Batavia Stock Focus 1 October 2010

Kalbe Farma
Nutrition for Growth Harry Wijaya
Harry@bps.co.id
• Solid Balance Sheet following strong performance 62-21 5207374

KLBF’s strong performance during the last 5 years was indicated by a

constant revenue growth and CAGR in net profit of 11,5% and 10%,
respectively. Such a performance resulted in a solid balance sheet with a Stock Data
net cash position. As of 1H10, total cash equaled to Rp1,5 trillion, enough
to cover all of the annual capital expenditure needed. Since there is ample Price Rp 2.550
cash, KLBF plans to give more value to its shareholders with a planned Target Rp 3.000
payout ratio of 25% in FY10, 30% in FY11, and 35% in FY12. Recommendation BUY
• Market leader in prescription and Over-the Counter (OTC) products 52-weeks range Rp 1.200-2.725
KLBF is the market leader in Indonesia’s pharmaceutical industry with a Market Cap (Rp bn) 25,897
14% market share of the Rp34 trillion pharmaceutical market. Most of Outstanding shares (mn shares) 9,375
KLBF’s gross profit came from this division, as prescription and OTC
products offer gross profit margins as high as 63% and 55%, respectively. Daily average volume (‘000 shares) 24,383
Since KLBF is dominant in the middle-high prescription segment and Daily average value (Rp mn) 57,970
middle-low OTC segment, KLBF will survive during economic downturns and
gain even more benefit from its prescription segment during economic Major Shareholder
booms. Bina Artha Charisma 8.0%
• Nutritional division, the key driver for KLBF going forward Gira Sole Prima 9.4%
KLBF owns a 14% market share in the national nutrition market, making Ladang Ira Panen 8.5%
KLBF the 3rd biggest player in this industry behind global names such as Lucasta Murni Cemerlang 8.7%
Nestle with 30% market share and Danone with 26%. The nutritional Diptanala Bahana 8.8%
division posted constant growth of 15,5% and the highest CAGR among
Santa Seha Sanadi 8.9%
other KLBF’s divisions for the last 5 years (2005-2009). Coupled with a high
average gross profit margin of 55%, we expect the nutrition division to UBS AG Singapore 7.7%
contribute more in the future. The division’s performance will depend on its Public 40.0%
marketing & brand activation strategy to promote KLBF’s complete dairy
product portfolio in order to compete with multinational players in this Stock price chart
segment.
• Recommendation BUY, TP Rp3.000 3,000

Based on DCF valuation, we determine the target price of KLBF to be at

Rp3.000, implying a 23,3X FY10 PE and 19,6X FY11 PE. We estimate that 2,000
KLBF will post more good results in the coming quarters given the GoI’s
initiatives to raise the country’s health spending from 2,5% to 5% of GDP.
1,000
Other catalysts include the strong Rupiah currency and the bright
performance of new products launched in the consumer health segments.
Hence, we recommend a BUY on KLBF. -
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
KLBF Financial Highlights
In IDR Billion 2007A 2008A 2009A 2010F 2011F Source : Bloomberg
Revenue 7,005 7,877 9,087 10,205 11,686
Gross Profit 3,552 3,804 4,512 5,192 5,943
Operating Profit 1,129 1,143 1,566 1,876 2,209
Net Profit 706 707 929 1,211 1,440
EPS 75 75 99 129 154
Difference w/ consensus - - - 2.5% 2.5%
BVPS 361 386 460 637 745

Key Ratio 2007A 2008A 2009A 2010F 2011F

P/E (X) 16.7 5.3 13.1 19.7 16.6
P/BV (X) 3.5 1.0 2.8 4.0 3.4
ROA 15.8% 14.5% 16.2% 16.9% 17.1%
ROE 21.5% 19.7% 23.0% 24.0% 22.6%

Key Assumption 2007A 2008A 2009A 2010F 2011F

Revenue Growth (y-o-y) 15.4% 12.5% 15.4% 12.3% 14.5%
Gross Profit Margin (%) 50.7% 48.3% 49.7% 50.9% 50.9%
Source: Company, Batavia Prosperindo Sekuritas
Batavia Stock Focus 1 October 2010

Company Background: PT Kalbe Farma Tbk (KLBF) was incorporated in 1966 and emerged as a public company in 1991
upon listing of its shares in the Indonesia Stock Exchange. KLBF is the largest publicly listed pharmaceutical manufacturer in
Southeast Asia with market coverage in 9 countries, having a combined total population of 570 million people.

