Maintain Buy with higher TP of IDR2,200

Brand transformation starts from consumer health

Consumer health is a very crucial division for KLBF, as it possesses the highest margin, hence any sales improvement may result in a bigger impact on earnings. In terms of sales, consumer health currently has the smallest contribution, but the potential consumption growth is still tremendous due to its low base penetration, in our view. We believe supplement products will be the main growth driver for the consumer health division going forward; globally, supplements contribute 42% of the total consumer health segment (vs KLBF at only 28%), leaving plenty room of growth for KLBF. Moreover, other consumer health categories such as dermo-cosmetics, weight management, and sports nutrition, which are the fastest-growing categories nowadays, can be KLBF’s potential growth driver as well. We note that KLBF is equipped with a very strong distribution network and R&D to push the products, but so far, it may lack branding and a positioning strategy, in our view.

To unlock consumer health value, KLBF recently hired a new director for consumer health, Rudolf Tjandra, who we think is one of the best CEOs for FMCG in Indonesia. His expertise is in transforming brands with a proven track record, including A-Mild brand (becoming one of the largest cigarette brands in Indonesia, brand of HM Sampoerna [HMSP IJ, Not rated]), Softex (unlisted, most well-known Indonesia diaper brand — turning around the image from low-class diapers into a more premium product), and Sasa (unlisted, one of the largest MSG brands in Indonesia — tripled sales in just five years). We think Rudolf is the perfect person to turn around KLBF’s consumer health division with more breakthroughs in marketing strategy going forward.

Maintain Buy with positive near-term and medium-term catalysts

Near-term upsides are attributable to strong profit recovery as well as a stronger IDR. For a medium-term catalyst, we think the appointment of Irawaty (President Director) and Rudolf (Director of Consumer health) could be a good combination to push KLBF’s growth trajectory to higher level, but of course the impact will take time. All in all, we upgrade our NPAT forecasts by 3.3%/1.2%/0.1% for FY24F/25F/26F. We also roll forward our target P/E using unchanged 28x FY25F, resulting in TP of IDR2,200. Currently, the stock trades at 22.1x P/E FY25F. We note that KLBF also has ample liquidity versus other FMCG firms. Downside risks would be tougher-than-expected competition, especially in powder milk segment.

Fig. 1: KLBF consumer health has plenty room to grow, in our view, especially in health supplements and potential new categories

 

Fig. 2: Consumer health sales CAGR FY18-23 by category

 

Fig. 3: KLBF sales contribution breakdown

Fig. 4: KLBF segment gross margins

 

Fig. 5: KLBF sales forecast

 

Fig. 6: KLBF NPAT forecast

 

Fig. 7: KLBF 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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