Economy Outlook Imf

Competitors matching price increases: Key competitors such as Wings (noodles) have increased prices when Indofood has increased and as such we see the inflationary pressures as being industry-wide.

Rising input costs (wheat and CPO): From the low of US$4.0/bushel on 6 September 10, the spot price of wheat has risen by 80.75% to US$7.23/bushel. Concurrently, the CPO spot price has also risen from the low of US$742.17/ton to US$1,218.83/ton. With the CPO and wheat prices comprising 15% and 40% of the noodles' cost of goods sold, the rise in CPO prices will create cost pressures. Despite the rising costs, we view that eventually Indofood could pass on the price increases to the customers. However, the rising input costs could create negative sentiment for the share price performance.

Full capacity at dairy division hinders growth: Currently, the UHT factory of Indofood is running at full capacity. The full utilization of the factory is mainly on the unexpected surge in volume during FY09. Despite efforts to double the capacity, the new factory will not be ready until FY12. Meanwhile, the full capacity utilization could be a hindrance to volume growth in FY11E, when growth is likely to be achieved from pricing alone.

Competitors matching price increases: Key competitors such as Wings (noodles) have increased prices when Indofood has increased and as such we see the inflationary pressures as being industry-wide.

Rising input costs (wheat and CPO): From the low of US$4.0/bushel on 6 September 10, the spot price of wheat has risen by 80.75% to US$7.23/bushel. Concurrently, the CPO spot price has also risen from the low of US$742.17/ton to US$1,218.83/ton. With the CPO and wheat prices comprising 15% and 40% of the noodles' cost of goods sold, the rise in CPO prices will create cost pressures. Despite the rising costs, we view that eventually Indofood could pass on the price increases to the customers. However, the rising input costs could create negative sentiment for the share price performance.

Full capacity at dairy division hinders growth: Currently, the UHT factory of Indofood is running at full capacity. The full utilization of the factory is mainly on the unexpected surge in volume during FY09. Despite efforts to double the capacity, the new factory will not be ready until FY12. Meanwhile, the full capacity utilization could be a hindrance to volume growth in FY11E, when growth is likely to be achieved from pricing alone.

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