Supported by over 10,000 employees, inclusive of 4,000 sales and marketing professionals, KLBF maintains its coverage of
over 70% of general practitioners, 90% of specialists, 100% of hospitals and 100% of pharmacies in Indonesia for the
prescription pharmaceuticals market and 80% for the consumer health market, amounting to 150,000 outlets throughout
Indonesia.

KLBF is divided into four main divisions: Prescription, Consumer Health, Nutrition, and Distribution. In FY2009, KLBF owned
14% share of Indonesia’s pharmaceutical market. The total Indonesian pharmaceutical market was Rp34 trilion in 2009.
Segmental Contribution to Revenue 1H10 KLBF market share’s in Prescription & OTC market

Prescription Soho, 5%
Distribution 26% Dexa Medica, Tempo, 4%
34% 5%
Pharos, 4%
Sanbe, 5%
Bayer, 3%
Kalbe, 14%
Consumer Health
19%
Nutritional
21%
Others, 60%
Source : Company Source : Company, IMS Health Prescription Pharmaceutical FY 2009

KLBF’s four divisions

Source : Company

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 Batavia Stock Focus 1 October 2010

1H10 performance inline with our forecast

In 1H10, KLBF booked total revenue of Rp4,7 trillion and net profit of Rp572 billion, achieving 45% of our forecasts for the
year. The good result was due to a stronger Rupiah which lowered the company’s COGS.

KLBF’s total revenue of Rp 9,09 trilion in 2009 came mainly from the distribution division with a 35% contribution. To further
boost revenue, KLBF implemented its long-term strategy (2006-2015) to expand its product coverage into the ASEAN region
and additionally to the global markets in 2006-2014. Today, KLBF’s products are available in all ASEAN countries (except Laos)
and have also reached Nigeria. Even so, domestic sales still dominate 95% of its total sales. During 2005 – 2009, KLBF’s
revenue grew at CAGR of 11,5%.

In terms of gross profit, pharmaceutical was still the biggest contributor in 1H10 (34%) due to its highest gross profit margin
among the other 3 divisions. Excluding the distribution division, the nutrition division recorded the highest gross profit CAGR of
15,5% in 2005 – 2009.

Net profit was consistently growing with CAGR of 10% during 2005 – 2009. This achievement was inline with its constant
revenue growth. Catalysts for KLBF’s future performance will come from the Government of Indonesia’s (GoI) regulation which
will regulate the country’s health spending; Indonesian robust economic performance which will increase buying power; and
M&A action to increase KLBF’s dominance in the fragmented Indonesian pharmaceutical industry.

KLBF 1H 2010 Financial Highlights KLBF Revenue (In IDR bio)

KLBF 1H 2010 Financial Highlights Revenue Operating Margin (RHS)

In IDR Billio 1H 10 1H 09 +/(-) FY10 F Achieve (%) Gross Margin (RHS) Net Profit Margin (RHS)

Revenue 4,707 4,217 12% 10,475 45% 3,000 60%

COGS 2,323 2,147 8% 5,114 45% 2,500 50%
Gross Profit 2,384 2,070 15% 5,361 44% 2,000 40%
Operating Pro 838 698 20% 1,996 42% 1,500 30%
Pre-tax profit 842 663 27% 1,958 43%
1,000 20%
Net Profit 572 399 44% 1,265 45%
500 10%
Gross Margin 50.7% 49.1%
- 0%
Operating Mar 17.8% 16.6%
Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Q110
Net Margin 12.2% 9.5%
Source : Company
Sales Gross Gross Gross Gross
Sales 08 Sales 09 Growth
Growth Profit 08 Profit 09 Margin 08 Margin 09
(bn IDR) (bn IDR) (y-o-y) (bn IDR) (bn IDR) (y-o-y)
Prescription 1,884 2,214 17.5% 1,149 1,403 22.2% 61.0% 63.4%
Consumer Health 1,475 1,727 17.1% 885 958 8.2% 60.0% 55.5%
Nutritional 1,728 1,936 12.0% 862 1,022 18.6% 49.9% 52.8%
Distribution 2,790 3,211 15.1% 908 1,129 24.4% 32.5% 35.2%
Total KLBF 7,877 9,087 15.4% 3,804 4,512 18.6% 48.3% 49.7%

Segmental Contribution to Gross Profit Gross Profit Margin per segment

Prescription Consumer Health Nutritional Distribution Prescription Consumer Health

