Investment Idea: Kalbe Farma, Target Price Rp 1.734

This year, the potential of pharmaceuticals products is still robust because of the macro economy conditions that have been predicted to be better. KLBF is a proven company in the pharmaceuticals subsector. Actually, it is the largest listed pharmaceuticals company in South East Asia. The economy conditions will increase the income, and with the healthy consciousness tendency in society, it will advance the sales of KLBF in the future. Couple with the KLBF expertise in the operational, it will surely grow the margin wider.

The prescription drug still has a strong demand from the market, because of the national health coverage program (BPJS). But still, the margin will be pushed down because of the high rivalry environment in this division. KLBF will manage it with developing higher margin new products.

In 2015 consumer health products only gave a single digit growth but in 2016 it back to its double-digit growth. In this year we hope it will preserve the growth rate. Extra Joss which comprises about 25% of the consumer health product mix introduced a new variant Extra Joss Blend and Extra Joss Go. I have expected a growth of 11-12% of KLBF’s consumer products sales this year.

The nutritional division still drives most of the sales in this year. Because of its stable growth, in the future, we hope it still dominating the sales mix of KLBF. But because of the price increase of one of its main ingredient (skim milk), the margin will slightly drop. Hopefully, the purchasing power of Indonesian will increase simultaneously with the increase of Indonesia economy so the customers can handle the price increase of the product.

I still recommend KLBF in your portfolio because of it shows a great promise of volume growth and the margin broadening on the back of the operational efficiency. The target price of KLBF is Rp 1.734. So with today price of Rp 1.550, it still has a potential gain 11.9%.You can download the model here.

You can download the valuation model here.

Forecast:

Disclosure:

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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