‘Savings mode’ persists in 2Q

We have been observing that middle-income-class consumers largely continue to cook at home in order to save money, given the economic slowdown. As a result, consumers cut their spending on out-of-home and discretionary products in 1H25. Therefore, we estimate a decline in industry sales for products such as ready-to-drink (RTD) flavoured beverages (>10% y-y) and liquid milk (5% y-y), and also expect mid-single-digit negative SSSG for home improvement and fashion retailers. We note that mall traffic increased in 1H25 y-y, but consumers are not shopping. Hotel occupancy rates have declined y-y, as the government has cut travelling budgets, which has substantially reduced the consumption of out-of-home products, especially RTD beverages.

On the other hand, in-home products continued to gain market share in 2Q, and continuously recorded double-digit sales growth y-y; for instance, chilled/frozen proteins, seasonings, and baking ingredients. We conclude that overall FMCG sales dropped y-y in 2Q, which is reflected in our estimate of mid-single-digit negative SSSG for our covered minimarket giants, which is happening for the first time since the Covid period. The slowdown in purchasing power was largely driven by lower government expenditure during the Jan-May period (-22% y-y), in our view.

2H25F should be a stronger semester

We estimate three potential factors to improve sales of FMCGs and retailers in 2H, namely: 1) higher government expenditure due to the accelerated openings of its free nutritious meal program kitchens in 4Q (thanks to additional supply of graduated workforce) and more aggressive government stimulus (a good signal is evident in the surge of government spending starting in Jun-25); 2) front-loading effect in 4Q as distributors stock up FMCG inventories earlier, anticipating an earlier Ramadhan period next year, and; 3) more working days h-h which should stabilize economic activities. The above-mentioned three consumption catalysts should benefit FMCG sales first, as most of the money will flow to the middle- to low-income segment. Meanwhile, a spillover to discretionary items would have a lagging effect, we estimate.

Top picks: FMCG firms with a balanced portfolio of in-home and out-of-home products

We think FMCG firms’ sluggish sales performance hit the bottom in 2Q, and we expect a stronger growth trajectory in 2H25F, due to: 1) higher government expenditure, 2) front loading effect in 4Q, and 3) more working days in the second-half of 2025. In our coverage, we prefer high-growth FMCG firms with a balanced portfolio of in-home and out-of-home products, which may provide more stable growth amid economic uncertainty. Putting aside the liquidity factor, our pecking order would be CMRY > KEJU > MYOR > KLBF > INDF > ICBP > AMRT > ULTJ > CLEO > ERAA > MAPA > MAPI > MLBI > SIDO > ACES > UNVR > ROTI > LPPF > RALS.

● We maintain Cisarua Mountain Dairy (CMRY IJ, Buy) as our top pick, as we believe that its Kanzler channel expansion still has plenty of room to grow outside Java; hence, CMRY’s consistent-double-digit earnings growth should continue, enabling it to outperform peers.

● Our second pick would be Mulia Boga Raya (KEJU IJ, Buy), as its low product penetration and strong distribution channel (retail channels and food services) should support double-digit operating profit growth.

● Our third choice is Mayora Indah (MYOR IJ, Buy) backed by strong export market expansion, alongside its efforts to bring down average raw material costs (coffee and cocoa) should help drive margin improvement in 3Q25F and onwards.

● We also like Kalbe Farma (KLBF IJ, Buy) due to its market share gains in the consumer health and nutritional space, led by its brand transformation progress.

● Indofood (INDF IJ, Buy) may show more stable growth, given its integrated business model as well as strong agribusiness contribution.

● Indofood CBP (ICBP IJ, Buy) continues to have strong pricing power which should enable it to gradually pass-on CPO costs in the long-run, while Pinehill (unlisted,  ICBP’s subsidiary) continues to be the main growth driver.

● Alfamart (AMRT IJ, Buy) and its minimarket subsidiary have more stable sales growth amongst our other covered retailers, given their FMCG portfolios.

● Ultrajaya (ULTJ IJ, Buy) and Sariguna Primatirta (CLEO IJ, Buy) have the highest exposure in our coverage to out-of-home products, and we expect higher government expenditure may support a better growth trajectory in 2H.

● Among discretionary items, Erajaya (ERAA IJ, Buy) is our best pick on the back of its iPhone contribution, while MAP Aktif’s (MAPA IJ, Buy) and Mitra Adiperkasa’s (MAPI IJ, Buy) weak SSSG should result in higher inventory risks, which may disrupt margins in 2H. On the other hand, Aspirasi Hidup Indonesia (ACES IJ, Buy) has yet to see a recovery of store traffic YTD, and may face increasing competition amid ongoing brand transition.

● Multi Bintang (MLBI IJ, Buy) and Sidomuncul (SIDO IJ, Buy) may face tough competition risks from local players, especially due to the wide gap in its selling prices.

● Unilever (UNVR IJ, Neutral) may record strong sales growth in 2H only due to the low-base effect after its stock-reduction programs; in our view, rising CPO prices may hurt its margins as the company does not have the pricing power.

● Sariroti (ROTI IJ, Buy) sells products at expensive price points in its category, in our view; meanwhile, there are many product substitutes at cheaper prices.

● Lastly, Matahari Department Store (LPPF IJ, Neutral) and Ramayana’s (RALS IJ, Reduce) sales continue to shrink, in our view, due to a lack of competitive advantages, and is losing market share against offline and online competitors. 

Fig. 1: FMCG + Retail valuation comparison

Fig. 2: FMCGs and retailers – sales growth forecasts

Fig. 3: Government expenditure (IDRtn)

Fig. 4: Government programs and realization

Fig. 5: In-home vs. out-of-home products – sales trend

Fig. 6: Hotels – room occupancy rates

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)

Samuel Christian (samuel.christian@verdhana.id)

Jody Wijaya (jody.wijaya@verdhana.id)