Nutritional Distribution
100% 6% 6% 6%
21% 25% 24% 25% 25% 75%
27%
75%
23% 23% 20%
41% 50%
50% 37% 33%
23% 21% 21%
25% 25%
32% 32% 34% 30% 31% 34%
0%
0%
2005 2006 2007 2008 2009 1H10 2005 2006 2007 2008 2009 1H10
Source : Company Source : Company

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 Batavia Stock Focus 1 October 2010

Robust prospect on Indonesian Economy outlook

Indonesia’s growing economy brought direct benefits to the Indonesian consumer sector. Presently, the consumer sector has
outperformed the Jakarta Composite Index (JCI) by 38% (JCI increased 36,1% YTD, Jak Consumer increased 74,7% YTD).
This performance was supported by a low inflation rate of 2,78% in 2009 and 4,82% as of August 2010. In addition,
Indonesia’s robust GDP growth has been consistently above 5% for the last 5 years, except for 2009. Recent data shows that
Indonesian GDP in 1H 2010 achieved 6,2% y-o-y.

Indonesia’s GDP per capita has doubled from USD1,188 per capita in 2004 to 2,224 USD per capita in 2009. With the
Indonesian economy still having strong growth prospects going forward (estimated GDP growth of 5.5% in 2010), we can
expect consumers to have more buying power. Such conditions will positively impact consumer players such as KLBF.

Furthermore, the good economic environment has made the Rupiah currency relatively strong to US Dollar, which has also
helped KLBF improve its performance. Since 90% of KLBF’s raw materials are imported, the strong Rupiah will benefit the
company.

KLBF Gross Profit VS Exchange Rate KLBF Revenue (In IDR bio)

JCI (LHS) KLBF (RHS) Consumer (RHS)

Gross Margin (LHS) USD/IDR Exchange Rates (RHS)
4000 3000
55% 8,000
2500
3000
9,000 2000
50%

10,000 2000 1500

45% 1000
11,000 1000
500

40% 12,000 0 0
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210

Source : Company Source : Company

Inflation VS Composite index figures Indonesia GDP per Capita

Inflation (LHS) JCI (RHS)

15 3500 GDP Per Capita (USD) GDP growth

3000
2,500 8.0%
2500
10
2,000 6.0%
2000

1500
1,500 4.0%
5
1000
1,000 2.0%
500
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
0 0
Dec-06 Dec-07 Dec-08 Dec-09

Source : Company Source : Company

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Batavia Stock Focus 1 October 2010

Prescription division: The Indonesian pharmaceutical market is very fragmented, consisting of more than 200
pharmaceutical companies. Of those, KLBF is the market leader by owning 13% market share of the Rp19,2 trillion total
market for ethical medicine products. During 2005 – 2009, the division has grown by a CAGR of 13% along with the high
average gross profit margin of 66%. Given a robust Indonesian economic outlook, we expect for revenue to grow by 14% for
2011-2012.

KLBF’s prescription medicine products (a total of 372 prescription labels) are plotted under three categories: licensed products
(82 labels), branded generic (249 labels), and unbranded generic products (41 labels). In 2009, branded generic products
contributed to 61% of the total prescription segment.

Catalysts for this segment came from the Government of Indonesia’s (GoI) initiatives to approve the new healthcare law in
4Q09 which will give guidance to increase spending in the health care industry to 5% of total GDP. Government spending in
the last 11 years (1996 – 2006) stood at 2,5% of GDP. In 2004, GoI has implemented the national social security system by
executing a healthcare program for the poor through the Health Insurance for Poor Population program (Askesin) that was
later replaced by the Public Health Insurance Scheme (Jamkesmas) program.

The Indonesian robust economy also has an impact in stronger purchasing power and wider health insurance coverage, which
will ultimately shift customer preference from consuming OTC medicine to consulting doctors and having prescription
medication. in This case will benefit KLBF since prescription medication brings the highest profit margin among other products.

