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Indofood CBP: Shedding More Light On Proposed Acquisition

Jul. 02, 2020 1:02 AM ETPT Indofood CBP Sukses Makmur Tbk (PIFFY)

Summary

  • Indofood CBP's proposed acquisition of Pinehill Company is unfavorable in my opinion, given the high acquisition P/E multiple and the increased debt burden.
  • Indofood CBP's 1Q2020 financial results were strong, which validates the company's status as a defensive consumer staple.
  • Indofood CBP trades at 18.5 times consensus forward next twelve months' P/E, and it offers a consensus forward FY2020 dividend yield of 2.4%.
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Elevator Pitch

I maintain a Neutral rating to Indonesian consumer branded products company PT Indofood CBP Sukses Makmur Tbk (OTCPK:PIFFY) (OTC:PNDFF) [ICBP:IJ].

This is an update of my initiation article on Indofood CBP published on February 20, 2020. Indofood CBP's share price has declined by -16% from IDR11,000 as of February 19, 2020 to IDR9,200 as of July 1, 2020 since my initiation. Indofood CBP trades at 18.5 times consensus forward next twelve months' P/E, which represents a discount to its historical three-year and five-year mean consensus forward P/E multiples of 23.8 times and 24.2 times, respectively. The stock also offers a consensus forward FY2020 dividend yield of 2.4%.

Indofood CBP's proposed acquisition of Pinehill Company is unfavorable in my opinion, given the high acquisition P/E multiple, the increased debt burden, and the fact that the transaction does not require the approval of independent shareholders.

On the flip side, Indofood CBP's 1Q2020 financial results were strong, which validates the company's status as a defensive consumer staple. Also, with the stock trading at a discount to its historical average P/E multiples, negatives associated with the proposed acquisition of Pinehill Company are priced in to some extent.

As such, I retain my Neutral rating on Indofood CBP. There is potential upside, if Indofood CBP can secure new acquisition debt at a lower-than-expected interest cost.

Readers have the option of trading in Indofood CBP shares listed either on the Over-The-Counter Bulletin Board/OTCBB as ADRs with the tickers PIFFY and PNDFF, or on the Indonesia Stock Exchange with the ticker ICBP:IJ. For shares listed as ADRs on the OTCBB, note that liquidity is low, and bid/ask spreads are wide.

For shares listed in Indonesia, there are limited risks associated with buying or selling them in terms of trade execution, given that the Indonesia Stock Exchange is

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This article was written by

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Asia Value & Moat Stocks is a research service for value investors searching for attractive Asia-listed investment opportunities  with a huge gap between price and intrinsic value, leaning towards both deep value balance sheet bargains (i.e. buying assets at a discount e.g. net cash stocks, net-nets, low P/B stocks, sum-of-the-parts discounts) and wide moat stocks (i.e. buying earnings power at a discount in great companies like "Magic Formula" stocks, high quality businesses, hidden champions and wide moat compounders).


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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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