International Conference

The 14th ICMSS

Investment Analysis
Kerria & Brothers
Universitas Indonesia

PT Malindo Feedmill Tbk.

Malindo Feedmill: The Rising Star

Market Profile
52-Week Price Range

We initiate coverage of PT Malindo Feedmill Tbk. (MAIN) with a BUY

IDR 2,045 - IDR 3,715

Average Daily Volume

5,576,121

Beta

0.99

Dividend Yield (Estimated)

0.94

Shares Outstanding

1,791,000,000

Market Capitaization

3,850,650,000,000

Institutional Holdings

59.10%

Public Holdings

40.90%

Book Value per Share

698.19

Debt to Total Capital

63.46%

Return to Assets

8.87%

Return to Equity

19.01%

Stock Price Movement

MAIN.JK

JKSE
5500
5000
4500
4000
3500
10/3/2014

5/3/2014

12/3/2013

7/3/2013

2/3/2013

9/3/2012

4/3/2012

11/3/2011

3000
6/3/2011

Strong Opportunity in Domestic Poultry Business

Chicken is by far the most common and popular meat products for
Indonesian consumers. However, chicken product consumption in
Indonesia (8 kg/capita per year) remains low in comparison to other
South East Asian countries (16 kg 47 kg/capita per year). The market
still has a lot room to grow and the consumption will potentially increase
by 11.63% CAGR for the next 5 years. MAIN has consistently increased
its production capacity to grasp this opportunity and this performance will
be expected to continue in the future with considerable capital
expenditures.

Favorable Market Landscape Renders Sustainable Margin

4500
4000
3500
3000
2500
2000
1500
1000
500
1/3/2011

recommendation by putting target price of IDR 2,590 reflecting potential

upside of 19.06% from current price of IDR 2,150. MAIN is able to
capitalize its main operation through strong cash flow and good business
performance. MAIN will be able strengthen its position in poultry
industry in the future by capturing more market share and profit.

Feedmill as the main business line is exposed to raw materials price

volatility as its main cost components, soybean meal and corn, are
commodities-related. However, final consumers are unlikely pricesensitive in that costs can be passed on farmers and end products. In
addition, the market is oligopolistic in nature that is concentrated towards
some big players, which enables swift price adjustment. Meanwhile DOC
segment remains a challenging landscape with selling price fluctuation.
But this segment acts as barrier to entry that ensures security for
incumbents to grasp further market share.
New Processed Food Segment: Potential Growth Driver
MAIN launched its customers processed food products in 2013 with
SunnyGold and Ciki Wiki brands. MAIN is predicted to spur
competition in downstream business by targeting 2.2% market share
within five years, and this segment will contribute 3 5% of total revenue

Investment Summary
We issue BUY recommendation on PT Malindo Feedmill Tbk. (MAIN)
with target price of IDR 2,590. The valuation method used is Discounted
Free Cash Flow to Firm (FCFF) model, offering 19.06% upside from its
closing price of IDR 2,150 in December 28 2014. MAIN has
demonstrated solid business performance and is expected to continue
strengthening its presence in poultry industry.
Steady Cash Flow Coming from Core Business Segments
All MAIN business segments have resulted in increasing sales over the
years this is predicted to continue in line with huge opportunities in
market. Revenue is forecasted to increase by 14.1% CAGR 2014F2018F. With favorable margin will come along the way, EBITDA
margin is expected to be sustainable 15.9%.
Strong Balance Sheet Fundamentals
MAIN has a good cash position as shown by its high dan continously
rising liquidity. The company also has improved its leverage by
decreasing its debt ratio. With ample cash coming from operating cash
flow and equity issuance, MAIN can proceed with its expansion plan
through capital expenditures and investments in increasing its capacity.

Valuation Method
We use Discounted Free Cash Flow to Firm (FCFF) model for our
valuation to arrive in our target price.
Identifiable Investment Risks

We have identified several risks related to core business operations

of MAIN and come up with three main risks: volatility of
exchange rates, DOC selling price, and volatility of raw materials
prices that may impact on our target price valuation.

Business Overview

Millions

Figure 1: Sales and EBITDA Margin

5,000

25.0%

4,000

20.0%

3,000

15.0%

2,000

10.0%

1,000

5.0%

0.0%
2009 2010 2011 2012 2013
Sales

EBITDA Margin

Source: Company Data

PT. Malindo Feedmill Tbk. (MAIN.JK) is a rising star within Indonesian

poultry sector, established in 1997. The company went public in 2006 to
be listed in the national stock exchange. Currently, 59.1% shares are held
by Dragon Amity, a Malaysian firm; while the rest of shares are held by
public. Initially, MAINs lines of business comprise of feedmill division,
breeder division, and broiler division. But since 2013, the company
added another line of business: processed food division through its
subsidiary, PT. Malindo Food Delight.
The company has operations through plants and firms across Indonesia
as indicated in Figure 3.
Business segments the companys main business segments are
segregated into following divisions:

Figure 2: Breakdown of 2013 Sales Segments

10.7% 0.2%

20.4%
68.7%

Feedmill

DOC

Broiler

Processed Foods

Source: Company Data

Figure 3: Area of Operations

Source: Company Data

Feedmill division: the main driver of revenue is from this

segment, accounting for 68.7% of total revenue. Feedmill
division has a total production capacity amounting 900.000 tpa.
MAIN provides variety of feeds for broilers, layers, commercial
meat ducklings, and other livestock.
Breeder division: the product of this division is day-old chicks
(DOC). The production capacity for this product is 200 millions
chickens per annum, making up 20.4% of total revenue in 2013.
Broiler division: as an integrated company, MAIN also raises
and produces broilers with capacity of 28millionskg per anum,
contributing 10.7% of total revenue.
Foods processing division: MAIN introduced the division as
supporting unit for its downstream business, under the brands
SunnyGold and Ciki Wiki. Its current production capacity is
only 9,000 tpa with contribution for total revenue of 0.2%.

