Nutri-Grade system should be more suitable for Indonesia market

The Minister of Health (MoH) plans to implement the Nutri-Grade labelling system for beverages in order to promote a healthier lifestyle, reducing sugar consumption in the long run. Assuming application similar to the one in Singapore, MoH may impose a mandatory color-coded front-of-package nutrition label with a four-point scale, A (healthiest) to D (least healthy) in terms of sugar and saturated fat levels for all beverage products (including liquid and powder prepackaged products, and even freshly made beverages). We believe this educative approach is more appropriate for the Indonesia market in comparison to a sugar-sweetened beverage (SSB) tax given its negative side effects. In our view, SSB tax may trigger price increases on unhealthy products, placing a larger burden on low-income households, who tend to spend a higher proportion of their income on SSBs. Moreover, there are potentially many loopholes in the SSB tax regulation; for instance, consumers can simply substitute taxed products with other similar untaxed products, or in the worst-case scenario, it may encourage more illegal products to circulate in the market (similar to what happened in the cigarette industry), not to mention the potential reduction in contribution to state revenue. Hence, we think it is less likely for the government to impose SSB tax, given the unfavorable risks/reward.

No immediate impact, but it may trigger companies to reformulate into healthier products

The Nutri-Grade labelling system may not have an immediate impact on the majority of Indonesian consumers, in our view; instead, we would expect a gradual long-term education for consumers. Thus, we believe sweet beverages will remain popular products, but, we may see more consumers, who are already aware of a more healthy lifestyle, being encouraged to buy fewer high-sugar beverages. From the manufacturers’ perspective, we expect minimal implications for business operations, as companies only need to change the packaging; we note that we believe implementation would be done gradually. We see this new regulation as a national campaign to stimulate a healthier lifestyle; hence, in our view, companies may take this momentum to reformulate and to promote their healthier products as well. Currently, based on our survey, most of Indonesia’s pre-packaged beverages are in grade C and D classifications; so far, Kalbe Farma (KLBF IJ, Buy) and Sariguna Primatarta (CLEO IJ, Buy) have the best positioning for lower-sugar beverage choices.

Our top picks remain unchanged

We believe Mayora Indah’s (MYOR IJ, Buy) plans to expand product categories in the domestic market and to strengthen its export market in ASEAN will be the main driver supporting its long-term mid-teens core earnings growth (the shares currently trade at a 2025F P/E of 16x vs its five-year historical P/E of 32x). We also continue to like Indofood CBP (ICBP IJ, Buy) due to its significant instant noodles domination in Indonesia and Middle East & Africa (Pinehill [unlisted] operation); we expect pricing power in Indonesia and volume penetration in Pinehill market will sustain ICBP’s low-to-mid-teens core earnings growth (shares currently trade at a 2025F P/E of 11x vs its five-year historical P/E of 20x). We also like KLBF as the biggest Indonesia healthcare proxy with ample liquidity; on top of that, in our view the new management team has the ability to push a higher earnings growth trajectory, from mid-single-digit growth to low-teens growth (shares currently trade at a 2025F P/E of 22.3x vs its five-year historical P/E of 27x). Overall, we continue to recommend MYOR > ICBP > KLBF as our top picks in the mid- to big-caps space.

For small caps, CLEO remains the fastest-growing FMCG under our coverage on the back its fast-growing industry and market share gains (shares currently trade at a 2025F P/E of 21.7x vs its five-year historical P/E of 36.6x). We maintain our Buy call on Cimory (CMRY IJ, Buy) as well, given its consistent strong double-digit growth, justifying its high valuation (shares currently trade at a 2025F P/E of 23.3x vs its five-year historical P/E of 30.5x). Lastly, we think Ultrajaya (ULTJ IJ, Buy) is a hidden gem; the company may book strong double-digit earnings growth this year, not to mention its very cheap current 2025F P/Evaluation of only 12.6x.

Fig. 1: Nutri-Grade grading system

Fig. 2: Products display with Nutri-Grade

Fig. 3: Survey on key products from Indonesian FMCG companies – Nutri-Grade level for Indonesia liquid prepackaged beverages, based on sugar content

Fig. 4: Survey on key products from Indonesian FMCG companies – Nutri-Grade level for Indonesia powder prepackaged beverages, based on sugar content