ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

Ultrajaya Milk Industry & Trading Co. / Equity Bottom-Up

Ultrajaya Milk Industry & Trading Co. (ULTJ IJ)

Indonesia’s biggest milk company <a href="https://www.smartkarma.com/entities/ultrajaya-milk-industry-trading-company" target="_blank" data-smartkarma-citation="entities:13892:1" rel="noopener">Ultrajaya Milk Industry &amp; Trading (ULTJ IJ)</a> recently announced its 3Q2020 results, which saw a resilient performance from its dairy business and less so from packet tea. We caught up with management to garner a bit more colour on the simmering recovery that is taking place. 
In the dairy division white milk in larger packet sizes has been doing especially well, given the large portion of the population working and schooling from home. 
Smaller packet flavoured milks and packet tea under the Teh Sosroh brand continue to be under pressure given these are often picked up on the move but we expect a decent recovery as the economy opens up. 
<a href="https://www.smartkarma.com/entities/ultrajaya-milk-ind-trading" target="_blank" data-smartkarma-citation="entities:13892:1" rel="noopener">Ultrajaya Milk Ind &amp; Trading (ULTJ IJ)</a> is likely to see a marginally slower growth performance this year but a continued rebound in earnings should be expected in 4Q2020, driven by a move to a "new normal" in Indonesia and a gradual opening up of the economy. 
The company has opened a new Tetrapak line for larger packets to satisfy the growing demand for family packs. It is also investing in two large-sized dairy farms to ensure local supply.
Next year the company will invest in a new production and distribution centre closer to Jakarta, which will diversify its operations geographically. It has successfully secured IDR3tn in medium-term notes to finance its expansion. 
Valuations remain attractive with the company trading on 15.5x FY21E PER versus its peer group average of 26x forward PER. <a href="https://www.smartkarma.com/entities/ultrajaya-milk-ind-trading" target="_blank" data-smartkarma-citation="entities:13892:1" rel="noopener">Ultrajaya Milk Ind &amp; Trading (ULTJ IJ)</a> remains a core staple holding in Indonesia and one of our top long-term consumer picks.

Indonesia’s biggest milk company Ultrajaya Milk Industry &amp; Trading (ULTJ IJ) recently announced its 3Q2020 results, which saw a resilient performance from its dairy business and less so from packet tea. We caught up with management to garner a bit more colour on the simmering recovery that is taking place. 
In the dairy division white milk in larger packet sizes has been doing especially well, given the large portion of the population working and schooling from home. 
Smaller packet flavoured milks and packet tea under the Teh Sosroh brand continue to be under pressure given these are often picked up on the move but we expect a decent recovery as the economy opens up. 
Ultrajaya Milk Ind &amp; Trading (ULTJ IJ) is likely to see a marginally slower growth performance this year but a continued rebound in earnings should be expected in 4Q2020, driven by a move to a "new normal" in Indonesia and a gradual opening up of the economy. 
The company has opened a new Tetrapak line for larger packets to satisfy the growing demand for family packs. It is also investing in two large-sized dairy farms to ensure local supply.
Next year the company will invest in a new production and distribution centre closer to Jakarta, which will diversify its operations geographically. It has successfully secured IDR3tn in medium-term notes to finance its expansion. 
Valuations remain attractive with the company trading on 15.5x FY21E PER versus its peer group average of 26x forward PER. Ultrajaya Milk Ind &amp; Trading (ULTJ IJ) remains a core staple holding in Indonesia and one of our top long-term consumer picks. 

