Government led demand drive sales growth

Based on our analysis of 14 FMCG manufacturers under our coverage, we saw steady sales improvement aligned with the government’s expenditure trajectory (see fig 2). In 1H25, government's spending cut had slowed down demand; however, once the free meal program expenditure kicked-in in 4Q25, it accelerated consumption immediately, reflected in strong FMCG sales growth and front loading activities by distributors who anticipated early festive season. In 1Q26F, our market survey revealed that FMCG sales-to-market (from stores to consumer) continues to grow, supported by higher government spending, especially from the free meal program. In 1Q26F, we understand logistics disruptions in some Java’s seaports that started in Feb-26 disrupted FMCG sales to outer islands, but our on-the-ground observations found that those issues have been resolved in early April. In terms of categories, we monitor dairy products’ growth as direct beneficiaries of the free meal program; therefore, dairy-related companies including Ultrajaya (ULTJ IJ, Buy), Cisarua Mountain Dairy (CMRY IJ, Buy), and Mulia Boga Raya (KEJU IJ, Buy) are very likely to record more superior sales and earnings growth than peers in 1Q26F. In addition, we also observe branded cigarette player Wismilak (WIIM IJ, Buy) enjoys strong double-digit growth, backed by improving demand from grassroots. On the other hand, festive products such as Indofood CBP’s (ICBP IJ, Buy) instant noodles, Mayora’s (MYOR IJ, Buy) biscuits, and Kalbe Farma (KLBF IJ, Buy) consumer health segment’s digestive medicines could record a weaker sales-to-distributors (from factory to distributors) ratio in 1Q26F as part of their sales shifted to 4Q25, given the earlier festive season. We think this is not an issue, and as long as sales-to-market performs well, we predict sales-to-distributors also should recover swiftly as stores will restock inventories faster. Having said that, we should see stronger sales growth from 2Q26F.

A&P cut rather than rising the price

The impact of the ongoing Middle East war toward FMCG's costs will be more apparent from 2Q26F, in our view. Our engagement with 20 FMCG firms conclude that in order to compensate for higher raw material costs, companies generally will try to adjust advertising and promotion expenses first, followed by re-sizing strategy; increasing selling price will be the last option given the buying power and pricing relevance issue to consumers, which we already discussed in our previous anchor report (read: Fight for relevance). So far, only ULTJ (+5% y-y) and Sariguna Primatirta (CLEO IJ, Buy) (5-10%) have raised prices substantially. Packaging materials may experience the highest price hike, but its exposure to FMCG firms under our coverage is still minimal at below 10% of COGS on average, where the highest exposure will be in home care, personal care, and beverages categories.

Top picks: Dairy players continue to outperform

We remain bullish on the FMCG sector on the back of additional money flow to grassroots via three priority government programs – the free meal, village cooperative, and agriculture programs, where ~90% of budget allocation goes to lower-tier cities and rural areas. We expect that the FMCG sector will be the main beneficiary to capture potential higher demand. We also project potential higher inflation due to the Middle East war can be buffered by stimulus from those three programs. Thus, we prefer companies with potential strong sales performance to offset margin erosion; our preference order will be: ULTJ > CMRY > MYOR > WIIM > KLBF > HMSP > INDF > ICBP > KEJU > CLEO > MLBI > ROTI > UNVR > GGRM.

