Equity Research November 8, 2023

Mirae Asset Sekuritas Indonesia

Andreas Saragih [email protected]

KLBF IJ · Pharmaceuticals

Kalbe Farma
Disappointing earnings

(Maintain) Target price Upside Current price (11/7/23)

Hold IDR1,760 ▼ 9.7% IDR1,605

JCI Index 6,844 Market cap (IDRbn) 75,234 Shares outstanding (mn) 46,875 Free Float (%) 40.4

Report summary

Soft 3Q23 performance with declining profitability

KLBF reported soft 3Q23 results with lackluster top-line growth and a noticeable decline in profitability. This disappointing
performance was underscored by the quarterly gross profit margin and net profit margin hitting an all-time low. Revenue came
in at IDR7.38tr (+1% YoY and +1% QoQ), resulting in cumulative top line of IDR22.56tr (+6.5% YoY). Meanwhile, net profit declined
to IDR536bn (-36.8% YoY and -20.4%QoQ) and cumulatively to IDR2.07tr (-16.9% YoY). These results have fallen short of both our
and consensus estimates, with the net profit running at a rate of only 61%. We attribute the subdued top-line growth to the
normalization of demand in the face of weak purchasing power. On the other hand, changes in the sales mix, elevated raw
material prices, and increased SGA expenses are responsible for the contraction in margins.

Valuation, recommendation, and risks

We revised down our projections following the weak 9M23 result, and we roll forward our valuation into 2024F. As a result, we
cut our TP to IDR1,760, from previously IDR1,790, and the rating remains HOLD. Our new TP derived from unchanged P/E
multiple valuation methodology and implying a 25.9x P/E for 2024F, an average of its 5-year mean P/E. The upside risks to our
call are improvement in the split of branded and unbranded products in the pharmaceutical segment, improvement in working
capital, lower raw material prices and stronger IDR.

Key data

Price performance Earnings and valuation metrics

(D-1yr=100)
JCI KLBF (FY Dec. 31) 2021 2022 2023F 2024F 2025F
120
Revenue (IDRbn) 26,261 28,934 30,328 33,103 35,950
110

100
Operating pofit (IDRbn) 4,021 4,231 3,658 4,074 4,552
90 Net profit (IDRbn) 3,184 3,382 2,835 3,148 3,514
80 EPS (IDR) 67.92 73.12 61.30 68.05 75.97
70
11/22 1/23 3/23 5/23 7/23 9/23 11/23 BPS (IDR) 417.71 440.71 462.43 497.74 537.46
P/E (x) 23.6 22.0 26.2 23.6 21.1
EV/EBITDA (x) 14.9 14.5 16.1 14.5 13.2
(%) 1M 6M 12M ROE (%) 16.3 16.9 13.6 14.2 14.7
Absolute -12.5 -22.1 -20.5 Dividend yield (%) 1.7 2.2 2.3 2.0 2.2
Relative -11.9 -22.6 -16.9 Note: Net profit is attributable to owners of the parent
Source: Company data, Mirae Asset Sekuritas Indonesia Research estimates

Analysts who prepared this report are registered as research analysts in Indonesia but not in any other jurisdiction, including the US.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF THE REPORT.
Kalbe Farma November 8, 2023

9M23 earnings result review and our take

Soft 3Q23 performance with declining profitability

KLBF reported soft 3Q23 results with soft top line growth and declining profitability as
both its quarterly gross profit margin and net profit margin reached their lowest levels
ever in this quarter. Revenue stood at IDR7.38tr (+1% YoY and +1% QoQ) with net profit
declined to IDR536bn (-36.8% YoY and -20.4%QoQ). Gross profit margin and net profit
margin came in at 37% (-3.2ppt YoY and -3.4ppt QoQ) and 7.3% (-4.4ppt YoY and -1.9ppt
QoQ).

It brings the cumulative revenue and net profit for 9M23 to IDR22.56tr (+6.5% YoY) and
IDR2.07tr (-16.9% YoY), respectively. This achievement falls short of our expectations, as
the 9M23 run rate towards our full-year projection only reached 73% for the top line and
61% for the bottom line, compared to the average five-year run rate of 74% for both the
top and bottom lines, respectively.

