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Sep 07, 2016 10:13:20

First read: Indofood Sukses’ Minzhong divestment close to deal
Marvelous Glory (MG) offers to buy 82.9% stakes in China Minzhong (MINZ SP) which is owned by Indofood Sukses (Indofood, $INDF) priced at SGD1.2/share. The stakes which will be bought is higher than previous MoU which was 52.9%.
 
Indofood will receive SGD652m proceeds via:
1) SGD416m cash payment
2) SGD236m exchangeable bonds
The proceeds are to lower Indofood debts which were used to finance Minzhong acquisition.
Note that Indofood had received SGD40 for advance payment in October 2015.
 
In our calculation, Indofood will book SGD65m gain (around 30% of Indofood FY16F earning) from this transaction since average cost to acquire Minzhong is around SGD1.08/share.
 
We see that this transaction is catalyst for Indofood share price which should unlock Indofood value. Maintain BUY on Indofood with SOP base TP of IDR9,700 implies to 18x/15x FY17/18F P/Es.Note that based on our SOP valuation, Indofood’s fair value is IDR12,000 but we have conservatively excluded the value of China Minzhong and assumed a 15% holding company discount in deriving our TP. (Andrey Wijaya)

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