Indofood CBP Sukses Makmur (ICBP IJ)

A more balanced growth drivers underpin FY24 outlook

We fine tuned FY23-25F forecast and reaffirm positive earnings outlook ICBP (FY24F net profit/ core profit growth of +16%/ +5% yoy), underpinned by 7.9% yoy top line growth with 4% volume growth and stable margins. We maintain Buy rating and DCF-based TP of IDR13,000 (FY24F PE of 14.2x).

Healthy volume and solid margins sustained earnings growth. ICBP’s 3Q23 top line growth of 3.1% yoy to IDR16.8tn was underpinned by strong volume growth (blended volume: +7%). Noodles segment volume grew at healthy 8.8% yoy in 3Q23, supported by stronger growth in overseas markets, driving 3% volume growth for 9M23. This has more than offset dairy’s lower volume growth (-7% yoy) amid slowing market growth (for Sweet Condensed Milk) and fiercer competition.  With continued soft raw material prices, ICBP maintained its GPM at 36.3% in 9M23 and combined with manageable opex (+14.5% yoy), its 9M23 operating profits and core profit rose to IDR11.2tn (25% yoy) and IDR6.5tn (+8% yoy).

Expect solid FY24F earnings growth of 16% yoy (core profits: +5% yoy). We forecast ICBP to grow its top line by 7.9% yoy, driven by a balanced contribution from volume (3.8% yoy) and ASP (4% yoy) adjustments. We use Bloomberg’ estimates for 2024 prices: CPO (MYR830/ton-flat) and Wheat (642c/bush – down 28% yoy), which should support FY24F gross margin improvement (+20bps). With election-related events expected in 1H24, we expect the company to spend more on A&P at 4% of revenues (FY23F: 3.8%). We also forecast FY24 net and core profits of IDR10.7tn (+16.2% yoy) and IDR9.7tn (+5% yoy), respectively.

Strong overseas revenues complemented a resilient domestic market. Overseas business provided a 28% contribution to ICBP’s 9M23 revenues. While high inflation in Egypt and Turkey poses a threat to Pinehill sales, ICBP reported high 3Q23 double-digit noodles sales volume growth, reflecting the huge potential in the noodles market in the Middle East and Africa. In the domestic market, high food inflation (especially for rice in recent months) may benefit the sales of instant noodles, which are often served together with rice as the main dish.

Maintain BUY with an unchanged TP of Rp13,000. We view ICBP as a company with diversified products and stable volume with attractive valuation. We roll over our valuation to 2024 and maintain our TP at IDR13,000 with implied FY24F PE of 14.2x. ICBP currently trades at an attractive FY24F PE of 11.4x. Key risks are soft noodles volume, higher raw material price and Rupiah depreciation.

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