Kimia Farma Financial

of 15 pages

Contact: Equity & Index Valuation Division Phone: (6221) 7278 2380 [email protected] Disclaimer statement in the last page is an integral part of this report www.pefindo.com

Kimia Farma (Persero), Tbk Primary Report

Equity Valuation

February 11, 2014

Target Price

Low High 950 1,155

Pharmaceutical

Property

Historical Chart

0

200

400

600

800

1000

1200

-

1,000

2,000

3,000

4,000

5,000

6,000

KAEFJCI

JCI KAEF

Source : Bloomberg

Stock Information IDR

Ticker code KAEF

Market price as of Feb 10, 2014 720

Market price 52 week high 1,120

Market price 52 week low 425

Market cap 52 week high (bn) 6,220

Market cap 52 week low (bn) 2,360

Market Value Added & Market Risk

0.0

5.0

10.0

15.0

20.0

25.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2010 2011 2012

P/BVP/E

P/E P/BV

Source : Bloomberg, PEFINDO Equity & Index Valuation Division

Shareholders (%)

Government of Indonesia 90.02

Public (each below 5% of ownerships) 9.98

Healthier Environment for Expansion

PT Kimia Farma Tbk (KAEF) traces its history back to 1817 when NV Chemicallen Handle Rathkamp & Co was established by the Dutch Indies Government in Indonesia, and formed as the first pharmaceutical company in Indonesia. In 1958 the Indonesia Government merged a number of pharmaceutical companies into PNF Bhineka Kimia Farma. In

1971, the legal form of Company was changed to Limited Liability Company (Perseroan Terbatas), then to public company in 2001 as it listed in Jakarta Stock Exchange and Surabaya Stock Exchange. Currently, KAEF activities are includes of manufacturing, trading, and distributing medicines, research and development, retail pharmaceutical, health clinic, and clinic laboratory. Five plants support KAEFs manufacturing business with current production of 302 type of medicines.

KAEF is also the leader in pharmaceutical retail market with total of 500 pharmacies in Indonesia, while for trading and distribution KAEF is supported with 44 branches and 338 salesman to serve 18,672 registered outlets in Indonesia. In 2012, there were 64 clinics and 33 laboratories supporting KAEFs vision to become the integrated health corporation.

Disclaimer statement in the last page is an integral part

of this report www.pefindo.com

Kimia Farma (Persero), Tbk

February 11, 2014 Page 2 of 15 pages

Healthier Environment in Pharmaceutical Industry We foresee that many factors support KAEFs growth in the future, such as:

Large population with growing number of middle-class people, triggers

the demand for better health care and quality of pharmaceutical products. Increasing welfare also hoist the demand for other type of service, such as beauty care, of which KAEF is also the provider.

New health care program by the Government that just being implemented in 2014, known as Sistem Jaminan Sosial Nasional SJSN). This program will add more people with age above 65 years to the industry, as they health care are now being covered by the

Government, as long as they are member of this program. Given this, we view that sales in the pharmaceutical industry will reach USD6.61 billion in 2014.

Has Competitive Advantage KAEF is trusted by the Indonesia Government as the only company to

produce narcotics used for manufacturing medicines. This competitive advantage distinguished KAEF from other drugs manufacturer. Beside that,

KAEF is the leader in the pharmaceutical retail market in Indonesia. As of 2013, there are around 500 KAEFs pharmacies scattered throughout Indonesia. Having such large network, makes the Company awarded as the Top Brand for Drugstore category in 2013.