MAIN is currently tailing behind two big players in the industry:

Charoen Pokphand (CP) and Japfa. In feedmill segment, MAIN holds
8% market share while CP and Jpafa hold 32% and 24%, respectively. In
DOC segment, MAINs market share is 9%, behind Charoen (30%), and
Japfa (9%).
Company strategy MAIN strives to excel in growing poultry market
through expansions in every of its product segment. It keeps expanding
its marketing coverage over animal feeds, and broadens market
penetration by vigorous establishment of new feedmill, new breading
farms, and food processing factories.

Industry Analysis
ECONOMIC FUNDAMENTALS UPHOLDING GROWTH
Figure 4: Indonesian GDP per Capita and GDP Growth
4000
3500
3000
2500
2000
1500
1000
500
0

7
6
5
4
3
2
1
0
2007 2008 2009 2010 2011 2012 2013
GDP Per Capita

GDP Growth

Source: World Bank

0
20 Demographic
40
60
80
Figure 5: Indoensian
Transition

Resilient macroeconomic outlook Indonesian economy remains

subdued this year following slowdown in 2013. Depreciation of rupiah,
increase in fuel price in mid-2013 and mid-2014 have triggered hike in
interest rate (7.75%) that has deterred economic growth. Economic
growth is forecasted to be 5.3% in 2014. Although inflation is likely to
be 7%, private consumption remains robust as the main driver of
economic growth. Strong domestic consumption will support demand for
foods as daily necessities, in which chicken is very common and popular
among most Indonesians.
Stabilizing exchange rate rupiah depreciated by 30% since January
2013. Nevertheless, it has stabilized and is currently entering a new
equilibrium at around Rp 12,500/USD. This is a favorable outlook for
MAIN and poultry industry in general as raw materials are mainly
imported therefore change in exchange rate will affect margin.
Rising disposable income and middle-class in the past five years,
GDP per capita of Indonesia has seen a 53% increase, currently at USD
3,475. The emerging economy is also indicated by growing middle-class
society, in which currently there are 74 millions out of 250 millions
population. The number of middle-class is predicted to increase by 8 9
millions per year, making up roughly 141 millions in 2020. This is in line
with the surge of demand for food chicken in two ways: the number of
consumption of chicken per capita and consumption penetration as now
there are more affluent customers pouring the market.

Elite
Affluent
Upper middle
Middle
Emerging middle
Aspirant
Poor
2012

2020

Source: Boston Consulting Group, Team Estimate

Figure 6: Indonesian Chicken Consumption

Source: Poultry Breeding Firms Association (GPPU)

HUGE POTENTIAL DEMAND FOR POULTRY SECTOR

Strong domestic chicken consumption chicken is by far the most
preferred meat product as majority of Indonesian consumers are Muslim
that are barred in consuming pork, and beef remains a very expensive
alternative. However, chicken product consumption in Indonesia remains
low compared to other South East Asian countries. In 2013, chicken
consumption was around 8kg/year, far below four neighboring countries:
Brunei, Singapore, Malaysia and Thailand. The consumption rate of
these nations are at 47kg, 38kg, 38kg and 16kg per year respectively.
However, according to Poultry Breeding Firms Association (GPPU), this
level of consumption will increase by 11.63% CAGR for the next 5
years. Resulting from the increasing number of consumer spending and
demand for more nutritious food. This condition implies that Indonesian
poultry sector has tremendous space for players to rake in profit.

Figure 7: Chicken Consumption Countries Comparison

45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-

39.0

17.8
12.8 12.0
10.5

7.0
2.0

Potential expansion across Indonesian wide regions poultry market

is concentrated in Java 56% - 67% of poultry farms are located in Java
island. This offers a wider cross-regional expansion as chicken is also
strongly consumed in other regions outside Java, with the most potential
lies within Northern part of Sumatera and Kalimantan. MAIN has
sufficient capability supported by its vast distribution networks.
Infrastructure support remains a main constraint for logistics but the new
Indonesian government seems to improve the landscape.
MODERATING MARGIN IN BUSINESS SEGMENTS

2012

2013

Source: World Bank, USDA

Figure 8: Regional Distribution of Chicken Farms

Source: Statistics Indonesia, Ministry of Agriculture

Figure 9: Corn and Soybean Meal Prices

Source: Bloomberg

Long-term stable margin in feedmill the main components of cost for

feedmill (70% contributor of total revenue) are soybean meal and corns,
whose prices fluctuate in commodities market. Surging commodities
prices have affected margin in 2013 and 2014. However, we expect the
margin will be lenient in the future based on three things: 1) final
consumers have robust demands that are willing to accept higher prices,
as well as farmers who accept higher feed price; 2) the market is
concentrated into three players controlling 50% market share (Charoen
Phokphand, Japfa, Malindo Feedmill), enabling them to adjust selling
prices accordingly; 3) big players also have ample inventories thus high
inventory period allows more time to adjust selling prices.
Challenging DOC landscape margin in this segment used to be very
lucrative (more than 20% in 2010) but it had leveled out due to
oversupply. Selling price can swing from IDR 2.000/DOC to above IDR
6.000/DOC, making this a challenging market. In Q3 2014, ASP for
DOC is IDR 2.980/DOC while company needs IDR 4.000/DOC to
breakeven, which is caused by oversupply in market after Eid-ul Fitr. We
do not expect margin to be sustainable in the future but this segment is
tactical consequence embraced by big players as barriers to entry for new
entrants. DOC is usually used as bundles to penetrate in new market
areas in further enlarging market shares.
Special gift from Japan in 2014 year-end - Indonesia was banned to
export its poultry product to Japan due to Avian Influenza outbreak in
2014. This penalty has caused millions of dollars in loss to the national
export income for the last decade. However, with the exposure of
Chinese processing scandal, which was also one of their importing
sources, caused the Japanese government to seek new alternative
sources. In August 2014, the Japanese and Indonesian government were
in talk of resuming chicken processed food trade agreement.
In the late of December 2014, Japans Ministry of Agriculture, Forestry,
and Fishery has officially opened its chicken processed food market to
Indonesia three big players: CP, Japfa, and MAIN. According to

Figure 10: DOC Selling Prices

Indonesia Poultry Breeders Association (GAPPI), this export agreement

could potentially grab US$2 billion per year or equal to 10% of Japanese
poultry market.