ULTJ is our top pick (read: Surge in dairy sales), as the main beneficiary of free meal program; we think the company will sustain its strong double-digit growth three years ahead, while margins can be supported by its pricing power. We also like its cheap valuation. Likewise, for CMRY, we believe dairy can perform well combined with Kanzler sales distribution expansion. On top of that, CMRY has consistent growth with the highest FY22-25 EBIT CAGR of 22% among peers. MYOR still looks interesting – cheaper coffee and cocoa costs can be more than enough to cover a potential spike in packaging and transportation costs; hence, we are likely to see a strong double-digit percent profit this year. WIIM is also continuously gaining market share from both legal and illegal cigarette players, recording double-digit growth with above 20% ROE and a single-digit P/E. KLBF may record positive growth for its nutritional this year as well as strong consumer health business. H.M. Sampoerna (HMSP IJ, Buy) may enjoy better margins this year on the back of muted excise tax hike as well as decent dividend yield. Indofood (INDF IJ, Buy) performance will be mostly supported by agriculture business, led by strong CPO prices. ICBP may face challenges in supply chain and higher costs, especially in Pinehill (unlisted) operation. KEJU continues to expand its sales through point-of-sales expansion; however, margins should be lower this year, taking into account higher interest costs and fixed costs as its new giant factory commences its operations. CLEO should record stronger sales on the back of new factory operations and market share gains from smaller local players due to supply chain disruption; however, the company may also suffer margin erosion due to plastic costs hike. Multi Bintang Indonesia (MLBI IJ, Buy) could face more market share erosion from cheaper products from competitors, but it still pays a likely high dividend yield of ~11% for FY26F book. Nippon Indosari Corpindo (ROTI IJ, Neutral) has a high pricing point compared to its direct competitors and product substitutes, so we think pressure to market share should continue. Unilever Indonesia (UNVR IJ, Reduce) plans to sell its whole food business after the sale of its ice cream division, which we think might weaken its bargaining power to stores, not to mention higher exposure on packaging costs hike. Gudang Garam (GGRM IJ, Reduce) is directly affected by the mushrooming of illegal cigarette industry, which hurts machine-rolled cigarette uses and outside Java market; hence, GGRM market share will likely continue to deteriorate, in our view.

Fig. 1: FMCG 1Q26F sales and EBIT forecast

Ticker	Rating	Mkt Cap (IDRtn)	y-y Sales growth 1Q25 (%)	y-y Sales growth 2Q25 (%)	y-y Sales growth 3Q25 (%)	y-y Sales growth 4Q25 (%)	y-y Sales growth 1Q26F (%)	y-y EBIT growth 1Q26F (%)	FY22-25 EBIT CAGR (%)	ROE FY26F (%)	Implied FY26F P/E (x)	P/E stdev to 5-year mean	Div. yield FY26F (%)
MYOR	Buy	42.6	12.5	6.4	-0.6	10.5	-1.0	19.9	15.3	18.2	12.0	-1.1 SD	5.1
KLBF	Buy	45.9	5.8	3.4	12.6	11.3	6.0	9.3	3.1	15.9	11.4	-2.0 SD	5.3
CMRY	Buy	35.5	12.4	20.6	22.7	19.3	16.3	19.0	22.2	31.7	14.7	-1.8 SD	5.4
ULTJ	Buy	15.6	-0.6	-16.3	0.8	10.4	21.0	23.1	7.9	17.8	10.2	-1.8 SD	3.5
KEJU	Buy	2.9	8.7	16.5	22.8	28.4	16.0	11.1	14.9	22.0	14.1	-0.7 SD	3.4
ICBP	Buy	84.3	1.3	2.2	0.8	8.6	4.8	2.9	8.1	19.8	8.2	-2.8 SD	4.9
CLEO	Buy	9.6	6.8	4.1	8.0	1.9	18.5	12.1	21.9	13.4	19.4	-1.0 SD	1.0
SIDO	Buy	15.5	-25.1	23.3	23.3	4.5	-3.0	-0.5	3.5	39.2	12.2	-1.5 SD	8.1
MLBI	Buy	12.0	1.4	10.2	-4.3	11.0	5.5	7.7	6.9	90.7	9.9	-1.3 SD	11.4
INDF	Buy	59.3	2.0	7.0	5.0	13.0	4.4	4.6	7.7	14.7	5.2	-1.9 SD	5.3
ROTI	Buy	4.9	-9.6	-6.2	-7.6	6.0	3.5	11.2	-20.2	14.5	16.5	-2.2 SD	6.1
WIIM	Buy	3.8	28.8	30.4	42.9	34.3	15.0	16.5	22.1	22.8	7.6	+0.4 SD	6.4
HMSP	Buy	87.8	-1.1	-8.1	-6.8	-3.3	3.3	8.0	6.2	28.3	10.9	-1.0 SD	9.1
GGRM	Reduce	27.3	-12.2	-10.3	-3.8	-11.0	2.0	5.0	-14.5	2.6	16.9	-0.4 SD	4.7
UNVR	Reduce	72.9	-6.1	-2.5	12.4	13.8	4.4	5.0	-13.1	58.2	16.0	-1.4 SD	3.2

 

Fig. 2: FMCG sales growth trajectory moving in line with government expenditure trend

 

Fig. 3: Figure 3. Free meal program realization

 

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)

Nayla Yasmin (nayla.yasmin@verdhana.id)