Ample Cash for Expansion As the SJSN program started in 2014, we believe that the demand for medicines will be lifted. As a s result, KAEF plans to increase their production capacity for generic medicine, and set up another 100 clinics and 100 pharmacies throughout Indonesia. Given this, around IDR250 billion of estimated capital expenditure will be needed. However, we are of the view that KAEF has sound cash balance, as they already had around

IDR170 billion of cash in hand, and around IDR667.2 billion of account receivables as of 9M13, that may be used to finance such expansion. Business Prospects

Indonesia as a country with large population (around 250 million people) plus a growing middle class, is a nice place for pharmaceutical industry to

grow. Improving number of middle-class population which goes hand in hand with greater health awareness makes the demand for better quality of medicines and health care services (such as beauty clinic) increase. Better attention by the Government as proved by the enactment of health care insurance program, known as SJSN, in 2014, provides better opportunity for pharmaceutical companies, such as KAEF to grow. As a result, we view that KAEFs prospect in the long run will be more exciting, and lead us to believe that KAEFs revenue will grow by Compound Annual Growth Rate (CAGR) of 14%. Table 1 : Performance Summary

2010 2011 2012 2013P 2014P

Revenue [IDR bn] 3,184 3,481 3,734 3,917 4,471

Pre-tax Profit [IDR bn] 179 232 278 253 290

Net Profit [IDR bn] 139 172 205 189 217

EPS [IDR] 25 31 37 34 39

EPS Growth [%] 122 24 19 (8) 15

P/E [x] 6.4 11.0 20.0 21.1* 18.4*

PBV [x] 0.8 1.5 2.9 2.2* 2.0*

Source: PT Kimia Farma (Persero) Tbk., PEFINDO Equity & Index Valuation Division Estimates *) Based on KAEFs share price as of February 10, 2014 IDR720/share

INVESTMENT PARAMETER





The Growth-Value Map below provides an overview of the market expectations

for the companies listed on the IDX. The Current Performance (CP) metric, running along the horizontal axis, is a portion of current stock market value that can be linked to the perpetuity of a companys current performance in profitability. The Growth Expectations (GE) metric, plotted on the vertical axis, is the difference between the current stock market value and the value of current performance. Both metrics are normalized by the companys book value.

Growth-Value Map divides companies into four clusters:

Excellent Value Managers (Q-1) Market expects companies in Q-1 to surpass their benchmark in profitability and growth.

Expectation Builders (Q-2) Market has relatively low expectations of profitability from companies in Q-

2 in the short term, but has growth expectations that exceed the benchmark.

Traditionalists (Q-3) Market has low growth expectations of companies in Q-3, although they

showed good profitability in the short term.

Asset-Loaded Value Managers (Q-4) Market has low expectations in terms of profitability and growth for companies in Q-4.

Figure 1: Growth-Value Map

(KAEF, Pharmaceutical Sector)

-2

-1

0

1

2

3

4

5

6

0 1 2 3 4

Gro

wth

Exp

ecta

tio

ns

Current Performance (CP)

Q-2 Q-1

Q-4 Q-3

MERK

SQBI

KLBF

TSPCKAEF

INAF

DVLA

Source:PEFINDO Equity & Index Valuation Division Estimation

KAEF is now categorized as an Expectation Builders (Q-2) company. KAEF located in the cluster in which Companys current market performance is lower than market expectation, but market expectation of KAEFs growth in the future is above the benchmark. We believe that by optimizing their internal capabilities, and carrying out actions that drive market perceptions of its economic success, KAEF will shortly jump into Excellent Value Managers (Q-1) cluster.

GROWTH-VALUE MAP

Disclaimer statement in the last page is an integral part of this

report www.pefindo.com



Business Profile

PT Kimia Farma (Persero) Tbk (KAEF), is a publicly listed pharmaceutical company established in 1871. At that time, KAEF was the only pharmaceutical company in Indonesia, owned by the Dutch Indies Government under the name of NV Chemicallen Handle Rathkamp & Co. In 1958, the Government of Indonesia nationalize the Company, and merge several pharmaceutical companies including KAEF into PNF Bhineka Kimia Farma. In 1971, its legal entity changed into Limited Liability Company, and its name was changed into PT Kimia Farma

(Persero). On July 4, 2001, KAEF was listed in the Jakarta Stock Exchange and Surabaya Stock Exchange. Now, the Government of Indonesia holds the largest percentage of share ownerships (90.02%). We have noted some of the milestones that brought KAEF achieved what it has become today.

Figure 2: KAEFs Milestones

1871 NV Chemicallen Handle Rathkamp & Co established

1958 Government of Indonesia nationalizes and merge the

Company into PNF Bhineka Kimia Farma.