KLBF’s strategy to be the first company to acquire the expired medicine patent has benefited KLBF since it can spend less than
1% of its sales annually for R&D. At the same time, the strategy enables KLBF to introduce new generic products earlier than
other pharmaceutical players in Indonesia, thus allowing it to enjoy a relatively higher margin on that new generic drug.
Prescription Division Revenue VS Gross Profit Revenue contribution for Prescription Division
Revenue Gross Profit Profit Margin

2,500 75%
2,214 Generic Licensed
7% Products
2,000 1,884
1,806 32%
Branded
1,457 1,403 Generic
1,500 1,349
1,195 1,256 61%
1,149 65%
1,079
955 1,003
1,000 825
705

500

- 55%
2005 2006 2007 2008 2009 1H09 1H10
Source : Company Source : Company

KLBF Market Share for Prescription medicine Revenue contribution from Each Division

Prescription Consumer Health

Pfizer, 4%
Nutritional Distribution
Sanofi Aventis,
4,000
Dexa Medica, 4%
7%
Interbat, 4%
Sanbe, 6% 3,000
Farenheit, 3%
Kalbe, 14%
2,000

1,000
Others, 59% 2005 2006 2007 2008 2009

Source : Company, IMS Health Prescription Pharmaceutical FY 2009 Source : Company

Source : Company

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Batavia Stock Focus 1 October 2010

Consumer Health division: KLBF’s consumer health division consists of Over-the–Counter (OTC) products and energy drink
products. Most of the target market for this segment is the middle-low income, which seeks for self-medication for their
illnesses. During 2005 – 2009, the division’s revenue has grown by CAGR of -3,1% along with a declining gross profit margin
mainly due to the fierce competition in the energy drink segment. Extra Joss alone contributes 30% of the division’s revenue.
KLBF’s Extra Joss now comes in second by owning a market share of 31% in 2009, down from 38% in 2008. The market
leader now is Kuku Bima with 36% market share.

In 2009, the division’s revenue and gross profit grew by 17,1% and 8,2% y-o-y, respectively, due to the better economic
environment. Going forward, KLBF has a new strategy to improve its consumer health performance both in revenue and profit
margin by introducing 7 new products with natural ingredients. The new products are Tipco Fruit Juice, Fatigon Hydro,
Mensana, and new variants to KLBF’s current brands (Mixagrip Pegal Linu, Extra Joss new fruity flavor, Kids Entrostop, and
Procold Promuno). We estimate that Extra Joss’ new flavor will help KLBF acquire more market share in the energy drink
sector.

Consumer Health Revenue VS Gross Profit KLBF Key consumer Health Products as of Dec 09
Market Share
Revenue Gross Profit Profit Margin Therapeutic Class Brand Name
by Volume
2,500 70% Antacid Promag, Waisan 84%
Anti Diarrhea Neo Entrostop 45%
1,955 Cough Remedies Komix, Woods, Mextril, Mixadin 41%
2,000 1,843 1,856
1,727 Cold Remedies Mixagrip, Procold 37%
1,475 60%
Multivitamin & Vit.C Cerebrofit, Fatigon, Xon-Ce 45%
1,500
1,213 1,153 1,169 Multivitamin for kids Cerebrofort, Sakatonic 21%
958 Energy Drink Extra Joss 31%
1,000 885 826
797
50%
427 457
500

- 40%
2005 2006 2007 2008 2009 1H09 1H10

Source : Company Source : Company

KLBF Share for Consumer Health Market (Dec 09) KLBF Share for Energy Drink Market (Dec 09)

Pharos, 6% Extra Joss,

Sanbe, 4% 31%
Kalbe, 14%
Soho, 9% Konimex, 4%
Tempo, 9%
Kalbe, 14% Darya Varia, Others, 2%
3%
M150, 5% Kuku Bima,
36%
Kratingdaeng,
Others, 50% 8%

Source : Company, IMS Health Prescription Pharmaceutical FY 2009 Source : Company, Ac Nielsen FY 2009

Source : Company

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Batavia Stock Focus 1 October 2010

Nutrition division: KLBF’s nutritional division has a complete product portfolio, spanning from milk for expecting and
lactating mothers, babies, toddlers, children, adults, and special needs consumer groups. Most of the target market for this
segment is the middle-high income. During 2005 – 2009, the division’s revenue has grown by CAGR of 15,5%, the fastest
CAGR growth among the other 3 divisions. KLBF owns 8% market share of the Rp9,2 trilion nutritional market in 2009.

In 1H10, the division’s revenue and gross profit grew by 19,8% and 51% y-o-y, respectively, due to the better economic
environment that has enabled consumers to spend more money on premium products. The higher price of imported skimmed
milk, a main raw material for KLBF’s milk products, was offset by the strengthening Rupiah relative to the US Dollar, which
contributed to a higher gross profit margin in 1H10.

Catalysts for this division comes from the robust Indonesian economic prospects which increases consumer buying power and
KLBF’s strategy to boost its sales by implementing a “direct-to-consumer” marketing campaign such as placing nutrition
specialists in stores to help customers better understand its nutrition products.

