Nippon Indosari Corpindo (ROTI.IJ, HOLD) - Stronger Performance Priced In
Profit growth lags sales growth. Nippon Indosari recorded a 1H12 net profit
increase of 40% YoY to IDR72b, while revenue rose 56% YoY to IDR570b. Revenue
was in line with our estimate but net profit was below our expectation, as higher
promotion costs dragged operating margins to 16.0% (from 17.5% in 1H11). The
promotion cost to sales ratio increased to 8.1% (from 6.7% in 1H11), as
management aggressively promoted several new products through television
advertising.
Second half performance should be better than the first half. The company
indicated that performance in 2H12 would be better than in 1H12, supported by
several factors: 1) higher bread consumption owing to the occurrence of several
festivities in 2H12, like Eid-Fitr, Christmas and New Year; 2) two new plants (in
Palembang and Makassar) and an additional line of sweet bread production facility in
each of Semarang, Pasuruan, and Medan commenced operations in 2H12; and 3)
new variants of existing products will be launched in 2H12.
Continued expansion; opening three new factories next year. The company is
targeting to increase its capacity by opening three factories, in Pekan Baru,
Pontianak (west Kalimantan), and Tangerang (West Java), next year. No further