1971 Change legal entity into Limited Liability Company

Change its name into PT Kimia Farma (Persero)

2001

Listed in the Jakarta Stock Exchange and Surabaya Stock Exchange.

Change its name into PT Kimia Farma (Persero) Tbk

Source: PT Kimia Farma Tbk, PEFINDO Equity & Index Valuation Division

Under the spirit of innovation and breakthrough, nowadays, KAEF established itself as an integrated pharmaceutical company that actives in the manufacturing

of medicine, research and development, retail pharmaceutical, health clinic, clinic laboratory, trade and distribution.

Table 2: KAEFs Main Activities

Entity Entity Main Activities

PT Kimia Farma Tbk (Holding) Manufacture, Research and Development,

Marketing

PT Kimia Farma Apotek Retail Pharmaceutical, Health Clinic

PT Kimia Farma Trading & Distribution Trade and Distribution

PT Sinkona Indonesia Lestari Manufacture and Marketing

Source: PT Kimia Farma (Persero) Tbk, PEFINDO Equity Valuation & Indexing Division

PT Kimia Farma (Tbk) Holding

This holding company produces medicines, herbal medicines, iodine, quinine and their derivative products and vegetable oils. There are five production

facilities spread in several Indonesia cities.

BUSINESS INFORMATION





Table 3: PT Kimia Farma Tbk (Holding) Plants

Plant Dosage Form / Types of Product

Jakarta Tablet, coated tablet, capsule, granule, dry syrup, suspension/syrup, cream, injection, product of betalactam, narcotic and Antiretroviral.

Bandung Quinine salts and its derivatives, Intra Uterine Contraceptive Device (IUD), tablet, coated tablet, syrup, oral powder, contraceptive pil and herbal medicine.

Semarang Castor oil, edible oil and cosmetics.

Watudakon Iodine and iodine salts, ferrous sulfate raw material, soft capsule, tablet, coated tablet, ointment, cream, suppositoria and liquid medicines for external use

Medan Tablet, cream and capsule


These plants produce 302 types of products as in the following details:

Table 4: KAEFs Products

Product Line Type of Product

Generic 151

Consumer Health Products

OTC (Over The Counter)

Herbal Medicine

Cosmetics

17

12

25

Branded Ethical 51

Antiretroviral (ARV) 4

Narcotic 12

Contraceptive 7

Raw Material 23


Equipped with formulation laboratories and analysis laboratories, natural ingredient extraction, and experiment plantations, PT Kimia Farma Tbk (Holding) also conducts research and development activities to produce the Companys new products. This holding company also exports its products to meet demand of

medicines in Asian, European and African countries. The marketing activities are supported by around 453 field forces, 13,497 physicians and 1,304 hospitals.

PT Kimia Farma Trading & Distribution (KFTD)

With 44 branches and a total of 338 salesmen to serve 10,384 pharmacies, 386 KFTD sub distribution, 1,621 drugstores, 3,544 free traders, 1,598 hospitals and 1,139 modern markets. This subsidiary company plays an important role in

distributing the Companys products.

PT Kimia Farma Apotek (KFA)





Through this subsidiary, KAEF became the leader in the pharmaceutical retail market with the number of 412 pharmacies in 2012. The addition of pharmacy outlet became one of the KAEFs strategies to increase its market penetration such as through franchise program. KFA also runs health clinic and the clinic

laboratory. The clinic and laboratory provides curative treatment services, first level emergency handling, minor surgery, childhood immunization, periodical health screening service, examination of pregnancy and the baby, etc. In 2012 there are 64 clinics and 33 clinic laboratories.

