities 6,437 5,720 5,921 6,130
Gross debt 2,233 2,053 2,155 2,261
Net debt -6,139 -3,513 -4,154 -4,843
Shareholders' funds 17,564 18,573 19,747 20,898
Invested capital 12,461 15,888 16,377 16,830
Ratio, growth and per share analysis
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Y-o-y % change
Revenue 8.6 7.7 6.3 6.0
EBITDA 20.1 0.3 10.0 4.1
Operating profit 22.2 -1.0 5.1 4.5
PBT 24.4 -1.7 3.6 5.0
HSBC EPS 20.0 -1.7 3.6 5.0
Ratios (%)
Revenue/IC (x) 2.8 2.6 2.4 2.5
ROIC 28.1 24.2 22.4 22.7
ROE 21.8 19.6 19.2 19.0
ROA 13.6 12.9 13.1 13.1
EBITDA margin 16.0 14.9 15.4 15.2
Operating profit margin 13.8 12.7 12.6 12.4
EBITDA/net interest (x)
Net debt/equity -33.2 -18.0 -20.1 -22.2
Net debt/EBITDA (x) -1.1 -0.6 -0.7 -0.8
CF from operations/net debt
Per share data (IDR)
EPS Rep (diluted) 308.73 303.59 314.63 330.51
HSBC EPS (diluted) 308.73 303.59 314.63 330.51
DPS 127.46 217.06 214.00 231.76
Book value 1506.10 1592.63 1693.26 1792.00
Key forecast drivers
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Noodles revenue 22,167 23,054 23,976 24,935
Dairy revenue 6,803 7,415 8,083 8,810
Food seasoning revenue 873 943 1,018 1,100
Snack food revenue 2,289 2,770 3,157 3,473
Nutrition & drinks revenue 2,334 2,926 3,197 3,469
Total 34,466 37,108 39,432 41,787
Valuation data
Year to 12/2016a 12/2017e 12/2018e 12/2019e
EV/sales 2.7 2.6 2.5 2.3
EV/EBITDA 17.1 17.6 15.9 15.1
EV/IC 7.6 6.1 5.9 5.7
PE* 28.2 28.7 27.7 26.3
PB 5.8 5.5 5.1 4.9
FCF yield (%) 3.3 0.8 3.5 3.7
Dividend yield (%) 1.5 2.5 2.5 2.7
* Based on HSBC EPS (diluted)
Issuer information
Share price (IDR) 8700.00 Free float 19%
Target price (IDR) 7500.00 Sector Food Products
Reuters (Equity) ICBP.JK Country Indonesia
Bloomberg (Equity) ICBP IJ Analyst Selviana Aripin, CFA
Market cap (USDm) 7,504 Contact +65 6658 0610
ESG metrics
Environmental Indicators Governance Indicators
GHG Intensity (kg/USD) n/a No. of board members 6
Energy Intensity (kWh/USD) n/a Average board experience (years) 6
CO2 reduction policy No Female board members (%) 0
Social Indicators Board members Independence (%) 50
Employee costs as % of sales n/a
Employee turnover (%) n/a
Diversity policy No
Source: Company data, HSBC
Price relative
Source: HSBC Note: Priced at close of 03 Oct 2017
5000.00
6000.00
7000.00
8000.00
9000.00
10000.00
11000.00
5000.00
6000.00
7000.00
8000.00
9000.00
10000.00
11000.00
01/15 07/15 12/15 06/16 12/16 06/17
Indofood CBP Rel to JAKARTA S E COMPOSITE
Financials & valuation: Indofood CBP Reduce
EQUITIES ● CONSUMER & RETAIL
October 2017
30
Financial statements
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Profit & loss summary (IDRbn)
Revenue 66,750 70,403 74,278 77,928
EBITDA 11,109 11,680 12,496 12,891
Depreciation & amortisation -2,655 -2,719 -2,868 -3,026
Operating profit/EBIT 8,454 8,960 9,628 9,865
Net interest -654 -1,018 -1,710 -1,771
PBT 7,800 7,943 7,918 8,094
HSBC PBT 7,800 7,943 7,918 8,094
Taxation -2,533 -2,527 -2,519 -2,575
Net profit 4,145 4,334 4,320 4,416
HSBC net profit 4,145 4,334 4,320 4,416
Cash flow summary (IDRbn)
Cash flow from operations 10,346 11,203 11,990 12,415
Capex -3,297 -1,407 -1,492 -1,405
Cash flow from investment -849 -1,407 -1,492 -1,405
Dividends -1,965 -2,591 -2,631 -2,825
Change in net debt -4,903 197 199 188
FCF equity 3,862 6,252 6,270 6,664
Balance sheet summary (IDRbn)
Intangible fixed assets 6,307 6,307 6,307 6,307
Tangible fixed assets 43,607 45,527 47,564 49,483