Competitive Positioning

Source: Association of Poultry Society (PINSAR)

Figure 11: Porter's Five Forces

MAINs position in the market is driven by its business segments. In this

competitive analysis, we initially provide landscape analysis using
Porters Five Forces, than we identify MAINs competitiveness in the
following sections: strength in feedmill segment, capacity expansion in
DOC and broiler segments, and launch of processed foods segment.
Porters Five Forces analysis in this paper, we use Porters Five
Forces model to distingusih five external forces driving competitive
position of MAIN in poultry market and measure magnitude of each
factors.

Source: Team Estimate

Bargaining power of supplier:Raw materials such as corns and

soybeans are mainly importedfrom feoreign supplier.MAIN is
dealing with high bargaining power of foreign suppliers in terms
of foreign exchange and commodity price volatility, and in terms
of amount of supply.
Bargaining power of customers: The bargaining power of
MAIN is considered as medium-to-high due to the nature of
poultry industry. Most of revenues are generated from related
parties that already have business partnership with MAIN
(business-to-business). However, there is always risk that
business customers move to other competitors.
Threats of new entrants: By nature, poultry is high-capitalized
industry with considerable barriers to entry. The declining
numbers of company from 1464 players in 2004 to 176 players
in 2013. We consider the threats of new entrants is medium-tolow.
Threats of substitutes:there is currently no direct substitute for
poultry feeds. While chicken is main consumption where other
meat alternative such as beef remains highly expensive.
Therefore, the threat of substitute is low.
Rivalry among existing competitors: As industry getting more
concetrated, each player tries to maximize their market share that
creates stiff competition among big players in poultry industry.
Concentration ratio reaches approximately 70% as quite tough
rivalry exists among existing competitors. Thus, we put high in
this type of forces.

Figure 12: Peers Competitive Comparison

Source: Team Estimate

Figure 13: Production Capacity

Source: Company Data

Competitive position in feedmill market we can identify several

factors affecting competition among players in feedmill segment:
DOC bundling: bundling strategy is used to attract farmers to
buy feed as chicken growth is assured by quality DOC and profit
for farmers is maximized by dealing with only one supplier for
both feed and DOC.
Post-sales service: guidance of best practice in farming will
enhance customer loyalty.
Distribution networks: vast distribution networks not only reach
larger nationwide markets but strategic location near will also
create cost advantage.
Brand equity: brand is indicator of feed quality and consistent
yield result.
These competitive factors are difficult to fulfill and possessed by big
players in market. It also creates barriers to entry for new competitors.
Strong commitment for capacity expansion historically, MAIN has
consistently increased its production capacity in order to capture growing
market demand. The most recent additions of capacity was in 20: one
feedmill with 450.000 tpa capacity, two DOC farms with 15 millions
chicken per annum capacity, and one GPS (grand parent stock) with
720.000 PS (parent stock) capacity. Currently MAIN has 80-90%
utilization rate in each segment production plants. The expansion
continues with establishment of feedmill in Central Java and Makasar
with 600.000 tpa total capacity addition, breeder farms with 30 millions
DOC, broiler farm with 6.000.000 kg, and food processing plant with
15.000 tpa capacity addition. MAIN has competitive edge to keep
making investments for capital expenditure (capex), even it has recently
made rights issuance to further flow its funding.
Introduction of downstream business: food processing MAIN
launched its customers processed food products in 2013 with
SunnyGold and Ciki Wiki brands. The segment merely contributes
0.2% of company total revenues in 2013 and is expected to contribute
1.1% in 2014F. Its market share in this new segment is barely 1%, but it
is already a rapid gain as processed food market is crowded by small
players with each having below 1% market share. MAIN is predicted to
stand its presence in this market by grasping 2.2% market share within
five years, and this segment will contribute 3 5% of total revenue.

Financial Analysis

Figure 14: Du Pont Identity

2014: the turning point - MAIN experiences declining in return on

earning (ROE) as equity multiplier began to slump 2012. As company try
to correct its leverage due to high amount of debt compared to equity,
ROE began to stabilize after 2014. Going forward, ROE will normalize
near to industry ROE of 16.3% as earning power begin to surge.

Source: Company Data and Team Estimate

Figure 15: Revenue Segment Growth

Strong growth despite low caps In 2014, MAIN experience lowest

profit margin due to deteriorated margin caused by soaring raw material
prices by 28% in 2013 and 25% in 2014. Notwithstanding the past
experience, MAIN has recorded strong growth from 2009 to 2013 by
17.54% CAGR. We are optimistic that revenue will continue to growth
at pace of 11.76% CAGR from 2014 to 2018. This growth are propelled
mainly by feedmill segment in which we believe it will reach Rp 5
trillion sales in 2018 with aprroximately 70% by total revenue.
Better maintenance of leverage From 2008, MAIN has been
improving its leverage by lowering its debt-to-equity ratio from 3.73 in
2009 to 1.13. Going forward, we are optimistic that MAIN will continue
until the number reach 0.42, near to industry median debt-to-equity ratio
of 0.21. While maintaining leverage, MAIN has been and will be also
improving its interest coverage. As per data in Appendix, its ability to
meet interest payment increased from 2.71 in 2009 to 5.58 in 2013.

Source: Company Data and Team Estimate

Figure 16: Profit Margin Peer-To-Peer

Cash position in the aftermath of 2014 In spite of the fluctuation of

cash flow before, in the turning point of 2014, MAIN is able to generate
huge amount of cash flow due to its massive change in equity and
inventory. In the aftermath, we are sure that MAIN can improve its cash
position by pushing its operating cash flow to increase its capability of
meeting its short term liabilities, expansion project, and dividend
payment.

Valuation
Discounted Cash Flow Valuation

Source: Company Data

We used Discounted Free Cash Flow to Firm (FCFF) method to

determine MAIN fair price. We believe this method reflects the
fundamental value of the company and captures its long-term
perspective growth within the industry. This method involves
estimating the firms value and adjusting it for the net debt and excess
cash to arrive at equity value.

