New JV: Kalbe Milko Indonesia
Following the acquisition of Hale International, Kalbe continues to aggressively expand its business. The company has signed agreement with Milko Beverage Industry (MBI) to set a JV company, called Kalbe Milko Indonesia in which Kalbe will hold 51% ownership. Kalbe will invest up to Rp150bn on the new company. Our conversation with the management revealed that the company expects to start building the facility in 4Q this year in order to commence operation at end of 2013 or at the beginning of 2014. The new facility will be located in Sukabumi, near the source of milk. From the new JV, Kalbe expects to enter the liquid milk segment using the expertise from MBI.
Milk contributes around 22% to Kalbe's revenues
Currently, milk contributes around 22% to the company's total revenues. Hence, almost all of Kalbe's milk products are powder milk. Therefore, Kalbe intends to expand its Consumer Health and Nutritionals business with more prospective outlook in the future. Having approximately around Rp2tr net cash, Kalbe is focusing to acquire another 3 or 4 companies within those two segments. At the moment, Kalbe has two dairy liquid products: ready to drink Prenagen and Nutrive Benecol, contribution of which are still very low to the company's total revenues. The company's new JV is expected to strengthen its nutritionals units going forward.
Prospective milk industry outlook
According to Food & Agriculture policy Research Institute, average milk consumption in Indonesia has the highest growth amongst ASEAN countries in 2006 - 2010 with CAGR of around 2.9% whereas Thailand 2.4%, Vietnam 2.3%, Philippines 1.6% and Malaysia -3.6%. The Agriculture Minister also said that average milk consumption in Indonesia has shown significant improvement since 2008, from 7.7lt per capita to 11.09lt per capita in 2010 or about half of the average milk consumption in Malaysia. Hence, domestic national milk production accounts for only around 30% of the total milk needs in Indonesia.
Maintain HOLD with a TP of Rp4,050
We like the company's recent movement in expanding its business especially on the Consumer Health and Nutritionals division which have more rooms to expand. Kalbe's recent acquisition on Hale International will strengthen its Consumer Health division whereas the new JV company would allow the company to tap into liquid milk industry where the company has no experience at the moment. The counter is currently trading at 2012F P/E multiple of 22.8x. Maintain Hold
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