KLBF has also introduced a new nutrition product under the “Nutrican” brand to cater to the needs of cancer patients. Nutrican
was a new joint research product between Kalbe, Medicine Faculty University of Indonesia, and Dharmais Cancer Hospital.

Nutrition Division Revenue VS Gross Profit GDP VS Milk consumption per capita

Revenue Gross Profit Profit Margin

GDP Per capita (USD) Milk Per capita (kg)
2,500 70%
20,000 40
1,936
2,000 1,728 15,000 30
60%
1,600
1,500 1,323 10,000 20
1,090 1,022 1,039 50%
961 5,000 10
1,000 862 867
768
623 629
- 0
417 40%
500 Vietnam Philipines Indonesia Thailand Malaysia South
Korea
- 30%
2005 2006 2007 2008 2009 1H09 1H10
Source : IMF, FAPRI (Food & Agricultural Policy) for whole milk
Source : Company powder, liquid milk, and non fat dry milk

KLBF Share for Nutrition Market (Dec 09) KLBF Key consumer Health Products as of Dec 09

Sari Husada Market

(Danone), 16% Brand Name Market Segment
Nutricia (Danone), Share
Frisian Flag, 11%
10%
Diabetasol 71% Milk for diabetic treatment
Kalbe, 14% Prenagen 52.4% Milk for pregnant and lactating mother
Milna 68.0% Semi solid food for 6-24 months old baby
Morinaga BMT 9.2% Milk for 0-6 months baby
Others, 3% Morinaga Chil Mil 9.1% Milk for 1-3 years baby
Nestle , 30%
Nutrifood, 3% Entrasol 5.6% Milk for dietary purpose
Fonterra, 6%
Mead Johnson, 4% Morinaga Chil Kid 5.3% Milk for 1-3 years baby
Morinaga Chil School 1.8% Milk for older than 3 years toodlers
Wyeth, 5%
Abbot, 4%
Source : Company, Ac Nielsen FY 2009

Source : Company

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 Batavia Stock Focus 1 October 2010

Distribution and Packaging division: The division consists of two public companies:

1. Enseval Putera Megatrading (EPMT) focuses on distribution and logistics with KLBF owning an 83,75% stake. In 1H10, 72%
of EPMT’s revenue came from KLBF for the distribution of its products.

2. Kageo Igar Jaya (IGAR) focuses on packaging with KLBF owning a 68,04% stake. In 1H10, 34% of IGAR revenue came
from KLBF.

In 1H10, this division booked revenue of Rp1,58 trillion, growing by 7,6% y-o-y. However, gross profit margin decreased to
29,8% from 35,4% due to the Rupiah strengthening relative to USD.

Most of the distribution division’s revenue is generated through the distribution of KLBF’s products. As an independent
company, EPMT also generates revenue through selling and distributing other companies’ principal products. EPMT receives a
certain percentage in fees, and thus the profit margin is limited. Revenue of the distribution division is highly dependant on the
performance of other divisions and principals in terms of the quantity of the products sold. If the fee is received in a foreign
currency, then the fluctuation of that foreign exchange to the Indonesian Rupiah will performance as well.

In August 2010, KLBF sold 58,1% of its ownership in IGAR for Rp112 billion at Rp185 per share due to its low profitability.
IGAR has a 7% EBIT margin in 1H10 compared to KLBF with an EBIT margin of 17,8%. Furthermore, the management’s
decision to sell its ownership is also due to the fact that the packaging division requires a relatively high Capex to produce the
latest up-to-date packaging design for its product. The impact of this action on KLBF’s balance sheet will be minimal as IGAR’s
total revenue and net profit in 1H10 was Rp284,67 billion and Rp13 billion, respectively, or 4% of KLBF’s consolidated revenue
and 3% of consolidated net profit.

Distribution Division Revenue VS Gross Profit Main 3rd Party Principals based on Category

Revenue Gross Profit Profit Margin

3,500 3,211 40%

3,000 2,790

2,500
30%
2,000 1,742
1,477 1,452 1,474 1,586
1,500 1,129
908 20%
1,000
522 473
500 171 178 227
- 10%
2005 2006 2007 2008 2009 1H09 1H10
Source : Company Source : Company

Distribution Sales 1H10 Packaging Sales 1H10 Revenue Breakdown for Distribution Only 1H10
Chemical Raw Medical
Principals Material Instruments
Kalbe
28% 8% 5%
Farma 3rd
34% Party
66%

Kalbe
Farma
Distribution &
72%
Logistic
87%
Source : EPMT 1H10 Unauditted Financial Statement
Source : Company