Current assets 28,985 30,420 31,955 33,400
Cash & others 13,896 14,615 15,390 16,120
Total assets 82,175 85,530 89,101 92,466
Operating liabilities 15,816 16,513 17,421 18,277
Gross debt 22,417 23,333 24,307 25,225
Net debt 8,521 8,718 8,917 9,105
Shareholders' funds 28,974 30,124 31,237 32,286
Invested capital 49,187 51,126 53,014 54,793
Ratio, growth and per share analysis
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Y-o-y % change
Revenue 4.2 5.5 5.5 4.9
EBITDA 11.6 5.1 7.0 3.2
Operating profit 12.6 6.0 7.4 2.5
PBT 43.4 1.8 -0.3 2.2
HSBC EPS 39.6 4.6 -0.3 2.2
Ratios (%)
Revenue/IC (x) 1.3 1.4 1.4 1.4
ROIC 11.0 12.2 12.6 12.5
ROE 14.7 14.7 14.1 13.9
ROA 7.3 7.8 8.0 7.9
EBITDA margin 16.6 16.6 16.8 16.5
Operating profit margin 12.7 12.7 13.0 12.7
EBITDA/net interest (x) 17.0 11.5 7.3 7.3
Net debt/equity 19.4 19.1 18.8 18.6
Net debt/EBITDA (x) 0.8 0.7 0.7 0.7
CF from operations/net debt 121.4 128.5 134.5 136.3
Per share data (IDR)
EPS Rep (diluted) 472.02 493.55 491.98 502.94
HSBC EPS (diluted) 472.02 493.55 491.98 502.94
DPS 223.76 295.05 299.67 321.78
Book value 3299.87 3430.76 3557.56 3677.01
Key forecast drivers
Year to 12/2016a 12/2017e 12/2018e 12/2019e
CBP revenue 34,110 36,724 39,024 41,355
Bogasari revenue 18,934 19,502 20,087 20,690
Agribusiness revenue 14,467 15,007 16,073 16,829
Distribution revenue 5,334 5,600 5,880 6,174
Total 66,750 70,403 74,278 77,928
Valuation data
Year to 12/2016a 12/2017e 12/2018e 12/2019e
EV/sales 1.4 1.4 1.3 1.3
EV/EBITDA 8.6 8.3 7.8 7.6
EV/IC 1.9 1.9 1.8 1.8
PE* 18.2 17.4 17.5 17.1
PB 2.6 2.5 2.4 2.3
FCF yield (%) 4.4 7.1 7.1 7.5
Dividend yield (%) 2.6 3.4 3.5 3.7
* Based on HSBC EPS (diluted)
Issuer information
Share price (IDR) 8600.00 Free float 50%
Target price (IDR) 7900.00 Sector Food Products
Reuters (Equity) INDF.JK Country Indonesia
Bloomberg (Equity) INDF IJ Analyst Selviana Aripin, CFA
Market cap (USDm) 5,585 Contact +65 6658 0610
ESG metrics
Environmental Indicators Governance Indicators
GHG Intensity (kg/USD) n/a No. of board members 8
Energy Intensity (kWh/USD) n/a Average board experience (years) 10
CO2 reduction policy No Female board members (%) 0
Social Indicators Board members Independence (%) 38
Employee costs as % of sales n/a
Employee turnover (%) n/a
Diversity policy No
Source: Company data, HSBC
Price relative
Source: HSBC Note: Priced at close of 03 Oct 2017
4100.00
5100.00
6100.00
7100.00
8100.00
9100.00
4100.00
5100.00
6100.00
7100.00
8100.00
9100.00
01/15 07/15 12/15 06/16 12/16 06/17
Indofood Sukses Makmur Rel to JAKARTA S E COMPOSITE
Financials & valuation: Indofood Sukses Makmur Hold
31
EQUITIES ● CONSUMER & RETAIL
October 2017
Financial statements
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Profit & loss summary (IDRbn)
Revenue 40,054 44,784 50,783 58,246
EBITDA 9,258 11,176 12,866 15,273
Depreciation & amortisation -551 -714 -794 -873
Operating profit/EBIT 8,708 10,462 12,072 14,400
Net interest -136 -167 -171 -169
PBT 8,572 10,294 11,901 14,231
HSBC PBT 8,572 10,294 11,901 14,231
Taxation -2,181 -2,620 -3,028 -3,621
Net profit 6,391 7,675 8,873 10,610
HSBC net profit 6,391 7,675 8,873 10,610
Cash flow summary (IDRbn)
Cash flow from operations 6,813 9,782 11,489 12,267
Capex -1,787 -1,523 -1,523 -1,456
Cash flow from investment -1,779 -1,523 -1,523 -1,456
Dividends -5,843 -7,368 -8,518 -10,185
Change in net debt 1,544 -189 -728 8
FCF equity 4,911 8,260 9,966 10,811