Figure 17: Revenue Breakdown Peer-To-Peer

Source: Company Data

Figure 17: MAINs forecasted NOPLAT

In applying this valuation, we forecasted MAIN NOPLAT will

increase by 35% CAGR 2014F-2018F, slightly higher compared to
historical growth 27% CAGR 2008-2013. This is mainly affected by
the increased demand of poultry products and companys
diversification strategies. However, MAIN needs an average of 470
million Rupiah to conduct further expansion and also an average of 58
million Rupiah to maintain its operation.
Cost of Capital
The Cost of Capital for MAIN were generated from several
assumptions. We used CAPM to estimate cost of equity which are
derived by: 1) 7.91% risk-free rate (using 10-year SUN); 2) Beta is
0.99 which was calculated from covariance between daily return
MAIN and IDX; 3) 8.3% market risk premium was obtained from
Damodaran. For the cost of debt, we applied the average interest rate
from MAIN long-term financial debt.
Terminal Growth Rate
Considering the historical and future performance of MAIN and
Indonesia economic growth, we believe the terminal growth for MAIN
valuation will be at least 7%. This is supported by the current condition
of chicken consumption which is still underdeveloped, hence, giving
more opportunities for MAIN to penetrate the market.

600,000,000
500,000,000
400,000,000
300,000,000
200,000,000
100,000,000
-

Investment Risks
Source: Team Estimate
Figure 17: Cost of Capital Components

Cost of Capital
Risk Free Rate
Risk premium
Beta
Marginal tax rate
Cost of Equity
Cost of Debt
WACC
Source: Team Estimate

7.91%
8.30%
0.999
25%
16.20%
11.50%
12.08%

STRATEGIC RISK
Unsuccessful new food processing business(SR1) MAIN is trying to
diversify its business segment into downstream market. If these products
do not meet customers needs or tastes, companys sales may be lower
than forecasted. To mitigate this risk the subsidiary that runs this
segment, Malindo Food Delight, is supported by a team of experienced
personnel who focus on product development. In addition, company may
need to review its pricing for the segment should its pricing structure
does not offer competitive edge in the market.
FINANCIAL RISK
Volatility of exchange rates (FR1) MAIN is considerably exposed to
exchange rate fluctuation: in 2013 the company made Rp109 billions net
loss due change in foreign exchange, which plunged net income to Rp
376 billions (16% decrease from Rp 447 billions in 2012). In addition,
the company also has net liabilities denominated in foreign currency,
totaling 39.8% of total liabilities, increasing from 15.3% in 2012.

Figure 18: Risk Mapping

Yet the company is managing this risk in conservative manner, by

closely monitoring fluctuations in foreign currency so as to take the most
beneficial step at right time.
Change in interest rates (FR2) this risk is related into fluctuation of
future cash flows due to change in market interest rates, mainly on
companys liabilities. The way company mitigates this risk is by only
obtaining sufficient funds for business expansion and working capital
needs by regularly assessing and monitoring cash balances with
reference to its business plans and daily operations.

Figure 19: Risk Mitigation Factors

OPERATION RISK
.Lower than expected plant utilization rate (OR1) MAINs plants are
currently operating with 90% utilization rate in average and this will
even increase in the future. Increase in sales due to capacity expansion
by establishing new plants and farms is based on normal utilization rate.
Our calculation shows that even with capacity expansion the company is
forecasted to operate with 94% utilization rate. However, should this
utilization rate decline, there will be lower sales estimated and change in
our valuation.
MARKET RISK
DOC selling price (MR1) due to the necessity for selling the product
within one day, DOC selling price is very volatile. Selling price can
swing from IDR 2.000/DOC to above IDR 6.000/DOC. In Q3 2014, ASP
for DOC is IDR 2.980/DOC while company needs IDR 4.000/DOC to
breakeven. This is caused by oversupply in market after Eid-ul Fitr.
GDP growth (MR2) demand for MAINs products is also affected by
GDP growth as chicken consumption is in line with household final
consumer expenditure that relies on GDP growth. The way to mitigate
this risk is by flexible term of production in responding to swing in
market demands.
Volatility of raw materials prices (MR3) two major components of
raw materials are soybean meal and corns, which have constantly
experienced prices volatility. The prices mainly increase in 2013 that
made operational costs soared along with rupiah depreciation. However,
after hitting its highest point (USD 585.75/metric ton) in May 2014,
soybean meal price has declined to level at USD 423.25/metric ton in
November 2014. Corn price also has declined from USD 309.49/metric
ton in\ March 2013 into USD 178.67/metric ton in November 2014. In
order to mitigate such risk, company has implemented effective raw
materials procurement.

Appendix 1: Income Statement

Feedmill
DOC
Broiler
Food Processing
Total Revenue
Cost of Revenue, Total
Gross Profit
Selling/General/Admin.
Expenses, Total
Depreciation/Amortization
Other Operating Expenses,
Total
Total Operating Expense
Operating Income
Interest Expense, Net NonOperating
Interest/Invest Income - NonOperating
Interest Inc.(Exp.),Net-NonOp., Total
Net Income Before Taxes
Provision for Income Taxes
Net Income After Taxes
Minority Interest
Net Income Before Extra.
Items
Net Income

2012
2,220.59

2013
2,880.40

2014F
3,237.60

2015F
3,718.20

2016F
4,211.80

2017F
4,867.76

2018F
5,612.25

657.58
471.39
3,349.57
2,711.12
638.44
175.96

855.88
447.83
8.97
4,193.08
3,475.17
717.91
226.35

784.97
502.63
135.89
4,661.09
4,194.98
466.11
251.62

901.50
577.24
163.07
5,360.01
4,509.72
850.28
289.35

1,021.17
653.87
195.69
6,082.52
5,117.62
964.90
328.35

1,180.21
755.71
234.82
7,038.50
5,921.95
1,116.55
379.96

1,360.72
871.29
281.79
8,126.05
6,836.97
1,289.08
438.66

6.94
7.80

8.66
106.41

12.33
34.28

17.13
39.43

23.13
44.74

29.23
51.77

34.74
59.77

2,901.83
447.74
(67.22)

3,816.60
376.49
(67.46)

4,493.21
167.87
(111.92)

4,855.63
504.38
(131.19)

