You are on page 1of 15

Page 1 of 15 pages

Contact:
Equity & Index Valuation Division
Phone: (6221) 7278 2380
info-equityindexvaluation@pefindo.co.id

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
KAEF JCI
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/BV P/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
Disclaimer statement in the
last page is an integral part
of this report
www.pefindo.com

Kimia Farma (Persero), Tbk


February 11, 2014 Page 3 of 15 pages



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
G
r
o
w
t
h

E
x
p
e
c
t
a
t
i
o
n
s
Current Performance (CP)
Q-2 Q-1
Q-4 Q-3
MERK
SQBI
KLBF
TSPC KAEF
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
Kimia Farma (Persero), Tbk

February 11, 2014 Page 4 of 15 pages



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
Disclaimer statement in the
last page is an integral part
of this report
www.pefindo.com
Kimia Farma (Persero), Tbk


February 11, 2014 Page 5 of 15 pages
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
Source: PT Kimia Farma (Persero) Tbk, PEFINDO Equity Valuation & Indexing Division

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

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)
Disclaimer statement in the
last page is an integral part
of this report
www.pefindo.com
Kimia Farma (Persero), Tbk


February 11, 2014 Page 6 of 15 pages
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.
Disclaimer statement in the
last page is an integral part
of this report
www.pefindo.com
Kimia Farma (Persero), Tbk


February 11, 2014 Page 7 of 15 pages

Figure 3: Indonesia Pharmaceutical Market

4.58
4.85
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
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.
383
412
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
Disclaimer statement in the
last page is an integral part
of this report
www.pefindo.com
Kimia Farma (Persero), Tbk


February 11, 2014 Page 8 of 15 pages


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 (%)

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


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

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


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.
Disclaimer statement in the
last page is an integral part
of this report
www.pefindo.com
Kimia Farma (Persero), Tbk


February 11, 2014 Page 9 of 15 pages




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, bn IDR, 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 (%)
Disclaimer statement in the
last page is an integral part
of this report
www.pefindo.com
Kimia Farma (Persero), Tbk


February 11, 2014 Page 10 of 15 pages
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












Disclaimer statement in the
last page is an integral part
of this report
www.pefindo.com
Kimia Farma (Persero), Tbk


February 11, 2014 Page 11 of 15 pages




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
Disclaimer statement in the
last page is an integral part
of this report
www.pefindo.com
Kimia Farma (Persero), Tbk


February 11, 2014 Page 12 of 15 pages



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
Disclaimer statement in the
last page is an integral part
of this report
www.pefindo.com
Kimia Farma (Persero), Tbk


February 11, 2014 Page 13 of 15 pages
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


Disclaimer statement in the
last page is an integral part
of this report
www.pefindo.com
Kimia Farma (Persero), Tbk


February 11, 2014 Page 14 of 15 pages

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



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


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/BV P/E
P/E P/BV

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

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

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

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 statement in the
last page is an integral part
of this report
www.pefindo.com
Kimia Farma (Persero), Tbk


February 11, 2014 Page 15 of 15 pages




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. Thi s 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.