Balance sheet summary (IDRbn)
Intangible fixed assets 472 451 429 408
Tangible fixed assets 9,529 10,359 11,110 11,715
Current assets 6,588 7,242 8,591 10,001
Cash & others 374 837 1,879 2,302
Total assets 16,746 18,227 20,329 22,351
Operating liabilities 8,485 10,087 12,238 14,036
Gross debt 3,456 3,730 4,044 4,476
Net debt 3,082 2,893 2,166 2,174
Shareholders' funds 4,704 4,298 3,919 3,693
Invested capital 7,730 7,129 6,014 5,786
Ratio, growth and per share analysis
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Y-o-y % change
Revenue 9.8 11.8 13.4 14.7
EBITDA 9.6 20.7 15.1 18.7
Operating profit 9.7 20.1 15.4 19.3
PBT 9.5 20.1 15.6 19.6
HSBC EPS 9.2 20.1 15.6 19.6
Ratios (%)
Revenue/IC (x) 5.7 6.0 7.7 9.9
ROIC 92.2 105.2 137.2 182.2
ROE 134.1 170.5 216.0 278.8
ROA 40.0 44.6 46.7 50.4
EBITDA margin 23.1 25.0 25.3 26.2
Operating profit margin 21.7 23.4 23.8 24.7
EBITDA/net interest (x) 68.2 66.9 75.3 90.4
Net debt/equity 65.5 67.3 55.3 58.9
Net debt/EBITDA (x) 0.3 0.3 0.2 0.1
CF from operations/net debt 221.0 338.1 530.5 564.3
Per share data (IDR)
EPS Rep (diluted) 837.57 1005.89 1162.91 1390.55
HSBC EPS (diluted) 837.57 1005.89 1162.91 1390.55
DPS 765.82 965.65 1116.39 1334.92
Book value 616.55 563.25 513.64 483.99
Key forecast drivers
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Home and Personal Care revenue
(IDRbn)
27,697 30,390 33,959 38,514
Food and Refreshment revenue
(IDRbn)
12,356 14,394 16,825 19,732
Total revenue (IDRbn) 40,054 44,784 50,783 58,246
Gross profit (IDRbn) 20,459 23,323 26,447 30,334
EBIT (IDRbn) 8,708 10,462 12,072 14,400
Valuation data
Year to 12/2016a 12/2017e 12/2018e 12/2019e
EV/sales 9.8 8.7 7.7 6.7
EV/EBITDA 42.2 35.0 30.3 25.5
EV/IC 50.6 54.8 64.8 67.4
PE* 60.7 50.5 43.7 36.6
PB 82.4 90.2 99.0 105.0
FCF yield (%) 1.3 2.1 2.6 2.8
Dividend yield (%) 1.5 1.9 2.2 2.6
* Based on HSBC EPS (diluted)
Issuer information
Share price (IDR) 50825.00 Free float 15%
Target price (IDR) 45100.00 Sector Personal Products
Reuters (Equity) UNVR.JK Country Indonesia
Bloomberg (Equity) UNVR IJ Analyst Selviana Aripin, CFA
Market cap (USDm) 28,683 Contact +65 6658 0610
ESG metrics
Environmental Indicators Governance Indicators
GHG Intensity (kg/USD) n/a No. of board members 5
Energy Intensity (kWh/USD) n/a Average board experience (years) 5
CO2 reduction policy No Female board members (%) 0
Social Indicators Board members Independence (%) 80
Employee costs as % of sales 4.3
Employee turnover (%) n/a
Diversity policy No
Source: Company data, HSBC
Price relative
Source: HSBC Note: Priced at close of 03 Oct 2017
29000.00
34000.00
39000.00
44000.00
49000.00
54000.00
29000.00
34000.00
39000.00
44000.00
49000.00
54000.00
01/15 07/15 12/15 06/16 12/16 06/17
Unilever Indonesia Rel to JAKARTA S E COMPOSITE
Financials & valuation: Unilever Indonesia Hold
EQUITIES ● CONSUMER & RETAIL
October 2017
32
Financial statements
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Profit & loss summary (IDRbn)
Revenue 19,374 21,118 23,230 26,017
EBITDA 3,421 3,797 4,169 4,782
Depreciation & amortisation -434 -480 -528 -591
Operating profit/EBIT 2,987 3,317 3,641 4,190
Net interest 104 102 115 133
PBT 3,091 3,419 3,756 4,323
HSBC PBT 3,091 3,419 3,756 4,323
Taxation -740 -819 -900 -1,035
Net profit 2,300 2,531 2,780 3,200
HSBC net profit 2,300 2,531 2,780 3,200
Cash flow summary (IDRbn)
Cash flow from operations 2,485 2,946 3,158 3,483
Capex -1,039 -935 -898 -1,027