5,513.84
568.68
(146.57)

6,382.90
655.60
(154.47)

7,370.15
755.90
(156.23)

2.55

1.86

5.29

5.29

5.29

5.29

5.29

(64.67)

(65.60)

(88.62)

(125.91)

(141.28)

(149.18)

(150.95)

383.08
80.65
302.42
0.33
302.75

310.89
69.26
241.63
241.25

79.25
17.65
61.60
61.60

378.47
84.31
294.16
294.16

427.40
95.21
332.19
332.19

506.41
112.81
393.60
393.60

604.95
134.76
470.19
470.19

302.75

241.25

61.60

294.16

332.19

393.60

470.19

Appendix 2: Balance Sheet

Assets
Cash and Short Term Investments
Total Receivables, Net
Total Inventory
Prepaid Expenses
Other Current Assets, Total
Total Current Assets
Property/Plant/Equipment, Total - Gross
Property/Plant/Equipment, Total - Net
Accumulated Depreciation, Total
Intangibles, Net
Note Receivable - Long Term
Other Long Term Assets, Total
Total Assets
Liabilities
Accounts Payable
Accrued Expenses
Notes Payable/Short Term Debt
Current Port. of LT Debt/Capital Leases
Other Current liabilities, Total
Total Current Liabilities
Total Long Term Debt
Total Debt
Deferred Income Tax
Minority Interest
Other Liabilities, Total
Total Liabilities
Shareholders Equity
Common Stock, Total
Additional Paid-In Capital
Retained Earnings (Accumulated Deficit)
Other Equity, Total
Total Equity
Total Liabilities & Shareholders' Equity

2012

2013

2014F

2015F

2016F

2017F

2018F

90.56
231.25
359.60
7.61
205.17
894.20
1,258.64
854.68
(403.96)
14.59
36.41
1,799.88

82.82
307.79
518.94
9.87
77.56
996.98
1,621.97
1,128.47
(493.49)
42.43
46.52
2,214.40

475.88
408.74
866.32
39.99
95.33
1,886.26
2,051.97
1,429.64
(622.32)
37.94
68.21
3,422.05

500.68
612.77
411.99
465.68
570.04
646.88
45.98
52.18
109.63
124.41
1,638.32
1,901.92
2,551.97
3,107.77
1,750.67
2,064.86
(801.30) (1,042.92)
43.63
49.51
78.44
89.01
3,511.06
4,105.29

588.94
507.80
748.55
60.38
143.96
2,049.63
3,576.23
2,227.96
(1,348.26)
57.29
103.00
4,437.88

828.24
561.95
864.21
69.71
166.20
2,490.31
3,972.30
2,261.10
(1,711.20)
66.14
118.91
4,936.46

175.10
13.67
283.89
332.89
47.19
852.74
204.77
821.55
(2.83)
60.49
1,115.18

241.37
27.24
598.50
80.29
39.07
986.47
295.56
974.34
(2.44)
69.89
1,349.47

526.69
33.90
896.52
126.72
44.98
1,628.81
466.47
1,489.71
(2.44)
78.76
2,171.60

412.84
38.99
762.08
145.72
51.73
1,411.37
536.42
1,444.23
(2.44)
78.76
2,024.10

533.09
44.24
864.81
165.37
58.70
1,666.21
608.73
1,638.90
(2.44)
78.76
2,351.25

547.30
51.20
728.89
191.36
67.93
1,586.67
704.40
1,624.65
(2.44)
78.76
2,367.39

623.66
59.11
616.27
220.92
78.43
1,598.39
813.24
1,650.43
(2.44)
78.76
2,487.94

33.90
(100.33)
751.13
684.70
1,799.88

33.90
(100.33)
931.36
864.93
2,214.40

35.82
233.75
980.88
1,250.45
3,422.05

35.82
233.75
1,217.39
1,486.96
3,511.06

35.82
233.75
1,484.47
1,754.04
4,105.29

35.82
233.75
1,800.92
2,070.49
4,437.88

35.82
233.75
2,178.95
2,448.53
4,936.46

Appendix 3: Cash Flow

Cash Flow-Operating Activities

Net Income
Depreciation and Non-Cash Items
Changes in Working Capital
Cash from Operating Activities
Cash Flow-Investing Activities
Capital Expenditures
Change in non-current assets
Cash from Investing Activities
Cash Flow-Financing Activities
Change in equity
Dividends
Change in debt
Cash from Financing Activities
Net Change in Cash
Net Cash - Beginning Balance
Net Cash - Ending Balance

2012

2013

2014F

2015F

2016F

2017F

2018F

302.75
171.13
(180.83)
293.05

241.25
59.34
(191.25)
109.33

61.60
294.16
128.83
178.97
198.32 (170.72)
(7.89)
643.85

332.19
241.62
19.03
554.78

393.60
305.35
141.16
557.79

470.19
362.94
106.61
726.51

(319.59)
0.48
(319.11)

(353.68)
0.75
(352.93)

(430.00) (500.00)
17.20
15.92
(447.20) (515.92)

(555.81)
16.45
(572.26)

(468.45)
21.77
(490.22)

(396.07)
24.77
(420.84)

(149.93)
(42.38)
221.82
29.52
3.38
87.18
90.56

167.70
(61.02)
127.08
233.76
(7.74)
90.56
82.82

336.00
(12.07) (57.66)
524.23 (45.48)
848.16 (103.14)
393.06
24.80
82.82
475.88
475.88
500.68

(65.11)
194.68
129.57
112.09
500.68
612.77

(77.15)
(14.26)
(91.40)
(23.83)
612.77
588.94

(92.16)
25.78
(66.37)
239.30
588.94
828.24

Appendix 4: Common Size Balance Sheet

% of Total Assets
Assets
Cash and Short Term Investments
Total Receivables, Net
Total Inventory
Prepaid Expenses
Other Current Assets, Total
Total Current Assets
Property/Plant/Equipment, Total - Gross
Property/Plant/Equipment, Total Net
Accumulated Depreciation, Total
Intangibles, Net
Note Receivable - Long Term
Other Long Term Assets, Total
Total Assets
Liabilities
Accounts Payable
Accrued Expenses
Notes Payable/Short Term Debt
Current Port. of LT Debt/Capital Leases
Other Current liabilities, Total
Total Current Liabilities
Total Long Term Debt
Total Debt
Deferred Income Tax
Minority Interest
Other Liabilities, Total
Total Liabilities
Shareholders Equity
Common Stock, Total
Additional Paid-In Capital
Retained Earnings (Accumulated Deficit)
Other Equity, Total
Total Equity
Total Liabilities & Shareholders' Equity

