• Better macro picture for key market
• Change of name proposed
• Share price has run up on thin volume

Indonesia moving in the right direction?

The macro picture for Indonesia seems to offer some hope after last year’s disappointment. Over the past three policy meetings, Bank Indonesia (BI) has reduced its benchmark interest rate from 7.5% at the start of the year, to 6.75%. Other rates such as lending facility rate were also cut.

In addition, there are expectations that economic reforms could finally go through, with more infrastructure projects to boost job creation and growth this year. However, this has brought attention to the sustainability of the government’s revenues.

The country’s tax amnesty plan that was supposed to be implemented before 2016 has not happened, thus the government plans to cut operational spending albeit “without harming growth”. BI’s consumer confidence index had dipped slightly MoM from 112.6 to 110 for February due to concerns over job availability, but still remained in optimistic territory. Amid this backdrop, the drags experienced by Petra Foods in 2015 such as destocking by trade customers could ease this year.

Proposed change in name

On a separate note, following the sale of its cocoa ingredients business, the company has proposed to change its name from “Petra Foods Limited” to “Delfi Limited” as they believe “Delfi” is the key brand used to widen the group’s geographical presence as well as allow expansion into new product categories.

This is in line with the group’s focus for this year to continue driving shelf space presence across all retail channels, develop new products as well as manage cost efficiencies. In view of the continuous brand investments, we see expenses possibly being pared down only by a small extent.

Could underlying growth improve?

While the broader economic picture bodes well for Indonesia’s consumer sector, it may not necessarily translate to underlying sales growth for Petra Foods’ products. Recall that there were instances in 2015 when private consumption was stable vs. the group’s decline in sales.

At this juncture, we still opt to remain cautious for now due to the lack of strong growth drivers. Meanwhile, we note that the share price has run up on thin volume. Maintain SELL rating with fair value estimate of S$1.92.

Source: OCBC Research - 21 Mar 2016