Cash flow from investment -1,015 -835 -785 -898
Dividends -902 -878 -1,062 -1,089
Change in net debt -282 -262 -321 -424
FCF equity 1,187 1,709 1,959 2,155
Balance sheet summary (IDRbn)
Intangible fixed assets 400 436 480 537
Tangible fixed assets 5,253 6,188 7,086 8,112
Current assets 9,573 10,379 11,357 12,647
Cash & others 2,896 3,156 3,472 3,888
Total assets 15,226 17,004 18,922 21,297
Operating liabilities 2,469 2,597 2,802 3,072
Gross debt 291 289 284 277
Net debt -2,605 -2,867 -3,188 -3,612
Shareholders' funds 11,909 13,562 15,281 17,392
Invested capital 9,862 11,250 12,648 14,336
Ratio, growth and per share analysis
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Y-o-y % change
Revenue 8.3 9.0 10.0 12.0
EBITDA 12.6 11.0 9.8 14.7
Operating profit 12.2 11.1 9.8 15.1
PBT 13.6 10.6 9.9 15.1
HSBC EPS 14.7 10.1 9.9 15.1
Ratios (%)
Revenue/IC (x) 2.1 2.0 1.9 1.9
ROIC 24.9 24.2 23.5 24.0
ROE 20.6 19.9 19.3 19.6
ROA 16.4 16.3 16.0 16.5
EBITDA margin 17.7 18.0 17.9 18.4
Operating profit margin 15.4 15.7 15.7 16.1
EBITDA/net interest (x)
Net debt/equity -20.9 -20.3 -20.1 -20.1
Net debt/EBITDA (x) -0.8 -0.8 -0.8 -0.8
CF from operations/net debt
Per share data (IDR)
EPS Rep (diluted) 49.06 54.00 59.32 68.26
HSBC EPS (diluted) 49.06 54.00 59.32 68.26
DPS 18.25 18.73 22.65 23.23
Book value 254.06 289.33 326.00 371.03
Key forecast drivers
Year to 12/2016a 12/2017e 12/2018e 12/2019e
Prescription pharmaceuticals 4,468 4,752 5,111 5,854
Consumer Health 3,408 3,801 4,251 4,761
Nutritionals 5,611 6,335 7,201 8,326
Distribution and logistics 5,888 6,230 6,667 7,077
Total 19,374 21,118 23,230 26,017
Valuation data
Year to 12/2016a 12/2017e 12/2018e 12/2019e
EV/sales 3.9 3.6 3.3 2.9
EV/EBITDA 22.3 20.1 18.2 15.8
EV/IC 7.8 6.8 6.0 5.3
PE* 34.1 31.0 28.2 24.5
PB 6.6 5.8 5.1 4.5
FCF yield (%) 1.5 2.2 2.5 2.7
Dividend yield (%) 1.1 1.1 1.4 1.4
* Based on HSBC EPS (diluted)
Issuer information
Share price (IDR) 1675.00 Free float 43%
Target price (IDR) 1800.00 Sector Pharmaceuticals
Reuters (Equity) KLBF.JK Country Indonesia
Bloomberg (Equity) KLBF IJ Analyst Selviana Aripin, CFA
Market cap (USDm) 5,807 Contact +65 6658 0610
ESG metrics
Environmental Indicators Governance Indicators
GHG Intensity (kg/USD) n/a No. of board members 7
Energy Intensity (kWh/USD) n/a Average board experience (years) n/a
CO2 reduction policy Yes Female board members (%) 14
Social Indicators Board members Independence (%) 43
Employee costs as % of sales 9.8
Employee turnover (%) n/a
Diversity policy No
Source: Company data, HSBC
Price relative
Source: HSBC Note: Priced at close of 03 Oct 2017
1000.00
1200.00
1400.00
1600.00
1800.00
2000.00
1000.00
1200.00
1400.00
1600.00
1800.00
2000.00
01/15 07/15 12/15 06/16 12/16 06/17
Kalbe Farma Rel to JAKARTA S E COMPOSITE
Financials & valuation: Kalbe Farma Hold
33
EQUITIES ● CONSUMER & RETAIL
October 2017
Combining Framework 1 and Framework 2
We have taken a look at the various food categories in Indonesia. We divided the F&B
industries into four different categories determined by the product category’s level of
competition within the category and its historical growth level. We believe the level of
competition within the product category is an indication of the level of the barriers to entry
(Metric 1 of the framework) while the growth level is an indication of the degree to which
structural changes (Metric 2 of the framework) are benefitting products within this category.