2012

2013

2014F

2015F

2016F

2017F

2018F

5.03%
12.85%
19.98%
0.42%
11.40%
49.68%
69.93%
47.49%
-22.44%
0.00%
0.81%
2.02%
100.00%

3.74%
13.90%
23.43%
0.45%
3.50%
45.02%
73.25%
50.96%
-22.29%
0.00%
1.92%
2.10%
100.00%

13.91%
11.94%
25.32%
1.17%
2.79%
55.12%
59.96%
41.78%
-18.19%
0.00%
1.11%
1.99%
100.00%

14.26%
11.73%
16.24%
1.31%
3.12%
46.66%
72.68%
49.86%
-22.82%
0.00%
1.24%
2.23%
100.00%

14.93%
11.34%
15.76%
1.27%
3.03%
46.33%
75.70%
50.30%
-25.40%
0.00%
1.21%
2.17%
100.00%

13.27%
11.44%
16.87%
1.36%
3.24%
46.18%
80.58%
50.20%
-30.38%
0.00%
1.29%
2.32%
100.00%

16.78%
11.38%
17.51%
1.41%
3.37%
50.45%
80.47%
45.80%
-34.66%
0.00%
1.34%
2.41%
100.00%

9.73%
0.76%
15.77%
18.50%
2.62%
47.38%
11.38%
45.64%
0.00%
-0.16%
3.36%
61.96%
0.00%
0.00%
1.88%
-5.57%
41.73%
0.00%
38.04%
100.00%

10.90%
1.23%
27.03%
3.63%
1.76%
44.55%
13.35%
44.00%
0.00%
-0.11%
3.16%
60.94%
0.00%
0.00%
1.53%
-4.53%
42.06%
0.00%
39.06%
100.00%

15.39%
0.99%
26.20%
3.70%
1.31%
47.60%
13.63%
43.53%
0.00%
-0.07%
2.30%
63.46%
0.00%
0.00%
1.05%
6.83%
28.66%
0.00%
36.54%
100.00%

11.76%
1.11%
21.71%
4.15%
1.47%
40.20%
15.28%
41.13%
0.00%
-0.07%
2.24%
57.65%
0.00%
0.00%
1.02%
6.66%
34.67%
0.00%
42.35%
100.00%

12.99%
1.08%
21.07%
4.03%
1.43%
40.59%
14.83%
39.92%
0.00%
-0.06%
1.92%
57.27%
0.00%
0.00%
0.87%
5.69%
36.16%
0.00%
42.73%
100.00%

12.33%
1.15%
16.42%
4.31%
1.53%
35.75%
15.87%
36.61%
0.00%
-0.06%
1.77%
53.34%
0.00%
0.00%
0.81%
5.27%
40.58%
0.00%
46.66%
100.00%

12.63%
1.20%
12.48%
4.48%
1.59%
32.38%
16.47%
33.43%
0.00%
-0.05%
1.60%
50.40%
0.00%
0.00%
0.73%
4.74%
44.14%
0.00%
49.60%
100.00%

Appendix 5: Common-Size Income Statement

Total Revenue
Cost of Revenue, Total
Gross Profit
Selling/General/Admin. Expenses, Total
Depreciation/Amortization
Other Operating Expenses, Total
Total Operating Expense
Operating Income
Interest Expense, Net Non-Operating
Interest/Invest Income - Non-Operating
Interest Inc.(Exp.),Net-Non-Op., Total
Net Income Before Taxes
Provision for Income Taxes
Net Income After Taxes
Minority Interest
Net Income Before Extra. Items
Net Income

2012
100.00%
80.94%
19.06%
5.25%
0.21%
0.23%
86.63%
13.37%
-2.01%
0.08%
-1.93%
11.44%
2.41%
9.03%
0.01%
9.04%
9.04%

2013
100.00%
82.88%
17.12%
5.40%
0.21%
2.54%
91.02%
8.98%
-1.61%
0.04%
-1.56%
7.41%
1.65%
5.76%
0.00%
5.75%
5.75%

