NPAT +92% in the past three years since IPO; Buy

CMRY booked a +25% NPAT CAGR over the 2021-2024 period, driven by product innovation and selling channel expansion; we conservatively project a 2025-27F NPAT CAGR of +16% . We take into account a more price-sensitive situation for the middle-income-class due to fewergovernment incentives and more consumptive behavior; hence, we expect CMRY could gradually expand its product portfolio into more affordable products. Moreover, more affordable products may also help CMRY to capture higher low-end disposable income amid social aid programs and better soft commodity prices. The company posted another quarter of record-high sales in 4Q24, mostly driven by Kanzler products expansion (+22% sales growth y-y) mostly in modern-trade (MT). We believe it is worth noting as well that Dairy sales grew by a solid +13% y-y (vs 11% y-y in 4Q23) as its UHT milk gained market share from the market leader. GPM was up significantly in 4Q24 by 3,750bp y-y on the back of lower raw material costs, but EBIT margin was lower by 2,100bp y-y, as the company decided to invest heavily in A&P to sustain medium-term growth with new products and channel expansion. Overall FY24 results were in line with market expectations. We maintain our Buy call with a TP of IDR6,700, using a target P/E of 30x FY25F. We use a premium target P/E as we take into account CMRY’s consistent and stable y-y double-digit-percentage revenue growth. Currently, the stock is trading at 20x FY25F P/E. Downside risks include weaker-than-expected buying power.

How CMRY can expand its new product portfolio in general trade (GT)

GT remains the largest sales channel in Indonesia, accounting for 60-70% sales contribution with the fastest growing transaction compared to other channel last year (see Fig. 5), thanks to social aid programs and higher soft commodity prices, which enhance low-end disposable income, especially in lower-tier cities and rural areas. Currently, CMRY’s GT contribution is only 34% of sales. The company plans to add another 20k stores this year, from 160k GT stores last year. Other than UHT milk, CMRY will push affordable yogurt and Kanzler products as well into GT, so that it has increased bargaining power. In our view yogurt and Kanzler products can penetrate the GT market well, due to the following: 1) it has the right price points at below IDR5,000/piece; 2) CMRY’s yogurt and Kanzler products are perceived as affordable but luxury products in GT, which can be competitive advantage in terms of brand image; 3) CMRY cherry-picks high-quality GT stores that are suitable to sell dairy and protein based products; 4) CMRY conducts strong market R&D through Miss Cimory feedback as a testing ground before rolling out products to GT; and 5) the company has set aside a significant A&P budget in 4Q24 (reaching 21% to sales ratio) to support new product launches and channel expansion.

Fig. 2: CMRY dairy vs consumer food sales growth y-y

Fig. 3: CMRY GPM vs Operating margin trend

Fig. 4: CMRY A&P to sales ratio trend

Fig. 5: Indonesia spending value growth by channel y-y in 2024

Fig. 6: CMRY – P/E band

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Sandy Ham (sandy.ham@verdhana.id)

Jody Wijaya (jody.wijaya@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)