Ultrajaya Milk Industry & Trading (ULTJ IJ) - Simmering Recovery

<a href="https://www.smartkarma.com/entities/ultrajaya-milk-ind-trading" target="_blank" data-smartkarma-citation="entities:13892:1" rel="noopener">Ultrajaya Milk Ind &amp; Trading (ULTJ IJ)</a> saw a more pronounced impact from COVID-19 in 2Q2020, with a decline in growth for UHT milk with UHT white milk seeing better performance than flavoured products. This can be attributed to people working and breakfasting from home with PSBB measures in place, which also drove higher demand for larger size packets.
<a href="https://www.smartkarma.com/entities/ultrajaya-milk-ind-trading" target="_blank" data-smartkarma-citation="entities:13892:1" rel="noopener">Ultrajaya Milk Ind &amp; Trading (ULTJ IJ)</a> did not see the usual benefits this year from Lebaran with packaged tea hit particularly hard, given far fewer people travelling due to the Mudik ban (return to home village). Normally Teh Kotak is a popular drink to pick up for long journeys. 
July saw a slight pick-up in milk sales with some relaxation of PSBB measures from mid-June but it is too soon to read the performance for August. We would suggest a continuing rebound in sales of flavoured milk, as the population start to become more mobile again.
We also expect a gradual pick up in sales of Teh Kotak packet tea sales as employees return to working from the office again, albeit at a reduced intensity to start with.
Increased capacity for large size packets will also help to drive UHT white and flavoured milk growth, given greater demand due to WFH and schooling from home, especially for breakfasting.  
<a href="https://www.smartkarma.com/entities/ultrajaya-milk-ind-trading" target="_blank" data-smartkarma-citation="entities:13892:1" rel="noopener">Ultrajaya Milk Ind &amp; Trading (ULTJ IJ)</a> is likely to see a marginally slower growth performance this year but a rebound in earnings should be expected in 2H2020, driven by a move to a "new normal" in Indonesia and a gradual opening up of the economy. It is unlikely that it will adjust prices higher in September this year, which may slow growth prospects slightly. Valuations remain attractive with the company trading on 16.4x FY21E PER versus its peer group average of 26x forward PER. <a href="https://www.smartkarma.com/entities/ultrajaya-milk-ind-trading" target="_blank" data-smartkarma-citation="entities:13892:1" rel="noopener">Ultrajaya Milk Ind &amp; Trading (ULTJ IJ)</a> remains a core staple holding in Indonesia.

Ultrajaya Milk Ind &amp; Trading (ULTJ IJ) saw a more pronounced impact from COVID-19 in 2Q2020, with a decline in growth for UHT milk with UHT white milk seeing better performance than flavoured products. This can be attributed to people working and breakfasting from home with PSBB measures in place, which also drove higher demand for larger size packets.
Ultrajaya Milk Ind &amp; Trading (ULTJ IJ) did not see the usual benefits this year from Lebaran with packaged tea hit particularly hard, given far fewer people travelling due to the Mudik ban (return to home village). Normally Teh Kotak is a popular drink to pick up for long journeys. 
July saw a slight pick-up in milk sales with some relaxation of PSBB measures from mid-June but it is too soon to read the performance for August. We would suggest a continuing rebound in sales of flavoured milk, as the population start to become more mobile again.
We also expect a gradual pick up in sales of Teh Kotak packet tea sales as employees return to working from the office again, albeit at a reduced intensity to start with.
Increased capacity for large size packets will also help to drive UHT white and flavoured milk growth, given greater demand due to WFH and schooling from home, especially for breakfasting.  
Ultrajaya Milk Ind &amp; Trading (ULTJ IJ) is likely to see a marginally slower growth performance this year but a rebound in earnings should be expected in 2H2020, driven by a move to a "new normal" in Indonesia and a gradual opening up of the economy. It is unlikely that it will adjust prices higher in September this year, which may slow growth prospects slightly. Valuations remain attractive with the company trading on 16.4x FY21E PER versus its peer group average of 26x forward PER. Ultrajaya Milk Ind &amp; Trading (ULTJ IJ) remains a core staple holding in Indonesia. 