PT Sinkona Indonesia Lestari (SIL)

In 2011, KAEF acquired SIL which has business activities as a manufacturer of

quinine and derivative products. In 2012, SIL increased its production capacity from 100 tons to 150 tons per year. By 2013, SILL will sell 120 tons and produce 115 tons of finished products with pharmacopoeia standards or in accordance with the specification of the buyer. Indonesias Macro Economy Outlook: New Dawn in 2014 On the November 12, 2013, Bank Indonesia (BI) decided to lift the benchmark rate (BI Rate) by 25 basis points (bps) to 7.5%, along with the Lending Facility

and Deposit Facility rates to 7.5% and 5.75%, respectively. This marked the fifth time BI has increased its benchmark rate from a low of 5.75% in May 2013. This anticipation moves was made to prevent the free fall of Indonesias economy in 2013 due to the reduction of quantitative easing in United States, and also to narrow the gap of Indonesias current account deficit. As a result, we estimate that Indonesias economy in 2013 will slow down to 5.8% YoY. In 2014, we estimate that household consumption will remain as the main engine for Indonesias economy growth beside the national election activities that will take place until July 2014. Therefore, Indonesias economy is estimated to reach 5.9% YoY in 2014. Inflation is expected to hit 5.5%, as the products demand will ease with the increasing of BI Rate. We expect that the IDR to strengthen over the

medium term, helped by the election euphoria as well as higher FDI, domestic interest rates and exports. BI has also released several efforts to ease the IDR volatility, by entering bilateral swap agreements as much as USD25.5 billion to mitigate external shocks ahead.

Table 5: Indonesia Economic Indicator 2012 2013* 2014P*

GDP Growth (%, YoY)

Inflation rate (%, YoY)

Exchange rate (Rp/USD)

BI rate (%)

6.2

4.3

9,670

5.75

5.8

8.5

11,900

7.5*

5.9

5.5

10,700

7.0

Source: Central Bureau of Statistic, Bank Indonesia, PEFINDO Equity & Index Valuation Division Notes: * PEFINDO Equity & Index Valuation Division Estimates

Exciting Pharmaceutical Industry Ahead We are of the view that pharmaceutical industry will have a very exciting prospect year ahead. Large population with increasing number of middle class population (projected into 150 million people in 2014) implies greater need of

quality pharmaceutical products and health services particularly prescription drugs. Government spending on pharmaceutical industry is expected to be higher in 2014, as the implementation of national social security system (or Sistem Jaminan Sosial Nasional SJSN) will be implemented through specific company known as Badan Penyelenggara Jaminan Sosial BPJS. With this new program, the pharmaceutical industry in Indonesia will be lifted up, as more people that

already above 65 are entitled to receive health care, as long as they are member of BPJS. As a result, Indonesia pharmaceutical market is expected to reach USD6.61 billion in 2014.





Figure 3: Indonesia Pharmaceutical Market

4.584.85

5.88

6.61

7.4

0

1

2

3

4

5

6

7

8

2011 2012 2013F 2014F 2015F

USD bn

Pharmaceutical sales (USD bn)

Source: Presentation of GP Farmasi Indonesia, PEFINDO Equity & Index Valuation Division Trustworthy Due to Large Distribution Network

We believe that KAEF is not a common pharmaceutical company, since they are not only active in the manufacturing of medicines but also active in the

distribution of the Companys or third parties medicines. With around 500 pharmacies scattered around Indonesia, KAEF plays as a leader in the pharmaceutical retail market in Indonesia. With such network, many pharmaceutical companies entrust KAEF in distributing their products. This proved by high contribution of sales of third-parties medicines until 9M13 (68%).

Figure 4: Number of KAEF

Pharmacies,

2011 2013F

Figure 5: Sales Contribution of

Third-Parties Medicines,

2011-9M13

Source: PT Kimia Farma (Persero) Tbk, PEFINDO Equity & Index Valuation Division


Has Competitive Advantage in Manufacturing Business KAEF produces many medicines through its plants, including narcotic and Antiretroviral (ARV) medicines. With such quality management system as proven by ISO 9001:2008 standard received, KAEFs Jakarta plant is rewarded by the Indonesia Government, as the only plant that may produce narcotic and ARV.

