We raise our FY24F and FY25F earnings by 22% and 15%, respectively, for KEJU on the back of stronger-than-expected sales of sliced cheese. The company launched Prochiz Gold Slices in 2024, a highly affordable snack cheese at a price of IDR2,000, which gained strong market acceptance in general trade (GT). Also, new management has successfully revamped the distribution channel and gradually reduced inventory days. New management has gradually shifted the focus of the company back to the food service business and GT expansion, after an ineffective online sales strategy in 2021-2022.
Forecasting +28% NPAT CAGR over 2026-29F post-capex cycle
KEJU plans to build a new factory to double or triple its production capacity in 2025-26E. Therefore, the company may book higher bank loan and interest cost to fund the expansion; hence, we lower our NPAT growth estimate for 2025F-26F. However, we see this as a positive progress as the demand is significant; currently, processed cheese market penetration should hover at only 5% (vs yogurt, UHT milk, and sweet condensed milk market penetration at 30%, 49%, and 78%, respectively), based on our industry survey. Also, we calculate that the processed cheesed market size was only at ~IDR4tn in 2024 (vs UHT milk at ~IDR30tn), leaving plenty of room to grow. KEJU remains the market leader in processed cheese, based on our survey, underpinned by its large distribution network and cheaper pricing. KEJU is the pioneer of snack cheese products in GT, covering 45K stores now; thanks to PT SNS (sister company, unlisted), KEJU has access to ~350K stores. Moreover, cheaper pricing also helps the company to expand its food services business as we observe many cafés and restaurants try to lower their cost per meal. The first stage of new production facilities can be operated in 4Q25F-1Q26F, which may add +30% of current capacity.
Upgrade to Neutral; long-term holding can provide significant upside
We downgraded KEJU to Reduce on 27-Jan (read Follow the money) as the share price had risen by 155% in the past year vs JCI down -0.2%. At the current price level, we see the valuation as reasonable. Hence, we upgrade the stock to Neutral. We raise our TP to IDR650 (from IDR570), backed by our higher earnings forecasts, using an unchanged target multiple of 24.7x FY25F P/E (+1.7SD to its five-year mean). Currently, the stock trades at 24.1x FY25F P/E. A downside risk would be a delay in new factory operation, while an upside risk is stronger-than-expected demand from GT.
Company profilePT Mulia Boga Raya Tbk (KEJU) is one of the Indonesia's largest cheese producer. Established in 2006, the Company started as the toll manufacturer for the Anchor cheese brand before producing its own cheese brand, Prochiz, since 2010. Producing a wide variety of cheese products, KEJU's main products include: Block Cheese (80%), Sliced Cheese (18%), and others (2%) as of 2023.
Valuation MethodologyOur TP of IDR650 is based on FY25F P/E of 24.7x (equivalent to +1.7SD of its five-year mean). The benchmark index is JCI.
Risks that may impede the achievement of the target priceA downside risk would be a delay in new factory operation, while an upside risk is stronger-than-expected demand from GT.
ESGPT Mulia Boga Raya Tbk (KEJU) emphasizes its commitment to ESG principles. Environmentally, KEJU has reduced its electricity consumption by 4%, reduce energy intensity by 3.3%, as well as cut GHG emission produced by 3% as of 2023. As for the Social aspect, KEJU has increased average training hours per employee to 14.14 hour/person, compared to 0.97 hour/person the previous year. The Company also channeled IDR183.52mn of CSR funds to over 3,600 beneficiaries, including school students, housewives, and disaster victims.
Fig. 1: KEJU vs. Kraft Indonesia sales trend
KEJU continues to gain share from multinational company Kraft backed by stronger distribution network and cheaper pricesSource: Company data, Verdhana estimates
Fig. 2: KEJU - NPAT growth trajectory
We expect stronger growth post-capex periodSource: Company data, Verdhana estimates
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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