KLBF IJ - MNC Sekuritas Equity Report 06 November 2020

PT Kalbe Farma Tbk (KLBF IJ)

Pharmaceutical Sector

Tailwind from Vaccine Development

Flattish Performance in 9M20 but Better Outlook for 4Q20E and FY21F

•  KLBF remains resilient in 9M20 with revenue increasing by 1.60% YoY to IDR17.09 trillion (in-line with expectation, reflecting 72.41% of MNCS Estimates).
•  Net profit rose by 5.84% YoY to IDR2.02 trillion in 9M20 which is in-line or equals to 73.70% of MNCS estimates.  
•  Flattish single-digit growth in all segment: 1) Consumer Health (+5.48% YoY); 2) Distribution and Logistic (+3.65% YoY); 3) Nutritionals (+1.99% YoY); and 4) Prescription (-4.62% YoY).
•  Maintained GPM and OPM at the level of 45.46%/14.77% respectively in 9M20 (vs 46.14%/14.62% in 9M19).
•  Management guidance for FY20E: 1) Sales growth of 4%-6%; 2) EPS Growth of 8%-10%; 3) Dividend Payout Ratio 45%-55%.
•  Better outlook for 2021, MNCS estimates the top line will grow by 9.50% YoY while bottom line growth at 12.61% YoY.

The Pioneer Private Company to Produce Covid-19 Vaccine in Indonesia

•  KLBF has cooperated with: 1) PT Amarox Pharma Global for marketing and distribution of Remdesivir in Indonesia or better known as Covifor which is the only generic antiviral drug approved by the Indonesian Food and Drug Authority (BPOM); 2) A South Korean biological drug company, Genexine Inc. to produce Covid-19 vaccine named GX-19 in Indonesia through it’s JV subsidiary, PT Kalbe Genexine Biologic (KGBio).
•  GX-19 has passed it’s phase 1 clinical trial in South Korea and will conduct phase 2 clinical trials in 4Q20. It is targeted to be circulated commercially as early as mid-2021.
•  CAPEX allocation for Covid-19 vaccine is up to IDR1 trillion in FY20E.
•  Minor financial contribution from Covid-19 vaccine distribution in 2020 but huge upside from vaccine production in the long run. KLBF is estimated to receive sales contribution from: 1) Covifor distribution: up to IDR300 billion in FY20E assuming that 200,000 units is absorbed with ASP of IDR1.5 million per dose ; 2) GX-19 production: IDR7.25 trillion to IDR8.70 trillion with assumption of 50-60 million units of production and ASP of USD10 per dose (IDR14,500/USD). MNCS only assume 10% absorption from the total capacity in FY21F with up to IDR870 billion of sales.
•  Unlocking the long term upside from further collaboration with PT Amarox Pharma Global, Hetero’s Subsidiary. It has wide-range advanced strategic business covers APIs, generics, biosimilars, custom pharmaceutical services and branded generics. Moreover the portfolio includes >300 products related to HIV/AIDS, Oncology, Cardiovascular, and Neurology.  

Benefitted from Strengthening IDR Currency

•  IDR has appreciated more than 3% MoM from average of >IDR14,700 in Oct’20 to around IDR14,200 in early Nov’20. The high probability for Biden’s win in US election may support bull trend of IDR strengthening to below IDR14,000 in 2021 as potential of incoming capital inflow.
•  Raw materials import has around 90% of USD exposure, the weakening USD might trigger lower material cost and becoming boosting sentiment for Pharmaceutical company.

Valuation and Recommendation: BUY at TP: IDR1,700

We revised our recommendation for KLBF IJ to BUY (TP: IDR1,700) from previous TP at  IDR1,280. This is supported by the following reasons: 1) Steady financial performance; 2) Vaccine distribution and development; 3) Higher consumer awareness towards Health and Wellness; 4) Digitalization; 5) Further expansion of KalCare outlets.

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KLBF