We believe that the normalization of demand for health-related products post-

pandemic, coupled with weakening purchasing power, are the key factors contributing
to the soft top-line growth. Additionally, changes in the sales mix composition of the
pharmaceutical segment and higher raw material prices for nutritional products, along
with the normalization of SGA expenses due to the return to offline activities, are
responsible for the margin contraction.

On a more positive note, we estimate a positive long-term outlook driven by

improvement in the purchasing power, positive regulatory setting on the Indonesian
healthcare space including higher health budget and implementation of the Health
Omnibus Law, and innovation in all line of business (product development for specialty
category, catering to potential market of preventive category, expanding product line
for affordable and specialty categories).

Segmental analysis
The prescription pharmaceutical segment reported revenue of IDR1.91tr in 3Q23
(+30.5% YoY but -0.9% QoQ) and cumulatively at IDR5.79tr (+31.4% YoY) with revenue
contribution of 25.7% (+4.9ppt YoY). However, this robust growth came at the expense
of a lower gross margin, which stood at 46.2% (-2.1ppt YoY and -3.4ppt QoQ) and 48.5%
in 9M23 (-2.1ppt YoY) with gross profit contribution of 31.5% (+6ppt YoY). The strong
revenue growth was primarily driven by the positive impact of the acquisition of Sanofi,
while the margin contraction was attributed to a higher revenue contribution from
unbranded generic products.

The consumer health segment is the worst performer in this quarter by booking
negative revenue growth and margin contraction. Revenue fell to IDR813bn (-27.3% YoY
and -14.6% QoQ) and cumulatively revenue fell to IDR2.87tr (-12.1% YoY), contributing
12.7% of consolidated revenue (-2.7ppt YoY). Meanwhile, gross profit margin fell to
50.9% (-5.2ppt YoY and -3ppt QoQ) and 54.9% in 9M23 (-1.2ppt YoY) with gross profit
contribution of 17.7% (-3.3ppt YoY). We attribute the negative revenue growth to
changes in consumer spending post-pandemic, while the margin contraction was driven
by higher raw material prices and limited room for price increments amid weakening
purchasing power.

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Kalbe Farma November 8, 2023

The nutritional segment’s performance is slightly better than consumer health as its
revenue stood at IDR1.96tr (-3.5% YoY but +1.8% QoQ) and cumulatively at IDR5.9tr
(+2.5% YoY) with gross profit margin of 47.8% in 3Q23 (-0.7ppt YoY but flat QoQ) and
47.8% in 9M23 (-2.1ppt YoY). As the results, revenue and gross profit contribution fell to
26.1% (-1ppt YoY) and 31.7% (-1.2ppt YoY), of each respectively. We estimate that
weakening purchasing power was the key driver for soft revenue growth, while the long
lead time of dairy raw materials led to margin contraction.

The distribution & logistic revenue was flat YoY but +7.7% QoQ to IDR2.69tr in 3Q23, and
cumulatively at IDR8.01tr (+3.2% YoY). Gross margin contracted to 18.4% in 3Q23 (-
4.5ppt YoY and -4.2ppt QoQ) and at 21.3% in 9M23 (-2ppt YoY). Both revenue and gross
profit contribution fell in 9M23 with the former by -1.1ppt YoY to 35.5% and the latter by
-1.5ppt YoY to 19.1%.

SGA to revenue relatively flat QoQ but increased by +2.2ppt YoY to 26.8% which mainly
driven by strong growth of employee costs that grew by +11.2% YoY, while promotion
costs was flat at IDR529bn, representing 7.2% of revenue. Cumulatively, SGA to revenue
up by +0.6ppt YoY to 26.2% as salaries expenses grew by +10.6% YoY, while promotion
to revenue fell by -0.3ppt YoY to 7.3%. We believe that salary growth was driven by a
combination of regular salary adjustments and the inclusion of Sanofi.

Balance sheet remains strong with net cash of IDR1.76tr, compared to net cash of
IDR934bn in 1H23 and net cash of IDR3.12tr in the same period last year. The days of
inventory outstanding (DOI) improved to 142 days in 9M23, from 147 days in 1H23 and
144 days in 9M22. It is worth mentioning that, as a part of improving profitability and
strengthening position, management is aiming to gradually reduce DOI by around 15
days in order to improve working capital.

