3Q24F result: core earnings would mostly be in line

Our survey on wholesalers and distributors of 15 large FMCG firms suggests that 3Q24F sales performance remains strong, similar to the 2Q y-y growth trajectory, and we believe this is driven by volume recovery and market share gain. We note that some listed companies such as Mayora Indah (MYOR IJ, Buy) and Mulia Boga Raya (KEJU IJ, Buy) could potentially beat Bloomberg consensus sales estimates for two consecutive quarters, given their solid double-digit growth trends. In terms of core earnings, we predict most companies to record results in line with consensus estimates. However, some companies may record lower-than-expected core earnings due to specific issues, i.e., MYOR (surge in coffee and cocoa costs) and Nippon Indosari Corpindo ([ROTI IJ, Buy], persistent high rate of products being returned or not sold). Meanwhile, other companies such asIndofood CBP ([ICBP IJ, Buy], higher Pinehill [unlisted, subsidiary of ICBP] margin), Ultrajaya ([ULTJ IJ, Buy], price hike impact), Kalbe Farma ([KLBF IJ, Buy], margin recovery), and KEJU (stronger sales volume) may come up above market estimates, in our view. We also want to highlight that companies like MYOR, Cisarua Mountain Dairy (CMRY IJ, Buy), ULTJ, and KLBF may record unrealized forex loss (non-cash item), given weakening USD, while ICBP may book a forex gain.    

4Q24F could deliver stronger sales contribution

We predict more money circulation to grassroots nearing the local leaders’ election in Nov-24. Our on-the-ground checks suggest that some FMCG firms, distributors, and wholesalers already experienced stronger demand in Sep-24. At the same time, we also believe Prabowo’s regime will kick-start its flagship program, i.e., the free nutritious food program, swiftly in Nov-24, right after his inauguration. Hence, we expect sales acceleration for the FMCG sector in 4Q24F.

Top picks to ride on the theme

We remain bullish on the FMCG sector; next year will be another strong year for consumption, underpinned by potentially more populist programs under Prabowo’s regime, in our view. We currently cover 11 stocks in the FMCG space. We pick six companies as our top picks based on long-term earnings trajectory and valuation. For mid-large caps, we prefer ICBP as our number one pick, given its consistent double-digit core earnings growth and very cheap valuation. We note that the company has a chance to beat consensus earnings estimates as well in 3Q24F, in our view. Secondly, we continue to like MYOR, as we believe the likely subpar 3Q24F margin to only be a temporary issue; instead, MYOR has the opportunity to accelerate market share amid margin pressure. Lastly, KLBF is also a good choice due to the company potentially recording a strong double-digit earnings recovery this year.

For small caps, our number one pick is still Sariguna Primatirta (CLEO IJ, Buy) ; CLEO remains the fastest-growing company under our coverage, backed by market share gains and margin expansion. Our second pick would be CMRY, given its consistent strong double-digit growth. We also still like ULTJ on the back of its sales resiliency and undemanding valuation.

Fig. 2: FMCG peers comparison

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)