Bareksa.com - We continue to recommend SELL on INDF with a new TP of Rp 6.175 (previous Rp 5.900). The results of the performance of sales/net profit in 2013 above our projections, but we are worried about the high increase in debt (especially its foreign currency debt). DER ratio increased to 1,04x from 0,74 x. Currency debt rose 341%, with a portion of the total debt reached 44% (vs. 23% in 2012).

INDF revenue in 2013, an increase of 15,3% to Rp 57,7 tn. These results performed 106%/103% of our forecast/consensus. Highest growth segment of Bogasari by 18,7% to Rp 15 tn, followed consummer branded grew 14% to Rp 24,6 tn. Distribution segment grew 15,6% to Rp 4,5 tn. Agribusiness segment, down -4,7% to Rp 11,5 tn. In second half of 2013, INDF ranging posted revenue of China Minzhong acquisition, amounting to Rp2,1 tn.

Net income fell 23% YoY to Rp 2,5 tn (Rp 285/share), these results performed 105,6%/78% of our forecast/consensus. INDF net margin, in FY2013 fell 218 bps to 4,3%. The decrease in net margin was due to: Increase in interest expense of 156% (foreign exchange loss), operating expenses rose 13,7%, and an increase of 18,9% COGS.

Total Debt INDF in 2013 increased 57% or by Rp 14,4 tn, totaling to Rp 39,7 tn. The biggest increase is in the form of foreign currency debt up by 341% YoY to Rp 17,3 tn. The main contributor to the hike comes from the US Dollar debt increasing by 63% YoY, valuing at Rp 11,6 tn. The current tight liquidity, as well as the discourse of the FED rate hike, make INDF financial structure, slightly riskier.

At current prices, INDF, trades at PE 14F/15F of 21x/17x respectively. EPS growth 14F/15F of 18%/20% with ROE ratio in 14F/15F of 11% / 12%.

Source: Company, Buana Research

Source: Company, Buana Research

INDF revenue in 2013 grew 15% to Rp 57 tn. The growth, increased compared to 2012 growth of 10%. Consummer branded segment is still the largest contribution to reach Rp 24,6 tn (+14%), followed by Rp 15 tn Bogasari segment (+18,7%). Agribusiness segment fell -4,7% to Rp 11,5 tn. Distribution segment grew 15,6% to Rp 4,5 tn. In the fourth quarter of 2013, INDF ranging posted revenue of China Minzhong acquisition, amounting to Rp 2,1 tn.

Source: Company, Buana Research

FY2013 net profit fell 23% to Rp 25 tn (Rp 285/share) compared to a net profit in 2012 amounted to Rp 3,26 tn. The decrease was due to the 16% increase in cost of production, selling expenses up 19%, and the burden of GA up 22%. FY2013 operating profit margin fell 209 bps to 11,6% compared to 6,5% in 2012. Agribusiness segment, the largest contributor to reduced margins. Agribusiness operating margin fell 793 bps to 11,8%. Operating margins, consummer branded segment, down 254 bps to 10,7%.

Source: Company, Buana Research

Source: Company, Buana Research

In 2013, INDF debt rose significantly 57% YoY to Rp 39,7 tn, or increased Rp 14,4 tn, 46% in the form of short-term debt, and the remaining long-term debt. DER rose to 1,04x compared to the ratio in 2012 of 0,74x.

Source: Company, Buana Research

The addition of the debt of Rp 14,4 tn, by 80% in the form of debt in foreign currency. This condition makes, the portion of the debt in foreign currency, INDF in 2013 rose to 44% from 23% in 2012.

The total foreign currency debt INDF in 2013, the biggest form of American dollars, with a value of US$ 954,6 million, or 67% of total foreign currency debt. Total debt of the U.S. dollar, increased by 63% YoY, from position 2012 of US$ 585,8 million.

Source: Company, Buana Research

*Marolop A. Nainggolan is PT Buana Capital's Head of Equity Research. This article is part of the Equity Research of PT Buana Capital