We define a high-growth product category to be a product category where its 5-year CAGR is
less than 11.7% and low-growth product category to be a product category where its 5-year
CAGR is 11.7% or higher. We define a high-competition product category to be a product
category where its HHI score is below 0.15 and low-competition product category to be a
product category where its HHI score is 0.15 or higher.
Based on the definition above, we arrive at these four quadrants:
Quadrant 1 – Categories with high growth and aggressive competition
Within the food sector, the categories that fall into this quadrant include 1) dairy, 2) processed
meat and seafood, and 3) sauces, dressing, and condiments. Within the beverage sector, no
specific categories fall into this quadrant.
Listed Indonesian F&B companies with exposure to this quadrant include Indofood CBP,
Ultrajaya (ULTJ IJ, not rated), Malvolia/Japfa Comfeed (JPFA IJ, not rated), Charoen Pokphand
Indonesia (CPIN IJ, not rated) and Sierad Produce (SPID IJ, not rated).
Quadrant 2 – Categories with high growth and benign competition
This is the sweet spot. However, this is also a category likely to draw future competition.
Within the food sector, categories that fall into this quadrant include 1) baby food, 2) breakfast
cereals, 3) ice cream and frozen desserts and 4) soup. Within the beverage sector, categories that
fall into this quadrant include 1) juice, 2) RTD coffee, 3) Asian specialty drinks and (4) coffee.
Listed Indonesian F&B companies with exposure to this quadrant include Kalbe Farma and
Unilever Indonesia.
Quadrant 3 – Categories with low growth and aggressive competition
Within the food sector, categories that fall into this quadrant include 1) confectionery,
2) processed fruit and vegetables, 3) savoury snacks, 4) spreads, and 5) sweet biscuits, snack
bars, and fruit snacks. Within the beverage sector, categories that fall into this quadrant include
1) concentrates, 2) tea and 3) other hot drinks.
Listed Indonesian F&B companies with exposure to this quadrant include Indofood CBP,
Mayora (MYOR IJ, not rated), Tiga Pilar (AISA IJ, not rated), Siantar Top (STTP IJ, not rated),
Kalbe Farma, Indofood CBP, Unilever Indonesia, Sido Muncul (SIDO IJ, not rated) and Delfi
Appendix 1
EQUITIES ● CONSUMER & RETAIL
October 2017
34
(DELFI SP, not rated). Universal Robina (URC PM, PHP152.50, Hold, TP: PHP153) also falls
into this category.
Quadrant 4 – Categories with low growth and benign competition
Within the food sector, categories that fall into this quadrant include 1) instant noodles, 2) baked
goods, 3) edible oils and 4) ready meals. Within the beverage sector, categories that fall into
this quadrant include: 1) bottled water, 2) carbonates, 3) RTD tea, 4) sports and energy drinks.
Listed Indonesian F&B companies with exposure to this quadrant include Indofood CBP and
Indofood Sukses Makmur.
