4Q24: affordable mass market products continue gaining shares

We believe competitive pricing and strong branding remain the best catalysts to succeed in the Indonesia FMCG market. Value-for-money products become preferable choices as the middle-income-class increasingly turn price sensitive and less sticky to brands. Selling FMCG products at very low price points without a strong branding strategy is also not sustainable, in our view, as consumers are becoming smarter in selecting and comparing products. Moreover, the higher disposable income in low-end-income class, due to higher soft commodity prices + government incentives, is only enough to cover affordable FMCG products, given the low base factor. Hence, we think affordable branded FMCG will enjoy the tailwind of higher demand going forward. Companies with affordable price points, strong branding, efficient supply chain, and sizeable A&P budget can sustain market share expansion, in our view.

In the snacks food and instant powder coffee category, we note that Mayora Indah (MYOR IJ, Buy) could record strong high-teens sales growth y-y in 4Q24F. We think MYOR’s snacks are suitable for all income classes, given its competitive pricing, global quality standard, and strong branding. In our view, the low-end income class sees MYOR biscuits and wafers as affordable luxury indulgences, while for the middle-income class, MYOR snacks are treated as value-for-money products. Instant powder coffee, on the other hand, gains higher demand momentum as the middle-income class reduces their consumption of expensive ready-to-drink coffee. For the “other” category, we assume Sariguna Primatirta (CLEO IJ, Buy) continued to record ~30% sales growth y-y in 4Q24F, driven by market share gains (owing to its agile distribution advantage, higher average selling price (ASP), and double-digit demand growth for branded packaged water (driven by urbanization). Strong growth would be apparent for Mulia Boga Raya (KEJU IJ, Reduce) also, with >20% sales growth y-y in 4Q24F on the back of ongoing market penetration. In the UHT milk segment, we forecast Ultrajaya (ULTJ IJ, Buy) to book sluggish sales and earnings performance in 4Q24F, as the company lost market share after significant price increases in Jun-24; as a result, management needs to allocate high A&P to protect market share. On the other hand, we expect Cimory (CMRY IJ, Buy) to consistently record mid-to-high-teens sales growth y-y in 4Q24F, underpinned by a strong dairy performance; CMRY gains market share from ULTJ (market leader), not to mention the strong market acceptance of its yogurt sticks, in our view. Kalbe Farma (KLBF IJ, Buy) also showed substantial sales improvement in the consumer health division (+12% y-y in 4Q24F), which is due to its new branding strategy under new management and competitive pricing, especially for herbal medicine. Meanwhile, Sidomuncul (SIDO IJ, Buy) may grow sales ata high single-digit pace y-y in 4Q24F, supported by the front-loading by distributors before the company raises prices. We expect Indofood CBP (ICBP IJ, Buy) to record high-single-digit sales growth y-y, with margin expanding in 4Q24F, driven by the strong performance of Pinehill (unlisted) and stable domestic demand. For Unilever (UNVR IJ, Reduce), we expect a high-single-digit sales recovery y-y in 4Q24F (vs a 16% sales drop in 4Q23), due to the low base. Lastly, increasing number of premium brands such as Bintang Beer by Multi Bintang (MLBI IJ, Buy) and Sari Roti Bread by Nippon Indosari Corpindo (ROTI IJ, Buy) may post low-to-mid-single-digit sales growth due to competition pressure from cheaper products.

Jan-25 sales run-rate

We note that many distributors front-loaded FMCG inventory in Dec-24, anticipating a VAT tax hike as well as early Lebaran season. Hence, it may impact Jan-25 sales turnover, as part of the sales have already been moved forward to Dec-24; we believe Jan-25 sales run-rate could hover at low-to-mid-single-digit percentage growth y-y. However, we also notice strong performance by companies such as MYOR, which could still outperform the market with +20% sales growth y-y due to both strong domestic and a surge in export demand. CMRY and KEJU have also indicated double-digit sales growth y-y.

Top picks

Based on our industry survey, most of the FMCG firms’ earnings results should be within our expectations. We maintain our top picks, as follows: for mid-to-big caps (daily turnover >USD1mn average last year), we like MYOR > ICBP > CMRY > KLBF; for small caps, we prefer CLEO as our top pick. We still maintain our overweight view on Indonesia consumer sector, given its double-digit earnings growth potential and low valuation. Main risks to our views would be further weakening of IDR.

Fig. 2: Indonesia FMCG— 4Q24F sales growth y-y forecast

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)