CIMB-GK Securities Upgrade Indofood to Outperform

CIMB-GK Securities Pte analist Erwan Teguh upgraded PT Indofood Sukses Makmur Tbk (INDF) to "Outperform" from "Trading Buy" citing investors strong appetite for the initial public offering Indofood's unit. Target price was IDR 5.600 per share from IDR 4.950 per share.

We upgrade Indofood to Outperform from Trading Buy. With the pricing for ICBP firmed at the upper bound of its indicative price range, the ICBP listing overhang has been removed, we believe. We maintain that Indofood stands to benefit the most, given: 1) immaterial earnings dilution as sales royalties would offset the bulk of minority interest; and 2) significant de-leveraging. Intangibles include better transparency from ICBP. Adjusting for Rp6.3tr of IPO proceeds (Rp4.1tr for debt payment to Indofood), our forecasts have been trimmed by 1-3% for FY10-12, from dilution. We also adjust our SOP valuation, assigning a 10% holding discount for its IFAR and ICBP stakes, while adding sales royalties and a lower gearing. This lifts our target price to Rp5,600 from Rp4,950, implying 19-17x CY10-11 P/Es. We also upgrade the stock to Outperform, expecting near-term catalysts from ICBP’s imminent listing.