35
EQ
UIT
IES
● C
ON
SU
ME
R &
RE
TA
IL
Octo
be
r 2017
Exhibit 38: Indonesian food sector (HHI, historical 5-yr CAGR, size of industry in IDRbn)
Source: Euromonitor, HSBC
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65
Spreads(0.1496), (11%), (1,399)
Processed Meat and Seafood(0.1088), (17%), (19,342)
Dairy(0.1067), (13%), (28,107)
Soup(0.1824), (14%), (81)
Baby Food(0.1885), (12%), (36,571)
Baked Goods(0.2500), (11%), (30,796)
Breakfast Cereals(0.4133), (16%), (979)
Ice Cream and Frozen Desserts(0.5206), (18%), (5,654)
Noodles(0.5309), (11%), (30,487)
Edible Oils(0.2499), (6%), (10,514)
Confectionary(0.0906), (9%), (25,260)
Savoury Snacks(0.0664), (10%), (18,814)
Sauces, Dressings and Condiments(0.1336), (13%), (16,602)
Sweet Biscuits, Snack Bars and Fruit Snacks(0.1054), (10%), (14,279)
Processed Fruit and Vegetables(0.0958), (9%), (535)
Ready Meals(0.2324), (11%), (81)
5Y
rgro
wth
HHIIndustry size (IDRbn)
Quadrant 2
Quadrant 3
Quadrant 1
Quadrant 4
36
EQ
UIT
IES
● C
ON
SU
ME
R &
RE
TA
IL
Octo
be
r 2017
Exhibit 39: Indonesian beverage sector (HHI, historical 5-yr CAGR, size of industry in IDRbn)
Source: Euromonitor, HSBC
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.75
5Y
rgro
wth
HHIIndustry size (IDRbn)
RTD Coffee(0.3325), (42%), (2,461)
Juice(0.2538), (27%), (8,796)
Asian Speciality Drinks(0.3162), (29%), (3,646)
Bottled Water(0.3326), (14%), (29,741)
RTD Tea(0.1790), (12%), (18,492)
Sports and Energy Drinks(0.2787), (12%), (9,881)
Concentrates(0.0974), (5%), (8,488)
Carbonates(0.6144), (8%), (11,203)
Coffee(0.2697), (19%), (37,526)
Other hot drinks(0.1333), (12%), (12,368)
Tea(0.1333), (11%), (10,017)
Quadrant 3
Quadrant 4
Quadrant 1 Quadrant 2
37
EQUITIES ● CONSUMER & RETAIL
October 2017
The macro backdrop
Our economics team forecasts Indonesia’s GDP to grow at a faster rate of 5.2% in 2017 from
5.0% in 2016. After the GDP growth forecast for 2017 registered a downgrade in 2Q 2016 it
received a 0.1% upgrade in 2Q 2017 with consumer confidence at a recent high at 126 points.
In spite of that, demand appears soft with inflation at a benign level of 4.2% so far in 2017 and
corporate earnings for 2017 being 0.5% lower today vs 12 months ago.
Exhibit 40: Indonesia – GDP growth rate
Source: HSBC forecasts
Exhibit 41A: Indonesia GDP growth revision, 2017F
Exhibit 41B: Indonesia GDP growth revision, 2018F
Source: HSBC Source: HSBC
6.2% 6.0%5.6%
5.0% 4.9% 5.0% 5.2% 5.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2011 2012 2013 2014 2015 2016 2017f 2018f
Indonesia - GDP growth
5.3% -0.2%
5.2%
+0.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17Indonesia GDP revision (2017f)
5.3% 5.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
3Q16 4Q16 1Q17 2Q17Indonesia GDP revision (2018f)
Appendix 2
EQUITIES ● CONSUMER & RETAIL
October 2017
38
Exhibit 42: Indonesia: Consumer confidence index
Source: HSBC, Bank Indonesia Consumer Confidence
Exhibit 43: Indonesia: Inflation
Source: CEIC, HSBC estimates
Exhibit 44A: Indonesia consumer companies’ EPS revisions (market cap > USD500m) – market cap weighted average
Exhibit 44B: Indonesian consumer companies’ EPS revisions (market cap > USD500m) – simple average
Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream
103
117 116 117 117108
115126
0
20
40
60
80
100
120
140
2010 2011 2012 2013 2014 2015 2016 2017*
Indonesia - Consumer Confidence Index (as at 31 Dec)
5.3%
4.0%
6.4% 6.4% 6.4%
3.5%
4.2%3.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2011 2012 2013 2014 2015 2016 2017f 2018f
Indonesia - Headline CPI, average (% y-o-y)
98
99
100
101
102
103
Jul-16 Oct-16 Jan-17 Apr-17 Jul-17
Weekly EPS revision (Market cap weighted average)
87
90
93
96
99
102
Jul-16 Oct-16 Jan-17 Apr-17 Jul-17
Weekly EPS revision (Simple average)
39
EQUITIES ● CONSUMER & RETAIL
October 2017
Valuation and risks: Other stocks mentioned
Valuation Risks
Uni-President
China
220 HK
Current price:
HKD7.70
Target price:
HKD8.80
Up/downside:
+13.7%
We value Uni-President China using three-stage discounted cash
flow (DCF) model. For stage one, we forecast revenue CAGR of
3% and NOPLAT CAGR of 39% over 2017-19e. For stage 2, we
use a semi-explicit period of seven years (2020-26e) with revenue
CAGR of 6% and a NOPLAT CAGR of 10%. For stage 3, we use a
terminal growth rate of 1%. Our WACC of 7.2% is based on cost of
equity of 7.8% (risk-free rate: 2.5%, beta: 0.90, equity risk
premium: 6.0%), cost of debt of 5.0% and debt-to-equity ratio of
18%. Our TP of HKD8.80 implies 13.7% upside to the curent
market price. We have a Buy rating on the stock as we see
earnings upside and believe further margin expansion in the
upcoming results would support higher valuation.
