Sales volume recovers strongly

Overall listed FMCG firms’ sales growth hovered at 10.9% y-y in 3Q24 (vs 3.9% in 3Q23), mostly driven by a sales volume recovery and market share expansion (in line with our preview note). We believe strong volume growth was attributable to outside Java and lower-tier cities’ consumption (read: Regions with faster consumption growth in focus), given strong CPO prices, infrastructure improvement, and the effect of digital economy. For instance, Alfamart (AMRT IJ [Buy] — one of Indonesia’s largest FMCG retailers) booked very strong 3Q24 sales growth of +17% y-y outside Java (vs +7% y-y in Java). Moreover, we note that local FMCG firms keep gaining market share over multinational companies (MNCs), which was reflected in Unilever’s (UNVR IJ, Reduce) weak sales performance. Sariguna Primatirta (CLEO IJ, Buy), Mulia Boga Raya (KEJU IJ, Buy), Multi Bintang (MLBI IJ, Buy), and Mayora Indah (MYOR IJ, Buy) have the fastest-growing sales in 3Q24. We observe that the A&P-to-sales ratio was generally lower by 20bp y-y in 3Q24 as strong demand endures at the grassroots level.

Core profit mostly came in line with our estimates

We tracked FMCG firms’ 3Q24 core profit (which excludes forex gain/loss) under our coverage, which mostly came in line with our estimates. Some companies’ core earnings were lower due to specific issues, such as Kalbe Farma (KLBF IJ, Buy – higher-than-expected marketing investment), Sariroti (ROTI IJ, Buy – higher return rate due to product launches), and UNVR – structural sales decline due to loss of market share against local firms). We also want to highlight that some companies recorded consistent double-digit core profit growth even from a high base, such as Cimory (CMRY IJ, Buy) and CLEO.

4Q24F sales trend remains solid

We believe listed FMCG firms may record strong sales growth of 11% y-y in 4Q24F as we predict more money circulating to grassroots during local leader’s election this month. On top of that, the new government has also started conducting more trials for a free meal program in Nov-24, which should benefit the lower-end income class as well, before the program is launched at a massive scale in Jan-25. Hence, fundamentally, we think downside risks for sales would be minimal.

Top picks for FMCG stocks

We remain bullish on the FMCG sector on the back of robust sales volume growth, underpinned by potential more pro-growth programs under the Prabowo regime (i.e. free nutritious food program). We chose stocks with a strong mass market product portfolio. For mid-big caps, we prefer MYOR > Indofood CBP (ICBP IJ, Buy) > Indofood (INDF IJ, Buy) > CMRY. We like MYOR due to its ability to sell high-quality products at competitive pricing, proven by continuous market share expansion. We also predict margin recovery next year to boost earnings growth, not to mention undemanding valuation. We also continue to like ICBP and INDF based on consistent double-digit core profit growth and very cheap valuation. On top of that, both companies have strong pricing power to stabilize margin in case there is commodity price volatility. CMRY has the highest valuation among our coverage, but we think it is justified by its consistent strong earnings growth. We believe consumer food remains the growth driver for next year. In the medium term, the company’s ability to innovate products may sustain strong growth.

In the small-cap space, we choose CLEO > Ultrajaya (ULTJ IJ, Buy) > KEJU as our top picks. In our view, CLEO will remain the fastest-growing FMCG firm over the next two years, backed by strong packaged water industry growth, market share expansion, and ASP hike. ULTJ has very cheap valuation; we foresee a stable volume (driven by UHT milk) and margin expansion next year. Lastly, we also like KEJU on the back of strong long-term sales growth, given its low product penetration. On top of that, there is potential for the company to improve liquidity as well.

Fig. 2: Overall FMCG y-y sales growth trend of companies under our coverage

Fig. 3: FMCG 9M24 y-y growth by area

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)