Ultrajaya Milk Ind & Trading (ULTJ IJ) - A Wholesome Performance

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

Indofood CBP Sukses Makmur / Equity Bottom-Up

<div>
<a href="https://www.smartkarma.com/profiles/devi-subhakesan" target="_blank" data-smartkarma-citation="accounts:1913" rel="noopener">Devi Subhakesan</a> mentioned in her report in <a href="https://www.smartkarma.com/insights/indofood-cbp-icbp-ij-us-3bn-acqsn-of-affiliate-dizzy-valuation-earnings-dilution" target="_blank" data-smartkarma-citation="insights:39793" rel="noopener">Indofood CBP (ICBP IJ): US$ 3Bn Acqsn. Of Affiliate - Dizzy Valuation, Earnings Dilution</a> that the deal is not exactly value-accretive for the shareholders due to the expensive multiples that the company pays and the overleveraged in the balance sheet that further burden the net income. The flip side is that as <a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" data-smartkarma-citation="accounts:937" rel="noopener">Angus Mackintosh</a> mentioned in <a href="https://www.smartkarma.com/insights/indofood-cbp-sukses-icbp-ij-going-global-with-instant-noodles" target="_blank" data-smartkarma-citation="insights:41873" rel="noopener">Indofood CBP Sukses (ICBP IJ) - Going Global with Instant Noodles</a> is that it has expanded its horizon to outside Indonesia and becomes an Emerging Market Consumer Staple play. </div>
<div></div>
<div>Compared to other Asian noodle makers, Indofood is the second cheapest in PER (after Ottogi), second-highest gross margin (after Nissin Foods), highest EBITDA, and Net income margin. While</div>
<div>
compared to the EM consumer stocks, Indofood CBP is 48% cheaper in PER, 60% cheaper in EV/EBITDA, 72% cheaper in PBR, 4% higher in gross margin, 23% higher in EBITDA margin although net income margin is 3% lower. 
The fact that Indofood CBP will be on the radar for Global EM consumer fund managers and potentially some ETFs at a cheaper valuation to the peers could bring some inflow, driving the multiples higher. 
Indofood CBP is still trading at lower share price to pre-COVID-19 and still undervalued versus the other noodle makers and global EM staple peers by a wide margin. Buy. 
</div>


Devi Subhakesan mentioned in her report in Indofood CBP (ICBP IJ): US$ 3Bn Acqsn. Of Affiliate - Dizzy Valuation, Earnings Dilution that the deal is not exactly value-accretive for the shareholders due to the expensive multiples that the company pays and the overleveraged in the balance sheet that further burden the net income. The flip side is that as Angus Mackintosh mentioned in Indofood CBP Sukses (ICBP IJ) - Going Global with Instant Noodles is that it has expanded its horizon to outside Indonesia and becomes an Emerging Market Consumer Staple play. 

Compared to other Asian noodle makers, Indofood is the second cheapest in PER (after Ottogi), second-highest gross margin (after Nissin Foods), highest EBITDA, and Net income margin. While

compared to the EM consumer stocks, Indofood CBP is 48% cheaper in PER, 60% cheaper in EV/EBITDA, 72% cheaper in PBR, 4% higher in gross margin, 23% higher in EBITDA margin although net income margin is 3% lower. 
The fact that Indofood CBP will be on the radar for Global EM consumer fund managers and potentially some ETFs at a cheaper valuation to the peers could bring some inflow, driving the multiples higher. 
Indofood CBP is still trading at lower share price to pre-COVID-19 and still undervalued versus the other noodle makers and global EM staple peers by a wide margin. Buy. 


Indofood (ICBP): Undervalued and Will Attract New Types of Investors

Equity Analyst - Asia Consumer Sector, Investory

Devi Subhakesan

Equity Analyst - Asia Consumer Sector

ASIA CONSUMER: INSIGHTS AND INVESTMENT IDEAS

Investory

Investory is a Singapore-based boutique independent equity research firm founded in January 2017 with a primary focus on consumption themes across Asia-Pacific.

We aim to generate investible ideas based on consumption trends and outlook. We screen our ideas on several parameters - product potential, long-term growth and management commitment being the most critical.  We follow a fundamental analysis approach in our stock selection process and are not restricted by market cap.

We aspire to grow into a leading source of unbiased research, free of conflict of interest, for investors yearning for independent and disciplined analysis. 

We also undertake bespoke research mandates to support our Institutional clients’ investment needs.