Key downside risks include lower-than-expected margin
expansion, unsuccessful new products roll-outs and a
worse-than-expected pricing environment.
Buy
Christopher K Leung* | [email protected] | +852 2996 6531
CJCJ
097950 KS
Current price:
KRW354,500
Target price:
KRW480,000
Up/downside:
+35.4%
We use a sum-of-the-parts (SOTP) approach and see fair value at
an unchanged EV/EBITDA 2017e target multiple of 11.0x – the
company’s average multiple since the holding company structure
was introduced in 2007. We separately value the overseas bio
affiliates by applying an unchanged target 2017e PE multiple of
17.8x, using Ajinomoto’s oneyear average trading band. We no
longer include the value Samsung Life shares in SOTP valuation
approach. This leads to a target price of KRW480,000 which
implies 35.4% upside from the current price and we have a Buy
rating on the stock.
Key downside risks include a sharp surge in grain prices,
depreciation of the KRW against the USD and delays in
lysine or other bio price recovery.
Buy
Karen Choi* | [email protected] | +822 3706 8781
*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations Priced at 3 Oct 2017 Source: HSBC estimates
EQUITIES ● CONSUMER & RETAIL
October 2017
40
Notes
41
EQUITIES ● CONSUMER & RETAIL
October 2017
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s)
whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering
analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or
issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any
other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately
reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Selviana Aripin, CFA and Karen Choi
Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's
existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons
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From 23rd March 2015 HSBC has assigned ratings on the following basis:
The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12
months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will
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Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage,
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Prior to this date, HSBC’s rating structure was applied on the following basis:
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*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12
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however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
EQUITIES ● CONSUMER & RETAIL
October 2017
42
Rating distribution for long-term investment opportunities
As of 06 October 2017, the distribution of all independent ratings published by HSBC is as follows:
For the purposes of the distribution above the following mapping structure is used during the transition from the previous to
current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current
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for financial analysis” above.
For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at
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Information regarding company share price performance and history of HSBC ratings and target prices in respect of long-term
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To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please
use the following links to access the disclosure page:
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HSBC & Analyst disclosures
Disclosure checklist
Company Ticker Recent price Price date Disclosure
CJ CHEIL JEDANG 097950.KS 354500.00 05 Oct 2017 1, 4, 5 KALBE FARMA KLBF.JK 1680.00 05 Oct 2017 7 UNI-PRESIDENT CHINA 0220.HK 7.70 05 Oct 2017 6 UNILEVER INDONESIA UNVR.JK 50100.00 05 Oct 2017 7
Source: HSBC
1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.
2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3
months.
3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
4 As of 31 August 2017 HSBC beneficially owned 1% or more of a class of common equity securities of this company.
5 As of 31 August 2017, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of investment banking services.
6 As of 31 August 2017, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
7 As of 31 August 2017, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-securities services.
8 A covering analyst/s has received compensation from this company in the past 12 months.
9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below.
10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below.
11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company
12 As of 02 Oct 2017, HSBC beneficially held a net long position of more than 0.5% of this company’s total issued share
capital, calculated according to the SSR methodology.