Else, KAEFs plant in Watudakan, is well known as the only iodine mine processing factory in Indonesia. The plant produces ferrous sulfate as the main ingredient in the production of blood supplement tablet. We believe that there is still large room to grow for these products, as the utilization ratio for ARV was only 42% in 2012, and just signed an agreement with three Japanese companies (Mitsui, Gohdo and Kanto) to develop iodine mine in Jombang and Mojokerto, in order to increase its production to 500 tons per year.

383412

500

0

100

200

300

400

500

600

2011 2012 2013

Number of KAEF's Pharmacies (unit)

73%

63%

68%

56%

58%

60%

62%

64%

66%

68%

70%

72%

74%

2011 2012 9M13

Sales contribution from third-parties medicines





Figure 6: Production Volume and Utilization

Rate of ARV Product, 2010 - 2012

-

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2009 2010 2011 2012

pieces%

Production Volume of ARV (pieces) Utilization Rate for ARV Product (%)


Keep on Expanding to Anticipate Demand With the implementation of SJSN, we believe that demand for medicine, especially generic drugs, will be lifted since most of the drugs used in this program are generic drugs. Currently, KAEFs production capacity of generic drugs is 1.4 billion pieces of tablet and 249.7 million pieces of capsules per year. Else, we believe that KAEFs plan to set up another 100 clinics in 2014 is appropriate, since SJSN program is not only to cover the medicine needed to cure the illness, but also the costs to see the doctors. At the end of 2013, KAEF already has around 200 clinics in Indonesia.

Figure 7: Number of KAEFs Clinics,

2012 2014P

64

200

300

0

50

100

150

200

250

300

350

2012 2013P 2014P

Unit

Number of KAEF's Clinics


Number One in Peoples Mind In 2013, KAEF was once again awarded as the Top Brand for Drugstore category

in recognition of outstanding achievement in building the top brand for the five times in a row. This award was based on the survey conducted by Frontier Consulting Group in cooperation with the Marketing magazine. This award was collected as recognition for KAEFs effort to build a chain of pharmacies throughout Indonesia, and become not only the market leader in terms of

number of pharmacies but also the number one brand in peoples mind for pharmacies.





Keep Booking Revenue Growth Overall, KAEFs performance continues to show an improving trend. From IDR6.3 trillion of revenue in 2010, KAEFs revenue improves to IDR7.3 trillion in 2012. It continues in 9M13 as its revenue reached IDR5.5 trillion, better than 9M12 of IDR5.4 trillion. Such performance is related to the KAEFs sales to domestic market, as it also showing an improving performance from IDR3.1 trillion in 2010

to IDR3.6 trillion in 2012, and in 9M13 it continues to grow by 2% YoY. Meanwhile, KAEFs sales for overseas market show a swing movement. From IDR51.8 billion in 2010, it dropped to IDR49 billion in 2011 then rebound to IDR145.2 billion in 2012. In 9M13, it dropped by (-6%) YoY to IDR101 billion.

Figure 8: KAEFs Revenue,

2010 Sept13

Figure 9: KAEFs Revenue from Domestic & Overseas,

2010 Sept13

0

20

40

60

80

100

120

140

160

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2011 2012 9M12 9M13

IDR, bnIDR, bn

KAEF's Sales to Domestic Market (IDR, bn) KAEF's Sales to Overseas Market (IDR, bn)

Source: PT Kimia Farma Tbk, PEFINDO Equity & Index Valuation Division Source: PT Kimia Farma Tbk, PEFINDO Equity & Index Valuation

Division

Keeping the Interest Bearing Debt Low Over the years, we view that KAEF is able to finance its operational activities with

its internal cash, based on the fact that KAEFs interest bearing debt remains low during 2010 2012 periods. KAEFs interest bearing debt in 2010 was amounting to IDR48 billion and it dropped to IDR28 billion in 2012. However, in 9M13 it rose

to IDR144 billion, as its short-term bank loan hike to IDR140 billion mostly to finance the account receivables. However, we believe this hike is not to worry, as its interest bearing debt to equity ratio was only 0.09x in 9M13.

