ICBP - Recovery momentum to continue

KBVS Update
Monday, 14 Aug 23

ICBP: Recovery momentum to continue
(Maintain BUY; TP: IDR13,650)

-    We like ICBP's mid-year 2023 earnings result (+196.6% yoy) which beats both ours and street expectations. We also expect solid margin improvement to continue in 2H23 underpinned by expectation of easing commodity price. Aside from this, we also think that the upcoming election will also play noteworthy role to boost consumer spending.

-    Entering into 2H23, we believe KBVS and cons ‘23F earnings for ICBP now looks more effortlessly to achieved. Using both ‘3Q23F and ‘4Q23 of ours/street estimates, ICBP 2023 earnings would arrives at IDR9.56 tn/IDR9.66 tn, or 2.5%/2.6% higher than the ‘23F figures of IDR9.33 tn/ IDR9.41 tn, while using the based figure, ICBP would only need to book run-rate earnings of ours and cons. estimates at 38.7%/ 39.2% in 2H23, or far below its 5yr hist. run rate of 51%. This scenario is equal to a superb earnings growth of 87.1% yoy/91.3% yoy.

-    Softening cost input to continue. Wheat, CPO and skimmed milk prices continue to walking within their downhill track, with year-to-date drop of around 18.2%, 9.0% and 18.9%, respectively and this will benefit ICBP.

-    We revisiting our model to accommodate ICBP’s 1H23 robust earnings growth. Our new ‘23F/’24F net revenue for ICBP of IDR71.69 tn/IDR78.62 tn. We came up with higher ‘23F/’24F earnings growth forecast of 104.7% yoy/7.2% yoy (cons: 105.3% yoy/6.3% yoy), while net margin is expected to expand to 13.1%/12.8% (cons: 13.2%/12.9%)

-    Maintain BUY with higher target price of IDR13,650 (implying 17.0x/15.8x ‘23F/24F PE) while currently trading at 14.2x/13.3x ‘23F/’24F PE, below -1SD 5-yr hist of 15.8x. Risks to our call: a) lower-than-expected purchasing power, sales volume and ASP adjustment, b) higher-than-expected soft commodity prices (Wheat & CPO), c) Depreciating Rupiah that will increase forex loss and interest expenses.

Regards,
Akhmad Nurcahyadi - KBVS Research