Indofood Sukses Makmur, one of Indonesia's leading food manufacturing companies, plans to build a new factory for the production of flour to increase capacity and sales of its Bogasari unit. Bogasari is the company's integrated flour milling unit. Franciscus Welirang, Director of Indofood Sukses Makmur, said the unit's flour mills are currently producing close to their maximum capacity, hence production capacity expansion is needed.
The new flour mill will be constructed in Cibitung (West Java) by Indofood Sukses Makmur, part of the Salim Group. The company is currently arranging all required permits. Through the new mill, Indofood Sukses Makmur will add a total of 200,000 tons of flour (per year). Welirang did not mention the amount of capital that is required to build the mill.
Currently, Indofood Sukses Makmur owns two flour production facilities, one in Jakarta and one in Surabaya (East Java), with a grinding capacity of 10,450 tons and 6,000 tons per day, respectively.
Meanwhile, Welirang said the sales volume of the Bogasari unit grows by an average 5 percent per year and therefore the company's facilities are in need of expansion. Moreover, sales in 2018 are expected to climb at a higher pace compared to last year because of the activities related to the local elections in mid-June 2018, the Asian Games (scheduled to be held from 18 August to 2 September 2018 in Indonesia), and the annual IMF-World Bank meeting (to be held on Bali). All these events boost the consumption of food and drink products.
Up to the third quarter of 2017, sales of the Bogasari unit reached IDR 14.3 trillion (approx. USD $1.08 billion), equivalent to 26.52 percent of Indofood Sukses Makmur's total sales in that period.
Andy Ferdinand, analyst at Samuel Sekuritas, expects Indofood Sukses Makmur's net profit and sales to grow 10.1 percent (y/y) and 6.9 percent (y/y), respectively, in 2018 amid improving household consumption as well as the organization of various (aforementioned) events that boost consumption. Lastly, the prospects of declining wheat prices are also a positive factor as it lowers the company's production costs.
A challenge is that there remains fierce competition in Indonesia's flour market. However, no new competitors have arrived over the past 12 months.
Sinarmas Sekuritas advises investors to invest in shares of Indofood Sukses Makmur and set its share price target for the company at IDR 9,675 per share (12-month outlook). So far in 2018 shares of Indofood Sukses Makmur have risen around 6 percent.
Stock Quote Indofood Sukses Makmur - INDF: