Kalbe Farma Tbk Pt (KLBF IJ) , the No.1 player in Indonesia's prescription drugs market, saw a recovery in 2016 with +8.3% growth in sales, after a tough year in 2015. 2017 should see better levels of growth, with a target off +8% -10%, though still below historic levels.
The company continues to grow its own unbranded generics to play the government National Health Insurance Sceme, which now make up 15% of the company's drug sales. It estimates that unbranded will make up 20-23% of total sales by 2019, once full coverage is achieved by the government. Lower margins are to some extent offset by higher volumes (volumes up 3x and sales growth in mid teens) versus sales growth of +5% for branded generics and +7%-8% for licensed drugs.
Kalbe is the market leader on consumer health products in Indonesia (10% market share), producing a whole range of OTC products from antacids, cough and cold remedies and multivitamins to energy drinks. It will launch a number of new products in 2017, from health supplements to energy drinks, and herbal products. This will help to sustain double digit growth growth rates for this division in 2017.
The company's Hydro Coco drink (coconut water) continued to show strong growth of 20% in 2016 and consumers look for healthier ways to hydrate. On the flip side, energy drinks such as Extra Jos, have seen sluggish performance, as the products mature and the target lower end consumer remains under pressure. It is introducing new lines to offset this slowdown as it suggested that some lines had reached maturity.
The company produces and supplies a full range of nutritional products, mainly powdered milk products for lactating mother, babies, toddlers, children, tweens and adults. The division saw reasonable growth of 9.7% growth in 2016 but aims for double digit growth in 2017. It has seen some pressure from consumers trading down and more recently cost pressure from higher skimmed milk prices. It is also launching a number of new lines in this division to boost sales.
KALBE sells its products on-line through www.kalbestore.com. it utilises its existing network for distribution and plugs into its 500,000 active members to promote products on-line. The most widely purchased products are bulkier nutritional products such as baby milk.
With its leading position in the pharmaceutical, consumer health and nutritional heath segments, KALBE is a unique and high quality proxy for rising penetration of healthcare, as well as rising disposable incomes in Indonesia. Its distribution network for pharmaceuticals (through Enseval Putera Megatrading Tbk Pt (EPMT IJ)) is second to none, with penetration to 100% of hospitals and clinics across the archipelago. The company saw pressure on sales of its branded products from the rapid growth in the unbranded generics market (trading down). This was on the back of the Government's efforts to provide universal healthcare. The worst of the impact is now over and the company has ramped up its own selective unbranded generics. According to Bloomberg consensus, the company trades on an FY17E PER of 28.9x and FY18E of 25.4x, with forecast EPS growth of 11.1% and 13.7% respectively.
Bloomberg Consensus estimates
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