Table 1. KLBF - earnings results 3Q23 (IDRbn)

Mirae Asset Market
3Q22 2Q23 3Q23 YoY (%) QoQ (%) 9M22 9M23 YoY (%) Run rate Run rate
2023F 2023F
(%) (%)
Revenue 7,307 7,310 7,382 1.0 1.0 21,182 22,561 6.5 30,897 73.0 31,255 72.2
Gross Profit 2,936 2,956 2,731 (7.0) (7.6) 8,735 8,907 2.0
Operating 1,066 878 687 (35.5) (21.7) 3,090 2,715 (12.2)
Income
PATMI 849 673 536 (36.8) (20.4) 2,486 2,065 (16.9) 3,363 61.4 3,396 60.8
EBITDA 1,237 1,051 866 (30.0) (17.6) 3,592 3,239 (9.8)

3Q22 2Q23 3Q23 YoY (ppt) QoQ (ppt) 9M22 9M23 YoY (ppt)
GPM 40.2 40.4 37.0 (3.2) (3.4) 41.2 39.5 (1.8)
OPM 14.6 12.0 9.3 (5.3) (2.7) 14.6 12.0 (2.6)
NPM 11.6 9.2 7.3 (4.4) (2.0) 11.7 9.2 (2.6)
EBITDAM 16.9 14.4 11.7 (5.2) (2.6) 17.0 14.4 (2.6)
Source: Company data, Mirae Asset Sekuritas Indonesia Research

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Kalbe Farma November 8, 2023

Figure 1. Quarterly Revenue and Contribution

IDRbn Revenue (L) Contribution to FY (R) (%)

7,500 28

6,500 26

5,500 24

4,500 Q3 2018 22

Q3 2023
Q1 2018
Q2 2018

Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Source: Mirae Asset Sekuritas Indonesia Research

Figure 2. Quarterly margins

50 Gross margin Operating margin Net margin

40

30

20

10

0
Q2 2020

Q3 2023
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020

Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Source: Mirae Asset Sekuritas Indonesia Research Q2 2023

Figure 3. Revenue per segment - quarterly

IDRbn Prescription pharmaceutical Consumer health Nutritionals Distribution&Logistic

8,000

6,000

4,000

2,000

-
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023

Source: Source: Mirae Asset Sekuritas Indonesia Research

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Kalbe Farma November 8, 2023

Figure 4. Gross profit margin per segment - quarterly

(%) KLBF Prescription pharmaceutical
75 Consumer health Nutritionals
Distribution&Logistic

60

45

30

15
Q2 2018

Q1 2019

Q4 2019
Q1 2018

Q3 2018
Q4 2018

Q2 2019
Q3 2019

Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Source: Mirae Asset Sekuritas Indonesia Research

Figure 5. Advertising and Promotion Expenses - Quarterly

IDRbn Promotion expenses (L) Promotion to Revenue (R) (%)
800 11

600 9

400 7

200 5

- 3
Q1 2022
Q2 2022
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021

Q3 2022
Q4 2022
Q1 2023
Q2 2023
Source: Mirae Asset Sekuritas Indonesia Research Q3 2023

Figure 6. Cash and cash to total assets

IDRbn Cash (L) Cash/Asset (L) (%)
6,500 27

5,000 21

3,500 15

2,000 9
3Q19

1Q22
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19

4Q19
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21

2Q22
3Q22
4Q22
1Q23
2Q23
3Q23

Source: Mirae Asset Sekuritas Indonesia Research

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Kalbe Farma November 8, 2023

Outlook, valuation and recommendations

Maintain HOLD with lower TP of IDR1,760

We trimmed down revenue and net profit projection to IDR30.33tr / IDR33.10tr and
IDR2.84tr / IDR3.15tr in FY23F /FY24F as we revised our key assumptions. At current
estimates, revenue and net profit growth in 23F is +4.8% YoY and -16.2% YoY, slightly
more conservative than management’s latest guidance of 5-7% for top line growth and
-12% to -15% for bottom line growth.

