Love Juice acquisition
Kalbe recently said that it had signed a Conditional Sale and Purchase Agreement (CSPA) to take over Hale International, the producer of a health drink called "Love Juice". The value of the acquisition is Rp100bn - including fixed assets and brand equity. This acquisition bolsters Kalbe's portfolio of health drinks. At the present time, there are a number of health drinks in Kalbe's portfolio, namely Extra Joss (energy drink), Fatigon Hydro (coconut water) and Tipco (fruit and vegetable juice). The last two products (Fatigon Hydro and Tipco) are toll-manufactured and contribute around 4-5% to the company's total revenues.
60% DPR for FY11 earnings
At the last Annual General Shareholders' Meeting (AGM), Kalbe received approval from its shareholders to distribute 60% of its 2011 earnings as dividends, amounting to Rp95 per share. This is higher than our expectation of a 50% DPR. Looking at the current share price of Rp3,950, the 2011 dividend provides a yield of around 2.4%, or higher than the previous yield of only around 1.6%. However, the company's management also indicated that it would revert to a DPR of 50% in future years, explaining that the 60% DPR for FY11 earnings reflected the especially strong performance in that year.
1:5 stock split
Kalbe also received approval from its shareholders at the AGM to split its shares in a ratio of 1:5, increasing the liquidity of the shares and making them more affordable for retail investors. Following the stock split, the number of shares will increase to around 50.8mn shares. The stock split will become effective after the dividends are paid on 17 July 2012.
Still searching for acquisition target
Kalbe has been sitting on huge cash on hands for many years. Having such strong cash on hands, the company is considering expanding its business, organically as well as inorganically. Last year, the company has nearly Rp2tn cash on hands, which should be more than enough to finance its expansion programs.
Maintain HOLD with a TP of Rp4,050
After adjusting our Risk Free Rate to 8.5% from 9% previously, our Target Price is raised to Rp4,050. The counter currently trades at 2012F P/E of 23.7x. Maintain HOLD.
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