Our team comprises of professionals with extensive experience in the Asian equity markets, in areas ranging from research, servicing institutional clients and investment management.

<a href="https://www.smartkarma.com/entities/indofood-cbp-sukses-makmur-tbk" target="_blank" data-smartkarma-citation="entities:17651:1" rel="noopener">Indofood CBP Sukses (ICBP IJ)</a> 's 1H2020 revenue growth at 4% YoY reinforces that a fairly stable demand growth environment for consumer staples exists despite COVID related restrictions and resultant macroeconomic concerns. Additionally, strong margin improvement for its core noodle segment helped drive profitability. We expect the stable revenue growth to sustain and, assuming the benign margin environment to continue, ICBP's 2020 earnings could surprise street estimates that seem fairly conservative. 
However, the stock has been trading well below pre-March levels probably due to overhang/uncertainty over the earlier announced acquisition of (partly promoter owned) noodle businesses in Africa and the Middle East that raised concerns on valuation and corporate governance ( <a href="https://www.smartkarma.com/insights/indofood-cbp-icbp-ij-us-3bn-acqsn-of-affiliate-dizzy-valuation-earnings-dilution" target="_blank" data-smartkarma-citation="insights:39793" rel="noopener">Indofood CBP (ICBP IJ): US$ 3Bn Acqsn. Of Affiliate - Dizzy Valuation, Earnings Dilution</a> ). We now believe the earnings dilution risk from this acquisition could be negligible given likely earnings upgrade for ICBP and lower funding costs given benign interest environment.
With the broader personal consumption sector likely to get impacted given the COVID-led lifestyle changes and macro-economic headwinds, we believe investors would increasingly focus on consumer staples with a resilient demand, strong brand power, and favorable margin outlook. Expect near term upside for  <a href="https://www.smartkarma.com/entities/indofood-cbp-sukses-makmur-tbk" target="_blank" data-smartkarma-citation="entities:17651:1" rel="noopener">Indofood CBP Sukses (ICBP IJ)</a> as investors seek COVID-proof stocks to ride the near term uncertainty.

Indofood CBP Sukses (ICBP IJ) 's 1H2020 revenue growth at 4% YoY reinforces that a fairly stable demand growth environment for consumer staples exists despite COVID related restrictions and resultant macroeconomic concerns. Additionally, strong margin improvement for its core noodle segment helped drive profitability. We expect the stable revenue growth to sustain and, assuming the benign margin environment to continue, ICBP's 2020 earnings could surprise street estimates that seem fairly conservative. 
However, the stock has been trading well below pre-March levels probably due to overhang/uncertainty over the earlier announced acquisition of (partly promoter owned) noodle businesses in Africa and the Middle East that raised concerns on valuation and corporate governance ( Indofood CBP (ICBP IJ): US$ 3Bn Acqsn. Of Affiliate - Dizzy Valuation, Earnings Dilution ). We now believe the earnings dilution risk from this acquisition could be negligible given likely earnings upgrade for ICBP and lower funding costs given benign interest environment.
With the broader personal consumption sector likely to get impacted given the COVID-led lifestyle changes and macro-economic headwinds, we believe investors would increasingly focus on consumer staples with a resilient demand, strong brand power, and favorable margin outlook. Expect near term upside for  Indofood CBP Sukses (ICBP IJ) as investors seek COVID-proof stocks to ride the near term uncertainty.

