Indofood Sukses Makmur, the world’s largest maker of instant noodles, increased prices of its four brands by between 5 per cent and 10 per cent on Monday, the first such rise in three years.
The move comes two days after Indofood Agri Resources (IndoAgri), one of the Indonesian company’s subsidiaries, announced it was buying London Sumatra (Lonsum), an Indonesia-based plantation company, for about $1bn.
Werianty Setiawan, Indofood’s corporate secretary, said the company still expected sales to increase by 10 per cent this year from last year’s 11.3bn packets despite the price rise. Indofood’s four bands each rose by Rp50 (US$0.57). They now cost from Rp550 to Rp1,000.
Ms Werianty did not rule out further price rises.
“It will depend on the price of raw materials,” she told the Financial Times. “We expect wheat prices to be at the current level until the fourth quarter when they should soften slightly. But that’s dependent on the weather.”
Indofood is owned by the family of Sudono Salim through Hong Kong-listed First Pacific. Mr Salim was one of the closest business allies of the former dictator Suharto. The family is now trying to reinvent itself. Anthony Salim, the son of Sudono, is the current president director.
Indofood had a bad 2005 but appeared to be turning the corner in 2006 until wheat prices started rising sharply. They are up 30 per cent in the past year. Wheat accounts for 42 per cent of the company’s costs, according to one Jakarta analyst who asked not to be named.
“A rise of 10 per cent is not going to do much for their profit,” the analyst said. “It will mean revenue should now keep up with costs but not more.”
In the first quarter of 2007, Indofood’s profit rose only 2 per cent despite sales rising 19 per cent. Its unaudited assets at March were $2bn.
Analysts were cautious about the IndoAgri-Lonsum deal. Lonsum’s share price closed 3.1 per cent higher and Indofood’s rose 5.3 per cent, but IndoAgri’s rose only 0.8 per cent.
“As an investor, you look at it differently from Salim, who will hold on to it for decades,” said Roland Haas of HB Capital Partners. “For him it might be cheap on the five-year perspective but, for me as an investor, it’s expensive now. For that kind of money, there are better investments to be had in Indonesia.”
IndoAgri is paying $1bn for 162,000 hectares of land, of which 63,000 have been planted with oil palm. Uncultivated land can be bought for about $4,000 per hectare.
“The valuation is pretty high,” said Michael Chambers of CLSA in Jakarta. “But if you’re bullish on palm oil, then it’s a different story.”
Benchmark palm oil prices are trading near a nine-year high of $750 a tonne. Most analysts expect them to remain high in the coming months but then correct by up to 30 per cent.
Ms Werianty said further acquisitions could not be ruled out.