Buy 45% ( 27% of these provided with Investment Banking Services )
Hold 41% ( 24% of these provided with Investment Banking Services )
Sell 14% ( 17% of these provided with Investment Banking Services )
43
EQUITIES ● CONSUMER & RETAIL
October 2017
13 As of 02 Oct 2017, HSBC beneficially held a net short position of more than 0.5% of this company’s total issued share
capital, calculated according to the SSR methodology. HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt
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Additional disclosures
1. This report is dated as at 06 October 2017.
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EQUITIES ● CONSUMER & RETAIL
October 2017
44
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[909501]
Europe
Consumer Brands & Retail
Global Head of Consumer Brands & Retail Research Antoine Belge +33 1 56 52 43 47 [email protected]
Analyst Anne-Laure Bismuth +44 207 991 6587 [email protected]
Head of Consumer Retail, Europe David McCarthy +44 207 992 1326 [email protected]
Analyst Andrew Porteous +44 20 7992 4647 [email protected]
Analyst Paul Rossington +44 20 7991 6734 [email protected]
Analyst Emmanuelle Vigneron +33 1 56 52 43 19 [email protected]
Analyst Lena Thakkar +44 20 7991 3448 [email protected]
Analyst Joe Thomas +44 20 7992 3618 [email protected]
Analyst Ali Naqvi +44 20 3359 4068 [email protected]
CEEMEA
Consumer Brands & Retail
Analyst Bulent Yurdagul +90 212 3764612 [email protected]
Analyst Jeanine Womersley +27 21 6741082 [email protected]
Analyst Ankur P Agarwal +971 4 423 6558 [email protected]
Asia
Consumer Brands & Retail
Head of Consumer Brands and Retail Equity Research, Asia-Pacific Karen Choi +822 3706 8781 [email protected]
Analyst John Chung +8862 6631 2868 [email protected]
Analyst Jeremy Chen +8862 6631 2866 [email protected]
Analyst Christopher Leung +852 2996 6531 [email protected]
Analyst Lina Yan +852 2822 4344 [email protected]
Analyst Scott Chan +852 3941 7005 [email protected]
Associate Alexis Yan +852 2996 6570 [email protected]
Analyst Selviana Aripin +65 6658 0610 [email protected]
Analyst Amit Sachdeva +91 22 2268 1240 [email protected]
Analyst Kuldeep Gangwar +91 22 3396 0686 [email protected]
Associate Jenny Chae +822 3706 8774 [email protected]
Gaming
Head of Gaming Research, Asia-Pacific Charlene Liu +65 6658 0615 [email protected]
Analyst Scott Chan +852 3941 7005 [email protected]
North & Latin America
Consumer & Retail
Global Head of Consumer Brands & Retail Research Erwan Rambourg +1 212 525 8393 [email protected]
Analyst Ravi Jain +1 212 525 3442 [email protected]
Analyst Thor Solanes +52 55 5721 2308 [email protected]
Food & Beverage
Global Head of Beverages Research Carlos Laboy +1 212 525 6972 [email protected]
Botir Sharipov, CFA +1 212 525 5150 [email protected]
Abribusiness
Analyst Alexandre Falcao +1 212 525 4449 [email protected]
Analyst Augusto A Ensiki +1 212 525 4915 [email protected]
Analyst Mauricio Arellano +52 55 5721 3863 [email protected]
Ricardo N Rezende, CFA +44 203 268 3325 [email protected]
Specialist Sales
David Harrington +44 20 7991 5389 [email protected]
Jean Gael Tabet +44 20 7991 5342 [email protected]
Global Consumer Brands & Retail Research Team
Indonesia Food & B
everagesO
ctober 2017Equities // C
onsumer &
Retail
*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations.
Main contributors
Issuer of report:The Hongkong and Shanghai Banking Corporation Limited
Singapore Branch21 Collyer Quay #03-01
HSBC BuildingSingapore 049320
Website: www.research.hsbc.com
Selviana Aripin*, CFA Analyst The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch +65 6658 0610 | [email protected]
Selviana Aripin joined HSBC as a consumer analyst covering ASEAN markets in September 2015. She has worked as an equity analyst since 2007. Selviana holds a masters in finance from London Business School and bachelor’s degree in accountancy from Singapore Management University. She is a chartered accountant (Singapore) and a CFA charterholder.
Karen Choi* Head of Consumer and Retail Research, Asia-Pacific The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch +822 3706 8781 | [email protected]
Karen Choi joined HSBC in 2010 and is Head of Consumer and Retail Research, Asia-Pacific. In addition to coordinating our pan-Asia coverage of consumer and retail equities, she covers Korean consumer stocks. Prior to joining HSBC, she covered food and beverage, and tobacco stocks at a leading brokerage in Seoul, a role in which she was ranked a top analyst by a Korean business daily. She has a bachelor’s degree in English literature and psychology from Yonsei University, Seoul.