Robust consumer food sales

CMRY’s 1Q25 earnings result was in line with our forecast and the Bloomberg consensus estimate (read: 1Q25F preview). The company booked +12% y-y sales growth in 1Q25, driven by very strong consumer food performance (+31% y-y). Demand for ready-to-eat and ready-to-cook products kept increasing at a double-digit industry growth level, thanks to the continuous urbanization trend and higher consumer mobility accelerating the shift toward instant and practical products. In fact, mini-markets also gradually add more chillers to sell frozen food products. Kanzler brand, as the market leader, is best positioned to capture th is trend, in our view, on the back of its strong brand equity and product innovations. We note that Kanzler booked +31% y-y sales growth, reaching another quarter of record-high sales in 1Q25. On the other hand, dairy sales declined significantly by 11% y-y, mostly driven by weaker UHT milk sales. We suspect a significant drop in CMRY’s UHT milk sales was partly attributable to an aggressive promotion from market leader Ultrajaya (ULTJ IJ, Buy). We expect the company to normalize its A&P spending in 2Q25F.

Lower A&P may offset higher raw material costs

CMRY recorded EBIT margin expansion in 1Q25 by +810bp q-q/+90bp y-y, driven by a lower A&P-to-sales ratio (-850bp q-q/-40bp y-y). The company has no plans to raise selling prices this year, according to management. Hence, we predict CMRY’s GPM will decline further due to higher USD costs and more expensive powder milk prices. However, we believe the company will try to offset the lower GPM by reducing its A&P-to-sales ratio; thus, we think CMRY can still maintain its EBIT margin level y-y. On top of that, we believe the company’s gains on investment will enlarge CMRY’s net margin.

Maintain our Buy call

We maintain our strong Buy call at a TP of IDR6,700, using a FY25F P/E target of 30x. Currently, the stock is trading at a FY25F P/E of 21x. We like the company’s consistency in delivering double-digit sales and profit growth, even amid a weakening purchasing power condition. We believe Kanzler still has more room for growth, especially in the general trade market. Meanwhile, we expect dairy sales growth to rebound once the market leader normalizes its A&P spending. Downside risks would be weaker-than-expected buying power and higher-than-expected USD costs.

Fig. 2: CMRY Kanzler sales trend

Fig. 3: CMRY dairy sales trend

Fig. 4: CMRY annual P/E vs ROE trend

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)