8
Batavia Stock Focus 1 October 2010

Financial Performance:
During 2005 – 2009, KLBF’s revenue grew at a CAGR of 11,5%. For FY10, we estimate net sales to grow 12,3% y-o-y. Most of
the revenue growth will come from prescription growth of 14% y-o-y and nutritional growth of 18%y-o-y on the back of the
Government of Indonesia’s (GoI) initiatives. The GOI plans to increase Indonesia’s spending on health and implement a social
safety net plan through the introduction of the Public Health Insurance Scheme (Jamkesmas) program for the poor. Thus, we
estimate that more people will consult doctors to cure their illnesses and have prescription medication rather than just
consuming OTC products.
Given Indonesia’s bullish economic environment that will increase consumer purchasing power, we estimate that more people
can afford to consume more milk to feed their children and maintain their health.
The 1H10 financial report shows that the prescription and nutrition sectors post promising growth figures, while the consumer
health sector only grew by 4% y-o-y due to the fierce competition in energy drink products. We estimate that the customer
health division will start to grow its revenue in 2H10 and FY11 on the back of KLBF’s seven new variant products using natural
ingredients. In the energy drink segment, KLBF launched a new flavor for Extra Joss in order to differentiate its product from
the nearest competitors and grab back its market share.
We estimate for KLBF’s blended profit margin to increase in 2010 from 49,7% in 2009 into 50,9% in 2010, mainly coming from
an improvement in nutritional’s gross profit margin. The unaudited results for 1H10 show that the nutrition division was able to
boost its profit margin significantly from 48% in 1H09 to 61% in 1H10.
In the prescription division, 68% of KLBF’s revenue comes from generic products, 61% from branded products, and 7% from
non-branded generic products. Given the nature of generic products as well as the health ministry’s decree no 146/2010 on 27
January 2010 regulating the upper price cap for 453 labels of generic products, we will see limited room for the prescription
division to improve its margin. Thus, we estimate for growth to come from volume.
Income Statement 2006 2007 2008 2009 2010E 2011E 2012E 1H09 1H10 YoY Growth
Prescription 1,457 1,806 1,884 2,214 2,524 2,877 3,280 1,079 1,256 16%
Consumer Health 1,843 1,856 1,475 1,727 1,865 2,052 2,257 797 826 4%
Nutritional 1,323 1,600 1,728 1,936 2,284 2,695 3,181 867 1,039 20%
Distribution 1,452 1,742 2,790 3,211 3,532 4,061 4,671 1,474 1,586 8%
NET SALES 6,072 7,005 7,877 9,087 10,205 11,686 13,388 4,217 4,707 12%
COST OF GOODS SOLD 2,973 3,453 4,074 4,575 5,013 5,743 6,582
Prescription 1,003 1,195 1,149 1,403 1,640 1,870 2,132 705 825 17%
Consumer Health 1,153 1,169 885 958 1,026 1,129 1,241 427 456 7%
Nutritional 768 961 862 1,022 1,325 1,563 1,845 417 629 51%
Distribution 178 227 908 1,129 1,201 1,381 1,588 522 473 -9%
GROSS PROFIT 3,099 3,552 3,804 4,512 5,192 5,943 6,806 2,071 2,383 15%
EBIT 1,071 1,129 1,143 1,566 1,876 2,209 2,602 698 838 20%
Pre-tax Income 1,090 1,159 1,178 1,471 1,874 2,228 2,647 663 842 27%
Minority Interests (88) (106) (119) (121) (157) (187) (222) -70 -30 -58%
NET INCOME 677 706 707 929 1,211 1,440 1,710 399 572 44%

yoy growth (%)

Prescription 8.0% 24.0% 4.3% 17.5% 14.0% 14.0% 14.0%
Consumer Health -5.7% 0.7% -20.5% 17.1% 8.0% 10.0% 10.0%
Nutritional 21.4% 21.0% 8.0% 12.0% 18.0% 18.0% 18.0%
Distribution -1.7% 20.0% 60.1% 15.1% 10.0% 15.0% 15.0%
Net Sales 3.4% 15.4% 12.5% 15.4% 12.3% 14.5% 14.6%
Gross Profit 4.6% 14.6% 7.1% 18.6% 15.1% 14.5% 14.5%
EBIT 1.1% 5.4% 1.2% 37.0% 19.8% 17.8% 17.8%
Pre-tax Profit 7.3% 6.3% 1.7% 24.9% 27.4% 18.9% 18.8%
Net Profit 8.1% 4.3% 0.2% 31.4% 30.3% 18.9% 18.8%