2014F
100.00%
90.00%
10.00%
5.40%
0.26%
0.74%
96.40%
3.60%
-2.40%
0.11%
-1.90%
1.70%
0.38%
1.32%
0.00%
1.32%
1.32%

2015F
100.00%
84.14%
15.86%
5.40%
0.32%
0.74%
90.59%
9.41%
-2.45%
0.10%
-2.35%
7.06%
1.57%
5.49%
0.00%
5.49%
5.49%

2016F
100.00%
84.14%
15.86%
5.40%
0.38%
0.74%
90.65%
9.35%
-2.41%
0.09%
-2.32%
7.03%
1.57%
5.46%
0.00%
5.46%
5.46%

2017F
100.00%
84.14%
15.86%
5.40%
0.42%
0.74%
90.69%
9.31%
-2.19%
0.08%
-2.12%
7.19%
1.60%
5.59%
0.00%
5.59%
5.59%

2018F
100.00%
84.14%
15.86%
5.40%
0.43%
0.74%
90.70%
9.30%
-1.92%
0.07%
-1.86%
7.44%
1.66%
5.79%
0.00%
5.79%
5.79%

Appendix 6: Key Financial Ratios

2012

2013

Liquidity Ratios
Current Ratios

1.05

1.01

1.16

1.16

1.14

1.29

1.56

Quick Ratio

0.48

0.35

0.47

0.53

0.53

0.55

0.65

Cash Ratio

0.11

0.08

0.29

0.35

0.37

0.37

0.52

Efficiency Ratios
Total Assets Turnover

1.86

1.89

1.36

1.53

1.48

1.59

1.65

Fixed Assets Turnover

3.92

3.72

3.26

3.06

2.95

3.16

3.59

NWC Turnover

80.79

398.98

18.11

23.62

25.81

15.2

9.11

Account Receivable Turnover

16.52

15.56

13.01

13.06

13.86

14.46

15.19

Days Sales in Receivable

2014F

2015F

2016F

2017F

2018F

22

23

28

28

26

25

24

7.88

7.91

6.06

6.28

8.41

8.49

8.48

46

46

60

58

43

43

43

13.82

16.69

10.92

9.6

10.82

10.96

11.68

Profitability Ratios
Gross Profit Margin

19.10%

17.10%

10.00%

15.90%

15.90%

15.90%

15.90%

EBIT Margin

13.40%

9.00%

3.60%

9.40%

9.30%

9.30%

9.30%

EBITDA Margin

13.60%

9.20%

3.90%

9.70%

9.70%

9.70%

9.70%

Net Profit Margin

9.00%

5.80%

1.30%

5.50%

5.50%

5.60%

5.80%

Return on Assets (ROA)

16.80%

10.90%

1.80%

8.40%

8.10%

8.90%

9.50%

Return on Equity (ROE)

44.20%

27.90%

4.90%

19.80%

18.90%

19.00%

19.20%

Solvency Ratios
Debt to Assets Ratio

0.46

0.44

0.44

0.41

0.4

0.37

0.33

Debt to Equity Ratio

1.2

1.13

1.19

0.97

0.93

0.78

0.67

Equity Multiplier

2.63

2.56

2.74

2.36

2.34

2.14

2.02

Interest Coverage Ratio

6.66

5.58

1.5

3.84

3.88

4.24

4.84

0.3

0.34

0.37

0.36

0.35

0.34

0.33

Cash Flow Ratio

OCF to Sales Ratio

0.09

0.03

0.12

0.09

0.08

0.09

Short Term Debt Coverage

1.03

0.18

-0.01

0.84

0.64

0.77

1.18

Dividend Coverage (CFO/Dividend)

6.92

1.79

-0.65

11.17

8.52

7.23

7.88

Capex coverage (CFO/CAPEX)

0.92

0.31

-0.02

1.29

1.19

1.83

Du Pont Identity
ROE =

0.44

0.28

0.05

0.2

0.19

0.19

0.19

9.00%

5.80%

1.30%

5.50%

5.50%

5.60%

5.80%

1.86

1.89

1.36

1.53

1.48

1.59

1.65

Inventory Turnover
Days Sales in Inventory
Account Payable Turnover

Long-term Debt to Equity Ratio

Net Profit Margin x

Assets Turnover x

Equity Multiplier

2.63

2.56

2.74

2.36

2.34

2.14

2.02

Appendix 7: DCF Analysis

EBIT
Tax on EBIT
NOPLAT
Depreciation
Capex
Changes in Working
Capital
FCFF
Terminal Value
Discounted FCFF and
Terminal Value

2014F
2015F
2016F
2017F
167,874,733
504,380,434
568,681,728
655,595,260
37,396,697
112,358,555
126,682,664
146,044,000
130,478,035
392,021,879
441,999,064
509,551,260
128,828,583
178,972,313
241,621,789
305,347,537
(430,000,000) (500,000,000) (555,806,756) (468,451,821)

2018F
755,897,738
168,387,931
587,509,807
362,935,531
(396,069,405)

198,319,605 (170,718,387)
(369,012,987)
241,712,579

106,612,799
447,763,134
9,424,968,598

(329,230,794)

192,405,219

Enterprise Value
Excess Cash
Outstanding Debt
Equity Value
Outstanding Share
Equity Value per share

19,032,774
108,781,324

77,255,736

5,651,756,788
475,883,068
1,489,709,480
4,637,930,375
1,791,000
2,590

141,155,689
205,291,287

130,078,557 5,581,248,070

Appendix 8: DCF Assumptions

Weighted Average Cost of Capital
Variable

Value

Risk Free Rate

Risk premium

7.91%
8.30%

10-year Government Bond

Damodaran

Beta
Marginal tax rate

0.999
25%

Team Computations
Corporate Income tax in Indonesia

Cost of Equity
Cost of Debt
WACC

16.20%
11.50%
12.08%

Basis

Team Computations
Interest rate on companys financial debt
Team Computation

1. Risk-free rate
The risk-free rate was based on 10-year Indonesia government Bonds with yield of 7.91% as of
27 December 2014.
2. Beta
The value of beta was derived by computing covariance of daily return MAIN with IDX from
December 2009 to December 2014.
3. Market Risk Premium
The market risk premium is based total equity risk premium of Damodaran.
4. Capital Structure
Capital Structure is based on Companys disclosure in 2013 Annual Report. The portion of debt
and equity to total capital is 54.37% and 45.63% respectivel

Sales
Feedmill, DOC, and Broiler Divisions were forecasted using chicken consumption growth rate by
GPPU while Processed Food Division was projected using conservative processed food growth
from Euromonitor.

Feedmill
Feedmill Growth
DOC
DOC Growth
Broiler
Broiler Growth
Food Processing
Food Processing Growth
Total Revenue
Revenue Growth
Revenue Driver
Chicken Consumption by
GPPU (kg/capita)
Chicken Consumption
Growth
Processed Foods Growth
by Euromonitor

2013
2,880,396,549
29.7%
855,884,536
30.16%
447,829,873
-5.00%
8,971,507
4,193,082,465
25.18%

2014F
3,237,595,425
12.4%
784,970,451
-8.29%
502,628,624
12.24%
135,892,622
1414.7%
4,661,087,122
11.16%

2015F
3,718,201,365
14.8%
901,495,653
14.84%
577,241,499
14.84%
163,071,147
20.0%
5,360,009,664
14.99%

2016F
4,211,796,656
13.3%
1,021,170,185
13.28%
653,870,939
13.28%
195,685,376
20.0%
6,082,523,155
13.48%

2017F
2018F
4,867,758,818 5,612,254,334
15.6%
15.3%
1,180,211,339 1,360,717,828
15.57%
15.29%
755,707,430
871,288,504
15.57%
15.29%
234,822,451
281,786,942
20.0%
20.0%
7,038,500,039 8,126,047,608
15.72%
15.45%

8.6

9.97

11.45

12.97

14.99

17.28263367

16.85%

15.93%

14.84%

13.28%

15.57%

15.29%

10.50%

10.50%

20.00%

20.00%

20.00%

20.00%

Capital Expenditure
Capital Expenditure for 2014 fiscal year is based on management allocation which was
announced in 3Q2013. For 2015 fiscal years, we forecasted the capital expenditure will increase
as companys diversification strategy to expand its chicken processed food strategy.
Depreciation
Depreciation was estimated using proportion of historical depreciation to total gross fixed
assets. The depreciation also takes into account capital expenditure for each year.

