CLSA Raise Up Target Price Mayora to Rp 11.500/Share

One domestic idea that we like is Mayora (MYOR IJ), the largest biscuit candy maker in Indonesia. Despite lowering net profit forecast by 4-12% for 2010-2012, Jessica/Swati from CLSA-Asia Pacific Markets raised the target price from Rp 7,100 to Rp 11,500. This is based on 15x 11CL PE, a 25% discount to our aggregate Asia-xJ food producer universe PE.

Success (21% profit CAGR in 2004-2009) breeds confidence. The management has raised 2010-11 capex plan by 50% from US$30mn to US$40-50mn for capacity expansion and working capital. MYOR plans to add 25% new capacity each year for the next three years. Funding will come from internal cash and debt. Paired with ASP increases, revenue could double within the same period.

Key points from the report:
MYOR is one of the cheapest consumer stocks in our coverage, trading at 11.1x 11CL earnings. Rising commodity prices, and higher marketing and interest expenses may squeeze margins short term, but the long term outlook is promising given the strong structural domestic consumption story.

We increase our revenue estimates by 8% this year, but with the respective margin pressure and higher marketing expenses, our net income forecast is decreased by 12%. We cut net profit forecasts by 4.6% and 4.2% for 2011 and 2012 respectively.

The company has become more modernized and professional since the second generation of the founding family took over in 2004, signaled by a 21% profit CAGR in 2004-2009.

We remain a structural buyer on weaknesses, and increased our price target to Rp 11,500 based on 15x 11CL PE, a 25% against our aggregate Asia-xJ food producer universe PE.
At 11.6x 2011 CL PER, it is also one of the cheapest consumer stocks in our coverage.