Figure 10: KAEFs Interest Bearing Debt &

-

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.10

0

20

40

60

80

100

120

140

160

2010 2011 2012 9M13

(x)IDR, bn

Short-term bank loan (IDR, bn) Short-term lease liabilities (IDR, bn)

Long-term lease liabilities (IDR, bn) Interest bearing debt to equity ratio (x)

Source: PT Kimia Farma Tbk, PEFINDO Equity & Index Valuation Division

FINANCE

6,316 6,913 7,323 5,422 5,531

9%

6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2010 2011 2012 9M12 9M13

%IDR, bn

KAEF's Revenue (IDR, bn) KAEF's Revenue Growth (%)





Sufficient Cash for Expansion In 2014, KAEF plans to increase the number of pharmacies and clinics by 100 units each, and increase the capacity of generic drugs to anticipate the demand. Such plans is estimated to cost around IDR250 billion of capital expenditure. We

view KAEFs internal cash is sufficient for such plans. With around IDR170 billion of cash in hand and around IDR667.2 billion of account receivables, we believe that KAEF has sufficient cash in hand.

Figure 11: KAEFs Cash and Receivables, 2010 9M13

265 199 316 170

358

384

459

667

0

100

200

300

400

500

600

700

800

900

2010 2011 2012 9M13

KAEF's Cash (IDR, bn) KAEF's Account Receivables (IDR, bn)

Source : PT Kimia Farma Tbk, PEFINDO Equity & Index Valuation Division

Increasing Regional Minimum Wages Erode KAEFs Margin During 9M13 we view that the increasing Regional Minimum Wages (or known as Upah Minimum Regional, UMR) give effect to KAEFs margin. Wages costs for KAEF during 9M13 was improving to IDR391 billion, while in 9M12 it was only IDR341 billion. Given this, KAEFs operating profit margin was eroded from 7.8% in 9M12 to 6.1% in 9M13. To tackle this problem, we view that KAEFs strategy to move into services that provides higher margin, such as beauty clinic, is really appropriate.

Figure 12: KAEFs Wages Costs and Operating Profit Margin, 9M12 Vs 9M13

341

391

7.8%

6.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

310

320

330

340

350

360

370

380

390

400

9M12 9M13

Wages Cost (IDR, bn) KAEF's Operating Profit Margin (%)

Source : PT Kimia Farma Tbk, PEFINDO Equity & Index Valuation Division





Table 6: SWOT Analysis

Strengths Weaknesses Long experience in pharmaceuticals

industry.

Active in the upstream and downstream business.

Awarded as the Top Brand of Pharmacies for five times in a row.

The only pharmaceuticals company that produce narcotics used for medicines.

Leader in the number of pharmacies store.

Parts of its raw materials are still

imported from overseas.

Opportunities Threats The enactment of SJSN program.

Improving welfare of Indonesian people. Demand for beauty clinics is improving.

Exchange rate volatility.

Tight competition in the pharmaceuticals industry.

SWOT ANALYSIS





VALUATION

Methodology

We applied the income approach using Discounted Cash Flows (DCF) as the main valuation approach considering that income growth is a value driver in KAEF instead of asset growth.

Furthermore, we applied the Guideline Company Method (GCM) as a comparison method. This valuation is based 100% on share price as of February 10, 2014, using KAEFs financial report as of September 30, 2013, for our fundamental analysis.

Value Estimation

We used a Cost of Capital of 12.61% and Cost of Equity of 12.91% based on the following assumptions: Table 7 : Assumption

Risk free rate (%)* 9.01 Risk premium (%)* 2.19 Beta (x)** 1.78 Cost of Equity (%) 12.91 Marginal tax rate (%) 25.00 Interest Bearing Debt to Equity Ratio 0.09

WACC (%) 12.61 Source: Bloomberg, PEFINDO Equity & Index Valuation Division Estimates Notes: * As of February 10, 2014 ** Based on PEFINDO Beta Saham report February 6, 2014

Target price for 12 months based on valuation as of February 10, 2014, is as

follows:

Using the DCF method with a discount rate assumption of 12.61% is IDR1,033 IDR1,142 per share.