Table 2. Changes in forecasts (IDRbn)

Current forecasts Previous forecasts Change (%, ppt)
FY23F FY24F FY23F FY24F FY23F FY24F
Revenue 30,328 33,103 30,897 33,623 (1.8) (1.5)
Gross profit 12,031 13,216 12,365 13,415 (2.7) (1.5)
Operating profit 3,658 4,074 4,353 4,748 (16.0) (14.2)
EBITDA 4,393 4,839 5,088 5,513 (13.7) (12.2)
Net profit 2,835 3,148 3,363 3,663 (15.7) (14.1)
GPM (%) 39.7 39.9 40.0 39.9 -0.4 0.0
OPM (%) 12.1 12.3 14.1 14.1 -2.0 -1.8
NPM (%) 14.5 14.6 16.5 16.4 -2.0 -1.8
Source: Mirae Asset Sekuritas Indonesia Research estimates

Our valuation methodology remains consistent, with an unchanged P/E multiple target
based on the five-year historical mean P/E of 25.9x. As we revised down our projections
and roll forward the valuation to 2024F, we have reduced our target price to IDR1,760
from the previous IDR1,790, however, the rating is unchanged at HOLD. Potential upside
risks to our assessment include improvements in the split between branded and
unbranded products in the pharmaceutical segment, enhanced working capital
management, lower raw material prices, and a stronger IDR.

Figure 7. P/E Band

(x)
40

34

28

22

16
11/18 11/19 11/20 11/21 11/22 11/23
Source: Company data, Mirae Asset Sekuritas Indonesia Research

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Kalbe Farma November 8, 2023

Kalbe Farma (KLBF IJ)

Income Statement (Summarized) Balance sheet (Summarized)

(IDRbn) 12/21 12/22 12/23F 12/24F (IDRbn) 12/21 12/22 12/23F 12/24F
Revenue 26,261 28,934 30,328 33,103 Current assets
COGS -14,977 -17,229 -18,297 -19,887 Cash & equivalents 6,216 3,950 4,996 5,474
Gross profit 11,284 11,704 12,031 13,216 Receivables 3,431 4,614 5,055 5,333
Opex -7,262 -7,473 -8,373 -9,142 Inventories 5,087 7,027 6,353 6,905
EBIT 4,021 4,231 3,658 4,074 Others 978 1,119 1,265 1,417
Other income / (expenses) 68 201 30 25 Total current assets 15,712 16,710 17,669 19,129
Finance income 111 82 100 100 Non-current assets
Finance cost -57 -55 -55 -55 Fixed assets - net 7,994 7,957 7,828 8,057
Profit before income tax 4,143 4,459 3,733 4,144 Others 1,960 2,574 3,218 3,926
Income tax expenses -911 -1,009 -840 -932 Total non-current assets 9,954 10,531 11,046 11,983
Non-controlling interest 48 68 58 64 Total assets 25,667 27,241 28,715 31,112
Net profit 3,184 3,382 2,835 3,148
EBITDA 4,674 4,914 4,393 4,839 Current liabilities
ST bank loans 1,668 1,997 2,033 2,210
Margin (%) 12/21 12/22 12/23F 12/24F Account payables 70 829 964 1,186
Gross profit 43.0 40.5 39.7 39.9 Other current liabilities 1,797 1,605 1,782 1,978
Operating profit 15.3 14.6 12.1 12.3 Total current liabilities 3,535 4,431 4,779 5,373
Net profit 12.1 11.7 9.3 9.5 Non-current liabilities
EBITDA 17.8 17.0 14.5 14.6 Long-term financial liabilities 490 287 334 410
Others non-current liabilities 376 426 469 515
Growth (%, YoY) 12/21 12/22 12/23F 12/24F Total non-current liabilities 866 713 802 926
Revenue 13.6 10.2 4.8 9.1 Total liabilities 4,401 5,144 5,581 6,299
Operating profit 13.1 5.2 -13.5 11.4 Shareholders' equity 19,580 20,385 21,390 23,023
EPS 16.5 7.7 -16.2 11.0 Non-controlling interests 1,686 1,712 1,744 1,790
EBITDA 11.5 5.1 -10.6 10.2 Total liabilities and equity 25,667 27,241 28,715 31,112

