We expect the current sluggish buying power conditions for Indonesia consumers will cause a decline in spending on out-of-home-related products. Thus, we project sales of ICBP’s flavored ready-to-drink beverages and UHT milk categories this year. On the other hand, middle-income-class consumers opting to eat more at home to save money might trigger higher demand for ICBP’s seasoning products, in our view. For the company’s instant noodles division in Indonesia, price increase will drive sales going forward, while volume may have limited room of upside, given a very high instant noodles consumption per capita (at 50 packs per annum).
Pinehill faces tougher competition, but it should be a temporary issue
Our on-the-ground survey suggests that more aggressive Korean and Western instant noodles products have been entering Saudi’s modern trade channels recently. The competition, to some extent, may disrupt Pinehill (unlisted, ICBP’s subsidiary) sales in Saudi, in our view. However, we think the pressure from those brands will be temporary, since they don’t have strong distribution arms, and there are taste barriers. In Egypt, we monitor ICBP’s brand (cheaper prices), which continues to take market share, translating to higher sales volume but lower value contribution.
More pressure from trend of increasing CPO prices
We believe CPO price hikes will endure on the back of potential Indonesia biodiesel mandate expansion. Hence, all FMCG companies may book higher cost pressure going forward. ICBP also may record higher raw material costs, translating to a lower GPM. However, we think ICBP still has the ability to pass on costs gradually. We note that ICBP is one of the few FMCG firms that have the ability to pass on costs, in our view.
Maintain Buy with TP of IDR16,500 (+61% upside)
Given weakening buying power in Indonesia, increasing competition in Pinehill areas, and higher input costs, we revise down our earnings forecasts by ~12% for FY25F/FY26F. Our sales forecast is lower than the company’s guidance. We lower our TP to IDR16,500 (from IDR18,700), using an unchanged target P/E of 20x FY25F (+0.6SD to its five-year mean). Currently, the stock is trading at 12.4x P/E FY25F. A downside risk would be weaker-than-expected buying power conditions.
Company profileICBP is a leading player in consumer branded products sector in Indonesia with diverse business range including noodles (73% of sales), dairy (15% of sales), snack foods (6% of sales), food seasonings (6% of sales), nutrition and special foods (2% of sales), and beverages (4% of sales). As part of the Indofood group, ICBP operations are supported by its parent company’s extensive raw materials production and finished product distribution network allowing them to meet market demands in a timely and efficient manner. ICBP sells their products mostly through general trade channel (~70% of sales). ICBP is also geographically diversified, through existing export business, as well as the new markets that they have entered through the Pinehill acquisition (~22% of sales). Pinehill Group’s core markets in Nigeria, Ghana, Saudi Arabia, Egypt, Kenya, Serbia, Morocco, and Turkey markets have a combined population of 550 million people with access to another 335 million people in the surrounding markets.
Valuation MethodologyWe derive our TP of IDR16,500 based on 20x 2025F P/E (equivalent to +0.6SD to its five-year mean). We use JCI as our benchmark index.
Risks that may impede the achievement of the target priceA downside risk would be weaker-than-expected buying power conditions.
ESGICBP is an ESG leader on product safety and quality as well as packaging material and waste, while still a laggard in corporate governance, corporate behaviour and product carbon footprint. To improve the rating, ICBP has been managing to reduce their carbon footprint from heavy industrial operations through greenhouse gas emissions. As the subsidiary of INDF, ICBP also involved in the Waste Bank program which focuses on managing waste and water usage.
Fig. 1: ICBP — Sales growth y-y by division
Seasonings showed stable growth, driven by increasing cooking at home activities, while beverage sales declined in the past two quarters, in line with weaker out-of-home consumption trend.Source: Company data, Verdhana research
Fig. 2: ICBP – Forward P/E band
Source: 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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