Apr 07, 2016 08:47:29
Indofood CBP Sukses Makmur: Noodle premiumisation?

With ~75% market share in the world’s second largest instant noodle market, is it a surprise that ICBP trade at 25/22x 16/17 earnings?
This morning, Merlissa highlights that ICBP’s strong noodle volume was driven by improving demand conditions.  Better cup noodle performance also indicated that consumers have started to trade up.
Rationale is quite straight forward.  During 2015 consumers traded down along with the slower economy, and on recovery they are trading back up.  Merlissa points to Philippine’s consumer company, Universal Robina Corp, as proof (which targets lower end segment demographics).
For Indonesians, ‘cup’ noodle is a premium product to ‘bagged’ instant noodle.  And as a portion of total instant noodle consumed, cup noodle is still much smaller given affordability and tast factors of Indonesian consumers.
Since the beginning of 2016 ICBP has been pretty aggressive in launching new products including soup-based fried noodles.  Merlissa estimates noodle volume to growth by c3% in 2016CL from a low base of 1% volume growth in 2016.  Noodle margins should also be strong given lower soft commodity prices.
Given its YTD strong performance Merlissa has an outperform rating on ICBP but highlights that upside risk in earnings can come from mark to market on a stronger rupiah than assumed by most companies (14,000 – 15,000).  
If the rupiah stays around current level or up to 13,500, ICBP could see 12-15% of earnings upside to our present estimates.  Please see Merlissa’s report for more on Indo’s instant noodle king, ICBP.