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(IDRbn) 12/21 12/22 12/23F 12/24F 12/21 12/22 12/23F 12/24F
Cash Flows from Op. Activities 2,640 979 3,871 3,303 P/E (x) 23.6 22.0 26.2 23.6
Net profit 3,184 3,382 2,835 3,148 P/B (x) 3.8 3.6 3.5 3.2
Depreciation & amortization 428 724 735 765 EV/EBITDA (x) 14.9 14.5 16.1 14.5
Change in working capital -1,014 -2,794 270 -654 EPS (IDR) 68 73 61 68
Others 43 -334 31 44 BPS (IDR) 418 441 462 498
Cash Flows from Inv. Activities -840 -1,250 -1,208 -1,654 DPS (IDR) 28 36 38 32
Capex -264 -686 -607 -993 Payout ratio (%) 51.5 52.0 52.0 52.0
Others -576 -564 -601 -661 Dividend yield (%) 1.7 2.3 2.4 2.0
Cash Flows from Fin. Activities -791 -1,994 -1,617 -1,170 Accounts receivable turnover (x) 7.6 7.2 6.3 6.4
Change in liabilities -598 556 182 298 Inventory turnover (x) 3.4 2.8 2.7 3.0
Change in equity 1,119 -919 -41 6 Accounts payable turnover (x) 10.3 9.4 9.1 9.4
Dividends paid -1,313 -1,687 -1,758 -1,474 ROA (%) 13.2 12.8 10.1 10.5
Others 0 56 0 0 ROE (%) 16.3 16.9 13.6 14.2
Increase (decrease) in cash 1,008 -2,266 1,047 478 Current ratio (x) 445 377 370 356
Beginning balance 5,208 6,216 3,950 4,996 Net gearing (x) net cash net cash net cash net cash
Ending balance 6,216 3,950 4,996 5,474 Interest coverage ratio (x) 70 77 67 74
Note: Net profit refers to net profit attributable to controlling interests
Source: Company data, Mirae Asset Sekuritas Indonesia Research estimates

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Kalbe Farma November 8, 2023

Appendix 1

Important disclosures and disclaimers

Two-year rating and TP history
Company Date Rating TP (IDR) (IDR) KLBF Analyst's TP
Kalbe Farma (KLBF IJ) 11/8/2023 Hold 1,760
10/13/2023 Hold 1,790 2,700
11/28/2022 Trading Buy 2,400 2,200
8/18/2022 Buy 1,980
7/18/2022 Buy 2,100 1,700

1,200

700
Nov-21 Nov-22 Nov-23

Stock ratings Sector ratings

Buy Expected 12-month performance: +20% or greater Overweight Expected to outperform the market over 12 months
Trading Buy Expected 12-month performance: +10% to +20% Neutral Expected to perform in line with the market over 12 months
Hold Expected 12-month performance: -10% to +10% Underweight Expected to underperform the market over 12 months
Sell Expected 12-month performance: -10% or worse

Rating and TP history: Share price (─), TP (▬), Not Rated (■), Buy (▲), Trading Buy (■), Hold (●), Sell (♦)
* Our investment rating is a guide to the expected return of the stock over the next 12 months.
* Outside of the official ratings of PT Mirae Asset Sekuritas Indonesia, analysts may call trading opportunities should technical or short-term material developments arise.
* The TP was determined by the research analyst through valuation methods discussed in this report, in part based on estimates of future earnings.
* TP achievement may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Disclosures
As of the publication date, PT Mirae Asset Sekuritas Indonesia (“MASID”) and/or its affiliates do not have any special interest in the subject company and do not own 1% or
more of the subject company's shares outstanding.

Analyst certification
The research analysts who prepared this report (the “Analysts”) are certified to the Indonesia Financial Services Authority and are subject to Indonesian
Capital Market regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each
Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst
about any and all of the issuers and securities named in this report; (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly
related to the specific recommendations or views contained in this report; and (iii) The report does not contain any material non-public information. Except
as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and
have not been promised the same in connection with this report. Like all employees of MASID, the Analysts receive compensation that is determined by
overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading, and
etc. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or
MASID except as otherwise stated herein.

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Mirae Asset Sekuritas Indonesia Research 8

Kalbe Farma November 8, 2023

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Mirae Asset Sekuritas Indonesia Research 9

Kalbe Farma November 8, 2023

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Mirae Asset Sekuritas Indonesia Research 10