Margin (%)
Prescription 69% 66% 61% 63% 65% 65% 65% 65% 66%
Consumer Health 63% 63% 60% 55% 55% 55% 55% 54% 55%
Nutritional 58% 60% 50% 53% 58% 58% 58% 48% 61%
Distribution 12% 13% 33% 35% 34% 34% 34% 35% 30%
Gross Profit Margin 51.0% 50.7% 48.3% 49.7% 50.9% 50.9% 50.8% 49.1% 50.6%

Source : Company

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Batavia Stock Focus 1 October 2010
BUY, with target price of Rp3.000

Based on the discounted free cash flow valuation model, our target price for KLBF is Rp3.000, with an assumed WACC of
12,8% and a terminal growth rate of 5%. At our target price, KLBF will be trading at 23,3X FY10 PE and 19,6X FY11 PE. In our
view, KLBF will post another bright performance in the next quarter coming from the stable to strong Rupiah currency, the
performance of new products launched in consumer health segments, and a bright outlook on the dairy industry. Hence, we
recommend a BUY on KLBF.

Furthermore, KLBF’s dividend policy for the coming years can be a sweetener for investors as KLBF is targeting a payout ratio
of 25% in FY10, 30% in FY11, and 35% in FY 120. Based on our estimate, KLBF dividend yield stands at 1% for 2010 and
1,5% for 2011.
DCF Valuation (In Rp bn)
2009 2010 2011 2012 2013 2014 2015
EBIT 1,566 1,876 2,209 2,602 3,098 3,688 4,389
(+) Depreciation & Amortisation 159 182 194 208 223 238 255
(-) Tax (421) (506) (602) (715) (858) (1,028) (1,231)
(-) Capex (230) (280) (299) (320) (343) (367) (392)
(+/-) Changes in WC (78) (82) (239) (273) (344) (457) (357)
Free Cash Flow (Rp billion) 996 1,189 1,264 1,502 1,776 2,075 2,664
PV of Free Cash Flow (Rp billion) 1,121 1,181 1,238 1,283 1,460
Total PV of FCF (Rp billion) 6,284
Terminal Value (Rp billion) 35,968.4
PV of Terminal Value 19,717
Minority interest 637.5
Net cash 2,867
Total value (Rp billion) 28,230
Shares Outstanding (mn shares) 9,375
Value Per Share (Rp) 3,011 (Rounded to Rp 3.000)

Rolling P/E Rolling P/BV

25 6

20 5

4
15

3
10
2
5
1
0
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 0
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Source : Bloomberg
Source : Bloomberg
KLBF Dividend Policy P/E Jakarta Consumer Index vs P/E KLBF

40%
35%

30%
30%
25%

21%
20% 19%
17%

10%

1%
0%
2006 2007 2008 2009 2010E 2011E 2012E

Source : Company Source : Bloomberg

10
Batavia Stock Focus 1 October 2010
Income Statement
(in Bio IDR) 2007A 2008A 2009A 2010F 2011F
NET SALES 7,005 7,877 9,087 10,205 11,686
COST OF GOODS SOLD 3,453 4,074 4,575 5,013 5,743
GROSS PROFIT 3,552 3,804 4,512 5,192 5,943
Total Operating Expenses 2,422 2,661 2,946 3,316 3,734
EBIT 1,129 1,143 1,566 1,876 2,209
Non-Operating Expenses 29 35 -95 -2 19
Pre-tax Income 1,159 1,178 1,471 1,874 2,228
Tax Expense 347 353 421 506 602
Minority Interests -106 -119 -121 -157 -187
NET INCOME 706 707 929 1,211 1,440

