ASEAN F&B Manufacturers:Jakarta visit,part 2–volume trumps margins

　　We visited Jakarta at the end of June 2016 and met with a number of consumer-relatedcompanies to assess more closely the dynamics currently driving the F&B manufacturerspace. This is the second instalment in a series of reports in which we present ourkey findings and the read-across for stocks that we cover.

　　We spoke with F&B manufacturers in JakartaWe spoke with the management of Mayora Indah (MYOR, IJ, not rated), Tiga PilarSejahtera (AISA IJ, Not Rated), Charoen Pokphand Indonesia (CPIN IJ, not rated),and Japfa Comfeed (JPFA IJ, Not Rated). We believe these companies provide aread-across for Indofood CBP (ICBP IJ, Hold, IDR17,350, TP: IDR17,000) andIndofood Sukses Makmur (INDF IJ, Buy, IDR7,200, TP: IDR 9,700), and to a lesserextent Super Group (SUPER SP, Hold, IDR0.83, TP: IDR0.92) and Universal RobinaCorp (URC PM, Reduce, PHP200, TP: PHP160).

　　Volume trumps margins, ASP could increase through product mixThe key takeaway from our meetings is that between achieving volume growth andprotecting margins, food manufacturers are choosing to prioritise volume growth in2016. Mayora Indah (MYOR IJ, Not Rated), which did not raise prices in 2015, thinksthat it is difficult to raise prices without putting its market share at risk. In our reportIndonesian Staples: HSBC 2016 ASEAN and India Conference, 29 June 2016, wehighlighted that we believe food manufacturers under our coverage are on track toachieve our expected growth in volume and ASP in 2016. Our meetings with MayoraIndah (MYOR, IJ, Not Rated) and Tiga Pilar (AISA IJ, Not Rated) corroborated thisview. Similar to Nippon Indosari (ROTI IJ, Not Rated), Mayora and Tiga Pilar talkedabout phasing out lower-priced SKUs to concentrate on higher-priced SKUs,believing that the market is ready for the transition.

　　Maintain Buy rating on INDF (TP at IDR9,700); Hold rating on ICBP (TP atIDR17,000) and SUPER (TP at SGD0.92); and Reduce on URC (TP at PHP160).

　　There are no changes in ratings for the companies under our coverage.