Indofood CBP (ICBP IJ): Staples - A Safe Haven Amidst Fears of Macro Headwind

One of Indonesia's leading staple companies, <a href="https://www.smartkarma.com/entities/indofood-cbp-sukses-makmur-tbk" target="_blank" data-smartkarma-citation="entities:17651:1" rel="noopener">Indofood CBP Sukses (ICBP IJ),</a> held an EGM this week in Jakarta at which shareholders approved the US$3bn acquisition of Pinehill, an affiliated company which sells instant noodles in the Middle East, Africa, and Southern Europe. 
This means that the previously announced deal can now move forward in earnest. This approval had been an overhang for the company, which has now been lifted. We now await further details on how the deal will be financed but the expectation is that it will be done through bank debt.
The company also released its 1H2020 results, which reflected the strength of its core business even with the backdrop of the pandemic. Sales grew by +4% for 1H2020 to IDR23.05tn, whilst income from operations increased by +22% to IDR4.68tn, and core profits increased by +21% to IDR3.16tn. 
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The stock moved up +7.8% yesterday on the approval of the Pinehill acquisition. We would expect investors to refocus on fundamentals for <a href="https://www.smartkarma.com/entities/indofood-cbp-sukses-makmur-tbk" target="_blank" data-smartkarma-citation="entities:17651:1" rel="noopener">Indofood CBP Sukses (ICBP IJ),</a> which is still trading well below its pre-COVID-19 valuations, despite a strong 1H2020 performance. It should also see more attention from Emerging markets funds given its increased geographical exposure outside Indonesia. It now trades on 18.8x FY21E PER versus its 5-year average of 24x, which leaves a decent upside from these levels. 
</div>

One of Indonesia's leading staple companies, Indofood CBP Sukses (ICBP IJ), held an EGM this week in Jakarta at which shareholders approved the US$3bn acquisition of Pinehill, an affiliated company which sells instant noodles in the Middle East, Africa, and Southern Europe. 
This means that the previously announced deal can now move forward in earnest. This approval had been an overhang for the company, which has now been lifted. We now await further details on how the deal will be financed but the expectation is that it will be done through bank debt.
The company also released its 1H2020 results, which reflected the strength of its core business even with the backdrop of the pandemic. Sales grew by +4% for 1H2020 to IDR23.05tn, whilst income from operations increased by +22% to IDR4.68tn, and core profits increased by +21% to IDR3.16tn. 

The stock moved up +7.8% yesterday on the approval of the Pinehill acquisition. We would expect investors to refocus on fundamentals for Indofood CBP Sukses (ICBP IJ), which is still trading well below its pre-COVID-19 valuations, despite a strong 1H2020 performance. It should also see more attention from Emerging markets funds given its increased geographical exposure outside Indonesia. It now trades on 18.8x FY21E PER versus its 5-year average of 24x, which leaves a decent upside from these levels. 


Indofood CBP Sukses (ICBP IJ) - Going Global with Instant Noodles

Indonesia

Indofood CBP Sukses Makmur Tbk is a leading Indonesian manufacturer of packaged food products, offering noodles, dairy, snack foods, food seasonings, nutrition and special foods, and beverages. The company also operates a packaging business. It was founded in 1982 and is headquartered in Jakarta, Indonesia.

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Indofood CBP Sukses Makmur (ICBP IJ)

Ultrajaya Milk Industry & Trading (ULTJ IJ) - Simmering Recovery

Ultrajaya Milk Ind & Trading (ULTJ IJ) is the leading dairy company in Indonesia, dominating the UHT market. It continues to expand capacity and...

Angus Mackintosh

Ultrajaya Milk Ind & Trading (ULTJ IJ) - A Wholesome Performance

Ultrajaya Milk Ind Trading (ULTJ IJ) saw a more pronounced impact from COVID-19 in 2Q2020 than expected...

Angus Mackintosh

Indofood (ICBP): Undervalued and Will Attract New Types of Investors

Devi Subhakesan mentioned in her report in Indofood CBP (ICBP IJ): US$ 3Bn Acqsn. Of Affiliate - Dizzy Valuation, Earnings Dilution that the deal...

Henry Soediarko

Indofood CBP (ICBP IJ): Staples - A Safe Haven Amidst Fears of Macro Headwind

Indofood CBP Sukses (ICBP IJ) 's 1H2020 revenue growth at 4% YoY reinforces that a fairly stable demand growth environment for consumer staples...

Devi Subhakesan

Indofood CBP Sukses (ICBP IJ) - Going Global with Instant Noodles

One of Indonesia's leading staple companies, Indofood CBP Sukses (ICBP IJ), held an EGM this week in Jakarta at which shareholders approved the...

Angus Mackintosh

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