Lower-tier cities and rural areas drive growth

Our industry survey encompassing 15 large FMCG companies revealed that Jan-2026 witnessed high-single-digit y-y FMCG sales growth (vs. low-single-digit y-y growth in FY25). Much of this growth can be attributable to volume uplift, in our view. Increase in demand was also evidenced by a shortage of shipping containers for the ex-Java route early this year. We note that consumption growth is being driven by consumers’ enhanced buying power in lower-tier cities and rural areas as a result of the government’s accelerated spending , especially on free nutritious meal, agriculture, and village cooperative programs (seeFigs. 2-4). To put this into perspective, the monthly disbursement run-rate of free nutritious meal program reached IDR20tn in Jan-2026 alone, the biggest monthly spending in 12 months; we believe the size of spending will keep increasing as the number of kitchens expands. We expect government spending to remain strong in 1H26F, supporting consumption further. Currently, the best channel to capitalize on growing demand would be the general trade (GT) channel, in our view, due to its extensive presence in lower-tier cities and rural areas, apart from the fact that it provides cheaper products (e.g., in the form of sachets) and more friendly trading terms that are suitable for the lower strata of the society. In addition, we suggest that investors use semesterly y-y growth comparison in order to neutralize the impact of varying festive period timings.

Sharp increase in demand for UHT milk products

Our survey of the four largest UHT milk producers in Indonesia suggests that sales volume growth of UHT milk products in Jan-2026 could reach ~20% y-y, with listed companies such as Ultrajaya (ULTJ IJ, Buy) and Cisarua Mountain Dairy (CMRY IJ, Buy) reporting >25% y-y sales growth. The sharply increased demand early in the year has driven by three factors, in our view: (1) hoarding activities by distributors in anticipation of higher demand from kitchens that are part of the free nutritious meals program, (2) more and more kitchens are providing milk for free alongside nutritious meals, and buying UHT milk directly through various channels, and (3) free market demand is also slowly rising as free meal programs promote the habit of milk consumption. Our channel checks found that some kitchens are forced to purchase 250ml size of UHT milk due to scarcity issues for smaller packaged in 125ml size. Currently, the annual market value of the UHT milk market in Indonesia hovers around IDR25-30tn, based on our calculations, with estimated 50-60% penetration rate in households. Assuming that 30K free nutritious meal kitchens provide UHT milk once a week, this translates into an additional IDR10tn in demand (>30% upside); in a more bullish scenario, should 30K kitchens provide UHT milk every day, the incremental demand could reach IDR50tn. Selling UHT milk to kitchens is still value creative, we reckon dairy companies can still obtain 4-7% net margin (lower GPM but less opex) vs free-market UHT milk at 10-12%, by our estimate. The terms of payment also appear favorable as kitchens pay upfront to factories directly, given the under-supply issues. We have observed long queues of buyers at some UHT milk factories for 125ml size products; product shortage is also forcing buyers to buy UHT milk products from distributors and retailers, in our view.

Main beneficiaries

The free nutritious meal, agriculture, and village cooperative programs are likely to stimulate consumption activities in lower-tier cities and rural areas for years to come (refer to our Anchor Report: Fight for relevance), where the main beneficiaries are companies in the FMCG sector, in our view, given the low base effect. The direct beneficiaries are dairy companies, especially UHT milk players. In this case, ULTJ with the biggest production capacity for UHT milk, including 125ml size (suitable for free nutritious meal program) can largely capture the rising demand from kitchens, distributors, and even the free market. On the other hand, despite only a small exposure to 125ml size, CMRY to some extent will enjoy the spillover effect as well, in our view, given higher demand of UHT milk from distributors and free market in GT; we expect CMRY’s dairy segment sales growth to exceed its Kanzler brand growth this year. Higher disposable income in lower-tier cities and rural areas may also lead consumers to upgrade their preference toward affordable luxury products – for example, from buying local snacks to well-known snack brands such as Mayora Indah (MYOR IJ, Buy) (export quality products with competitive pricing), from boiled water to packaged water such as Sariguna Primatirta (CLEO IJ, Buy) (proximity advantage through widespread factories), and from consuming cheap illegal cigarettes to legal cigarettes such as Wismilak (WIIM IJ, Buy) (more affordable than tier-1 players). This situation may also support Mulia Boga Raja (KEJU IJ, Buy) and Kalbe Farma (KLBF IJ, Buy) plans to accelerate penetration in GT through new snacking cheese products and affordable small size UHT milk products, respectively. We maintain our pecking order as follows (see Fig 1): MYOR > KLBF > CMRY > ULTJ > KEJU > Alfamart (AMRT IJ, Buy) > Alfamidi (MIDI IJ, Buy) > Indofood CBP (ICBP IJ, Buy) > WIIM > Daya Intiguna Yasa (MDIY IJ, Buy) > Erajaya Swasembada (ERAA IJ, Buy) > MAP Aktif (MAPA IJ, Buy) > Mitra Adiperkasa (MAPI IJ, Buy) > H.M. Sampoerna (HMSP IJ, Buy) > CLEO > Sidomuncul (SIDO IJ, Buy) > Multi Bintang Indonesia (MLBI IJ, Buy) > Aspirasi Hidup Indonesia (ACES IJ, Buy) > Nippon Indosari Corpindo (ROTI IJ, Neutral) > Matahari Department Store (LPPF IJ, Reduce) > Ramayana Lestari Sentosa (RALS IJ, Reduce) > Gudang Garam (GGRM IJ, Reduce) > Unilever Indonesia (UNVR IJ, Reduce). Downside risk: if the government tries to monopolize raw material import activities for FMCG-related industries, it might result in higher input costs for the FMCG companies.

 

Fig. 1: FMCG valuation table

 

 

Fig. 2: Free nutritious meal program progress; Jan-2026 run rate reached IDR20tn, the biggest monthly disbursement by far, we expect the spending to get bigger along with the commissioning of additional kitchens. Most of the money goes to lower-tier cities and rural areas where 94% of schools are located

 

 

Fig. 3: Paddy and corn price floor trend; government has set higher floor prices for paddy and corn since 2025, putting more money in the hands of farmers

 

Fig. 4: Village cooperative six business units; 80K village cooperatives are targeted to reduce middleman costs in the agriculture sector, stabilize inflation, provide cheaper medicines, and bring more welfare to villagers

 

Fig. 5: Indonesia Gini ratio trend; Indonesia’s improving Gini ratio was backed by government programs for the grassroots such as free nutritious meal and agriculture programs

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. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.

This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

RESTRICTIONS ON DISTRIBUTION

By accepting this report, the recipient hereof represents and warrants that you are entitled to receive such report in accordance with the restrictions and agrees to be bound by the limitations contained herein. Neither this report nor any copy hereof may be distributed except in compliance with applicable Indonesian capital market laws and regulations. 

Sandy Ham (Sandy.ham@verdhana.id)

Jody Wijaya (Jody.wijaya@verdhana.id)

Samuel Christian (Samuel.christian@verdhana.id)

Nayla Yasmin (Nayla.yasmin@verdhana.id)