Short term: cash handout, electricity, and transportation incentives starting Jun-25

The government will launch six new major stimulus packages to boost consumption by this June: 1) 50% electricity discount to 79mn customers; 2) wage subsidy to <IDR3.5mn salary’s worker (>5mn recipients) and honorary teachers (>700K recipients); 3) toll tariff discount; 4) food subsidy for 18mn recipients (i.e., free rice); 5) toll tariff discount for 110mn riders; and 6) price discounts for airplane, train, and sea transportation. Most of the new incentives will be received by the low-income segment, mainly in urban areas, in our view. These incentives may support shopping activities during school holiday, especially for out-of-home products. We predict the spillover effect of these incentives will flow to FMCG as direct beneficiaries; note that FMCG is generally considered the most affordable luxury items that the low-income segment can enjoy.

Long-term: structural liquidity redistribution to lower-tier-cities and rural areas

In our previous report (read: Indonesia's narrowing divide), we stated our belief that agriculture reform, thefree nutritious meal program, and the Merah Putih cooperative program will play vital roles to pump more liquidity into lower-tier cities and rural areas. Through agriculture reform, we have witnessed farmers (~100mn population working in agriculture related jobs) enjoying higher income nowadays, thanks to increasing production yield, better selling prices, and lower fertilizer costs. Free nutritious meal program disbursement acceleration should be more apparent in 4Q25F on the back of additional staff supply. And lastly, the Merah Putih cooperative program started to be developed in 2H25F; this entity will function as offtaker, stabilizer, and distributor to boost the rural economy. All in all, the money will mostly flow to the low-income segment. FMCG should be the main beneficiaries in the medium term, in our view.

Layer of beneficiaries

We predict low-income segment consumers will instantly spend their money once they receive extra income. The first layer of beneficiaries would be affordable branded FMCG, which potentially could be captured by Alfamidi (MIDI IJ, Buy), Alfamart (AMRT IJ, Buy), Indofood CBP (ICBP IJ, Buy), Mayora Indah (MYOR IJ, Buy), and Sariguna Primatirta (CLEO IJ, Buy). The second layer would be more luxury FMCG-related products, such as those from the product portfoliosof companies such as Cimory (CMRY IJ, Buy), Kalbe Farma (KLBF IJ, Buy), and Mulia Boga Raya (KEJU IJ, Buy). The third layer of beneficiaries would potentially be sellers of discretionary items such as phone (Erajaya [ERAA IJ, Buy]), fashion (MAP Aktif [MAPA IJ, Buy]), and home improvement (Aspirasi Hidup Indonesia [ACES IJ, Buy]). The last layer of beneficiaries would be related to transportation and housing.

Our top picks for this year: stocks with better earnings feasibility

We like companies with resilient sales (staples related), the ability to gain market share, and with more stable margin (favorable raw material costs). For staples-related products, our number one pick would be MIDI, backed by strong and consistent Sulawesi contribution and no more burden from Lawson. Our second pick would be AMRT, given its lower promotion expenses and large liquidity. Our third choice is ICBP due to the full impact of ASP hikes in 2Q onwards, lower CPO costs, and stronger Pinehill contribution post Ramadan. We also like KLBF on the back of its ability to gain market share, thanks to brand transformation in consumer health (the highest-margin business). Indofood (INDF IJ, Buy) is also a good shelter stock, in our view, thanks to its integrated business model and cheap valuation. We believe CMRY will continue to book strong Kanzler sales, driven by in-home consumption (middle-income-class downtrading), while dairy should recover gradually as Ultrajaya (ULTJ IJ, Buy) has toned down it’s A&P budget; margin-wise, lower A&P could offset potential higher powder milk costs. Despite its high valuation, CLEO may continue to book strong double-digit earnings growth on the back of cheaper plastics costs, which could be seen in 2H25F. MYOR remains a must-have long-term stock, in our view, given its ability to gain market share; however, pressure on GPM due to unfavorable coffee, cocoa, and coconut oil costs persist. For discretionary, we choose ERAA as our top pick, driven by iPhone sales contribution, better sales mix from high-margin business, and cheap valuation.

Fig. 1: FMCG and Retailers valuations

Fig. 2: Total FMCG firm’s (under our coverage) sales growth trend y-y

Fig. 3: Regional consumer NPAT (% CAGR 2024-2026F)

Fig. 4: Regional consumer forward PE/ROE

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)