Using the GCM method (PBV 3.65X and P/E 22.06X) is IDR752 IDR1,185 per share.

In order to obtain a value which represents both value indications, we have weighted both DCF and GCM methods by 70%:30%. Based on the above calculation, the target price of KAEF for 12 months is IDR950 IDR1,155 per share.

Table 8: Summary of DCF Method Valuation

Conservative Moderate Aggressive

PV of Free Cash Flows [IDR, bn] 920 968 1,017

PV Terminal Value [IDR bn] 4,793 5,045 5,298

Non-Operating Assets [IDR, bn] 170 170 170 Interest Bearing Debt [IDR, bn] (144) (144) (144) Total Equity Value [IDR bn] 5,739 6,040 6,340 Number of Share, mn shares 5,554 5,554 5,554 Fair Value per Share, IDR 1,033 1,087 1,142

Source: PEFINDO Equity & Index Valuation Division Estimates

TARGET PRICE





Table 9: GCM Comparison

KAEF EPMT TSPC Average

Valuation, February 10, 2014

P/E [x] 22.40 23.15 20.64 22.06

P/BV [x] 2.64 3.55 4.76 3.65

Source: Bloomberg, PEFINDO Equity & Index Valuation Division Estimates

Table 10: Summary of GCM Method Valuation

Multiples (x)

Est. EPS

(IDR)

Est. BV/Share

(IDR)

Value

(IDR)

P/BV 3.62 - 325 1,185 P/E 21.69 34 - 752

Source: Bloomberg, PEFINDO Equity & Index Valuation Division Estimates

Table 11: Fair Value Reconciliation

Fair Value per Share [IDR]

DCF GCM Average

Upper limit 1,142 1,185 1,155

Bottom limit 1,033 752 950

Weight 70% 30%

Source: PEFINDO Equity & Index Valuation Division Estimates





Table 12: Consolidated Statement of Comprehensive Income

(IDR bn)

2010 2011 2012 2013P 2014P

Sales 3,184 3,481 3,734 3,917 4,471

Cost of Goods Sold (2,279) (2,443) (2,559) (2,693) (3,075)

Gross Profit 905 1,038 1,175 1,224 1,397

Operating Expenses (758) (794) (890) (959) (1,097)

Income from Operations 146 244 285 265 300

Other Income (Charges) 32 (12) (7) (12) (10)

Pre-tax Profit 139 172 205 253 290

Tax (40) (60) (73) (63) (73)

Minority Interest 0.0 0.0 (1) (1) (1)

Net Profit 139 172 205 189 217

Source: PT Kimia Farma Tbk., PEFINDO Equity & Index Valuation Division Estimates

Table 13: Consolidated Statement of Financial Position

(IDR bn)

2010 2011 2012 2013P 2014P

Assets

Cash and cash equivalents

265 199 316 493 634

Receivables 358 384 459 441 503

Other receivables 11 8 6 6 7

Inventories 387 456 530 547 576

Other short term assets 119 215 194 409 466

Long-term receivables 1 1 1 2 2

Investment in associates 0 0 1 1 1

Fixed assets 413 427 449 503 464

Unused assets 9 9 9 9 9

Deferred charges 5 4 1 4 5

Intangible assets - - 3 2 2

Deferred tax charges 32 35 38 40 46

Other long-term assets 57 54 68 84 96

Total Assets 1,657 1,794 2,076 2,541 2,811

Liabilities

Short-term bank loan 39 14 17 120 101

Trade payables 301 284 341 347 396

Tax payables 27 44 47 74 84

Advance receipt from

customers - 1 2 1 1

Accrued expenses 63 78 91 81 92

Lease liabilities short term

4 5 4 2 2

Short-term liabilities 35 33 35 7 8

Employee benefit

obligation 5 5 6 2 2

Long-term liabilities 69 77 91 104 104

Total Liabilities 543 542 635 738 790

Total Equity 1,114 1,253 1,442 1,804 2,021


Figure 13: P/E and P/BV

0.0

5.0

10.0

15.0

20.0

25.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2010 2011 2012

P/BVP/E

P/E P/BV


Figure 14: ROA, ROE and TAT

1.70

1.75

1.80

1.85

1.90

1.95

2.00

0%

2%

4%

6%

8%

10%

12%

14%

16%

2010 2011 2012

TATROA, ROE

TAT (x) ROA (%) ROE (%)


