PT Indofood CBP Sukses Makmur Tbk (ICBP)'s FY 2011 forecast net income has been upgraded by Mandiri Sekuritas by 30.9% from the previous estimates.
"Our recent observation has just revealed that ICBP’s noodle ASP has increased by some 7%-8%, or equivalent to around 11% yoy," said Mandiri Sekuritas in a company focus published yesterday.
Mandiri Sekuritas views that the company’s decision to increase its average selling price (ASP) higher than it usually did since 2009 reflected its confidence on easing competition.
"However, we choose to wait and see whether the company could maintain its sales volume. Therefore, we upgraded the stock by only one notch to neutral while observing competitors’ responses. The stock is currently trading at PER11-12F of 13.8x-12.4x."
Werianty Setiawan, Director of ICBP, on last Friday confirmed that the price hike of four main noodle brands has been applied since Monday this week.
"Our recent observation on retailers shows that ICBP’s instant noodle ASP has increased by some 7%-8% on average," the report said.
Note that this ASP increase will fully take into effect in 2011 as it happened in the beginning of this year, unlike previous ASP increase that occured late in 4Q10. Therefore, even though the ASP increased by only 7%-8% from the previous ASP, the effective increase is around 11%yoy, assuming the company maintains the new ASP throughout this year.
"Because our previous assumption on ASP increase was lower [only 5.0%yoy], this above-expectation ASP increase could translate to an additional net income of Rp443 billion or 30.9% above our previous estimates."
An interesting point here is the recent ASP adjustment was higher than the company usually did since 2009. In Mandiri's view, it reflects the company’s higher confidence level regarding easing industry competition landscape. However, at the end, the company’s 1Q11 sales volume prove whether the company could sustain its sales volume.
Disclosure: No position at the stock mentioned above.
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