Balance Sheet
(in Bio IDR) 2007A 2008A 2009A 2010F 2011F
Cash and cash equivalents 1,116 1,322 1,563 2,867 3,733
Short-term investments, net 176 125 63 63 63
Receivables 927 1,001 1,318 1,292 1,479
Inventories, net 1,427 1,606 1,561 1,790 2,051
Other current assets 114 114 197 197 197
Total Current Assets 3,760 4,168 4,702 6,209 7,523
Other non-current assets 174 208 382 382 382
Property, plant and equipment 1,204 1,327 1,398 1,496 1,601
Total Non-current Assets 1,378 1,536 1,781 1,878 1,983
TOTAL ASSETS 5,138 5,704 6,482 8,087 9,506
Short-term loans 44 146 339 0 0
Payables 374 398 601 627 727
Accrued expenses & Tax payable 334 447 633 728 837
Bonds Current Maturity 0 259 0 0 0
Total Current Liabilities 755 1,250 1,574 1,355 1,564
Bank Loan 267 0 0 0 0
Other Noncurrent Liabilities 99 109 117 123 129
Total Noncurrent liabilities 367 109 117 123 129
TOTAL LIABILITIES 1,121 1,358 1,691 1,478 1,694
Minority Interest 630 722 480 637 824
Stockholder Equity
Capital stock 508 508 508 508 508
Excess paid in capital 3 3 3 3 3
Others -7 -36 -41 0 0
Appropriated 26 33 40 5,461 6,477
Unappropriated 3,076 3,684 4,489 0 0
Treasury stock -218 -570 -689 0 0
Shareholders’ Equity, Net 3,387 3,622 4,310 5,972 6,988
Total Liabilities and Equity 5,138 5,704 6,482 8,087 9,506

Cash Flow
(in Bio IDR) 2007A 2008A 2009A 2010F 2011F
Net Income 706 707 929 1,211 1,440
Add depreciation 136 156 159 182 194
Changes in account receivables -167 -74 -317 26 -187
Changes in inventory -542 -179 45 -229 -261
Change in advances, prepaid tax & expe 99 113 186 95 109
Changes in other assets 230 16 -195 0 0
Changes in account payables -11 24 203 25 100
Changes in working capital -391 -100 -78 -82 -239
Others -88 45 354 0 0
CFO 363 808 1,364 1,310 1,396
Proceed from treasury stock -218 -351 -119 689 0
Increase in other investing activities - ne -35 7 9 6 6
Capex -316 -279 -230 -280 -299
Others 527 437 -306 0 0
CFI -42 -186 -645 415 -293
Changes in debt -25 -9 -259 0 0
Short term borrowing 12 102 193 -339 0
Equity issuance 0 0 0 0 0
Dividend cash -126 -123 -152 -279 -424
Adjustment -421 -473 73 -1 0
Others 86 64 -247 198 187
CFF -474 -440 -391 -421 -237

11
 Head Office
Chase Plaza, 12th Floor
Jl.Jend.Sudirman Kav 21, Jakarta 12920
Tel : +62-21 520 7374
Fax : +62-21 2598 9821
www.bps.co.id
Research Team
Yusuf Ade Winoto Head of Research yusuf@bps.co.id
Strategy, Banking, Coal

Hendrik Cement, Construction hendrik@bps.co.id

Jap Harry Wijaya Consumer harry@bps.co.id

Wilim Hadiwijaya Plantation wilim@bps.co.id

Julio Parningotan Technical Analyst Julio@bps.co.id

Branches
Jakarta Rukan Grand Puri Niaga Jl. Puri Kencana Blok K6 No.2P
Tel: +62-21 5835 1562
Fax: +62-21 5835 1563

Bandung Jl.Jend Gatot Subroto No.47 C, Bandung 40262

Tel : +62-22 8734 0273
Fax : +62-22 8734 0274

Medan Jl.Ir Djuanda No.16-J, Medan 20157

Tel : +62-61 456 2262
Fax : +62-61 452 3013

Surabaya Jl.Sulawesi No.56, Surabaya 60281

Tel : +62-31 504 8889
Fax : +62-31 505 3989

Malang Jl.Kahuripan No.5, Malang 65119

Tel : +62-341 358 889
Fax : +62-341 353 797

Palembang Jl.Rajawali No. 1174 D - Palembang

Tel : +62-711 375 600 (hunting)
Fax : +62-711 376 855

Yogyakarta Jl Magelang No 91 - Yogyakarta

Makassar Ruko Ruby I No.9 Jl. Boulevard Panakukang Mas - Makassar 90222
Telp : +62 411 - 430959 (hunting) - 430949 - 455038 (sales)
Fax : +62 411 - 432376

Batavia Prosperindo Sekuritas Investment Ratings: BUY – expected total return of 10% or more; HOLD – expected total return of -10% to 10%;
SELL – expected total return of -10% or more. Expected total return is defined as 12-month total return (including dividends).

DISCLAIMER
The information contained in this report has been taken from sources we deem reliable, however, PT. Batavia Prosperindo Sekuritas or its affiliates, cannot
guarantee its accuracy and completeness.

The views expressed in this report accurately reflect personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of
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constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient’s individual circumstances.
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