Factory Depreciation
Selling and Gen. Adm
Total

2013
2014F
2015F
2016F
2017F
2018F
81,770,644.00 116,496,670.13 161,840,471.50 218,492,925.61 276,118,626.69 328,194,100.73
8,655,942.00 12,331,912.41 17,131,841.77 23,128,863.84 29,228,910.29 34,741,429.95
90,426,586.00 128,828,582.55 178,972,313.27 241,621,789.46 305,347,536.97 362,935,530.68

Appendix 9: Revenue Breakdown and Market Share

Revenue Breakdown 2009 - 2018F

Feedmill

DOC

Broiler

Food Processing

100%
80%
60%
40%
20%
0%
2009

2010

Day Old Chick (DOC) Market Share

Market Share
CPIN

JPFA

SIPD

CJ

MAIN

2011

2012

2013 2014F 2015F 2016F 2017F 2018F

Feedmill Industry Market Share

CPIN

JPFA

MAIN

CJ

24%
23%

32%

30%
6%

9%

6%

10%
7%

21%

SIPD

Others

8%

24%

Others

Appendix 10: Capacity Expansion Plans

From company data, we can see the breakdown of capital expenditures into establishment of feedmill in
Central Java and Makasar, breeder farms, broiler farms, and food processing.

Feedmill (Central Java)

Feedmill (Makassar)
Breeder farms
Broiler farm
Processed foods
Total capex

Capacity/year
360,000 tpa
240,000 tpa
30,000,000 chickens
6,000,000 kgs
15,000 tpa

2013
90
20
150
35
295

Expenditures (billions)
2014F
120
160
150

430

From this point of view, we can see that IDR 215 billions is expended for feedmill in Central Java, IDR
300 billions for feedmill in Makasar making it IDR 515 billions for feedmill capacity addition. Breeder
farms spend IDR 380 billions; broiler farms spend IDR 105 billions, and IDR 225 billions for processed
foods.
Hereafter, we can use extrapolation to deduce proportion of capex for each project in the future, which is
42% for feedmill, 31% for breeder farms, 9% for broiler, and 18% for processed foods. Then we can
generate the project breakdown of capex in our forecasting periods:

Feedmill
Breeder farms
Broiler farm
Food processing
Total capex

Expenditures (billions)
2013 2014F 2015F
110
280
125
150
150
80
35
70
225
295
430
500

2016F 2017F 2018F

233.5 196.6 166.3
172.4 145.1 122.8
47.8
40.2
34.1
102.3
86.1
72.9
556
468
396

Based on known capacity expansion plans in 2013 2015, we can estimate costs for building production
plants to generate each capacity addition. This cost per unit measurement can be utilized to estimate
additional capacity generated.
Cost for Adding Capacity (IDR thousands)
Feedmill
923.6
per tpa
Breeder
per chicken
12.67
Broiler
per kgs
17.50

2015F
5
120
80
70
225
500

FP

per tpa
15,000

Knowing cost for adding capacity we can get the result of capacity addition in forecasted periods:
2013

2014F

2015F

Mid-Total

2016F

2017F

2018F

Feedmill (tpa)
128,155
Breeder farms
(chicken)
Broiler farm
(kgs)
Food processing
(tpa)

326,214

145,631

212,817

180,076

11,842,105 11,842,105 6,315,789 30,000,000 13,607,368

11,453,684

9,691,579

2,000,000

600,000

252,834

4,000,000 6,000,000

2,732,343

2,299,886

1,946,057

15,000

6,820

5,741

4,858

15,000

With additional capacity for each period, we can know the total production capacity for company in each
year (note that previously was capacity addition for each period, now it is total production capacity that
means current production capacity added by accumulated capacity addition in each year):
2013

2014

2015

2016

2017

2018

Feedmill (tpa)
Breeder farms
(chicken)
Broiler farm
(kgs)
Food processing
(tpa)

848,155

1,174,369

1,320,000

1,572,834

1,785,651

1,965,726

175,282,105

187,124,211

193,440,000

207,047,368

218,501,053

228,192,632

24,400,000

24,400,000

28,400,000

31,132,343

33,432,229

35,378,286

7,200

7,200

22,200

29,020

34,761

39,619

Utilization:
For plant utilization rates, we make assumption based on the following table. Each plant established in a
certain year period will operate in 50% utilization rate for its first year, 60% in second year, and so on.
Plant is expected to utilize 90% capacity in the fourth year of its establishment and is assumed to have
stable utilization rate of 90% in the long-term.
Year
Utilization Rate

1
50%

2
60%

3
80%

4
90%

5
90%

Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report [holds/does not hold] a financial interest in the securities of this company.
The author(s), or a member of their household, of this report [knows/does not know] of the existence of any conflicts of interest that might bias
the content or publication of this report. [The conflict of interest is]
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does [not] serves as an officer, director or advisory board member of the subject company.
Market making:
The author(s) does [not] act as a market maker in the subject companys securities.
Ratings guide:
Banks rate companies as either a BUY, HOLD or SELL. A BUY rating is given when the security is expected to deliver absolute returns of 15%
or greater over the next twelve month period, and recommends that investors take a position above the securitys weight in the S&P 500, or any
other relevant index. A SELL rating is given when the security is expected to deliver negative returns over the next twelve months, while a
HOLD rating implies flat returns over the next twelve months.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be
reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information
is not intended to be used as the basis of any investment decisions by