Table 14: Key Ratios

Ratio 2010 2011 2012 2013P 2014P

Growth [%]

Sales 12 9 7 5 14

Operating Profit 31 67 17 (7) 13

Net Profit 122 24 19 (8) 15

Profitability [%]

Gross Margin 28 30 31 31 31

Operating Margin 5 7 8 7 7

EBITDA Margin 6 8 9 7 8

Net Margin 4 5 5 5 5

ROA 8 10 10 7 8

ROE 12 14 14 10 11

Solvability [X]

Debt to Equity 0.5 0.4 0.4 0.4 0.4

Debt to Asset 0.3 0.3 0.3 0.3 0.3

Liquidity [X]

Current ratio 2.4 2.7 2.8 3.0 3.2

Quick ratio 1.3 1.3 1.5 1.5 1.7

Source: PT Kimia Farma Tbk. PEFINDO Equity & Index Valuation Division Estimates





DISCLAIMER

This report was prepared based on trusted and reliable sources. Nevertheless, we do not guarantee

its completeness, accuracy and adequacy. Therefore, we are not responsible for any investment

decisions made based on this report. All assumptions, opinions and predictions were solely our

internal judgments as of the reporting date, and those judgments are subject to change without

further notice.

We are not responsible for any mistakes or negligence that occurs by using this report. Recent

performance cannot always be used as a reference for future outcome. This report does not offer a

recommendation to purchase or hold particular shares. This report might not be suitable for some

investors. All opinions in this report have been presented fairly as of the issuing date with good

intentions; however, they could change at any time without further notice. The price, value or

income of each share of the Company stated in this report might be lower than investor

expectations, and investors may obtain returns lower than the invested amount. Investment is

defined as the probable income that will be received in the future; nonetheless such returns may

fluctuate. As for companies whose shares are denominated in a currency other than Rupiah, foreign

exchange fluctuation may reduce their share value, price or the returns for investors. This report

does not contain any information for tax considerations in investment decision-making.

The share price target in this report is a fundamental value, not a fair market value or a transaction

price reference required by regulations.

The share price target issued by the PEFINDO Equity & Index Valuation Division is not a

recommendation to buy, sell or hold particular shares. It should not be considered as investment

advice from the PEFINDO Equity & Index Valuation Division and its scope of service to some parties,

including listed companies, financial advisors, brokers, investment banks, financial institutions and

intermediaries, does not correlate with receiving rewards or any other benefits from such parties.

This report is not intended for any particular investor and cannot be used as part of an objective

investment analysis of particular shares, an investment recommendation, or an investment strategy.

We strongly recommend investors to consider the suitability of the situation and conditions before

making a decision in relation with the figures in this report. If necessary, consult with your financial

advisor.

PEFINDO keeps the activities of the Equity Valuation Division separate from its Ratings Division to

preserve the independence and objectivity of its analytical processes and products. PEFINDO has

established policies and procedures to maintain the confidentiality of non-public information received

in connection with each analytical process. The entire process, methodology and the database used

in the preparation of the Reference Share Price Target Report as a whole are different from the

processes, methodologies and databases used by PEFINDO in issuing ratings.

This report was prepared and composed by the PEFINDO Equity & Index Valuation Division with the

objective of enhancing the transparency of share prices of listed companies in the Indonesia Stock

Exchange (IDX). This report is also free of influence from any other party, including pressure or

force either from IDX or the listed company reviewed. PEFINDO Equity & Index Valuation Division

earns a reward amounting to IDR20 million from IDX and the reviewed company for issuing this

report twice a year. For further information, please visit our website at http://www.pefindo.com

This report was prepared and composed by the PEFINDO Equity & Index Valuation Division. In

Indonesia, this report is published in our website and in the IDX website.

Documents

Kimia Farma Financial