Free meal programs + agriculture incentives drive consumption

Based on our survey of 25 large FMCG firms in Indonesia, we conclude that consumption toward FMCG in 2Q26F remained strong in comparison to the same period of last year, which we believe will likely be reflected in robust revenue growth of FMCG firms (see Fig. 1). Interestingly, we found that most of the consumption growth is attributable to lower-tier cities (see Fig. 9-11). A surge in free-meal-program disbursement (IDR88.0tn in 5M26 vs IDR3.5tn in 5M25; see Fig. 5) was the main factor supporting consumption, in our view. We note that >90% of kitchens are located in lower-tier cities. In addition, farmers in rural and lower-tier cities also earn higher profit on the back higher paddy, corn, and palm oil selling prices (see Fig. 6-8) set by the government, noting that Indonesia has a huge farmer population of around 28mn.

In terms of product category, dairy-related products continued to outperform, thanks to incremental demand from free meal kitchens, which may see continued strong revenue growth for Ultrajaya (ULTJ IJ, Buy), Mulia Boga Raya (KEJU IJ, Buy), and Cisarua Mountain Dairy (CMRY IJ, Buy). We note that ULTJ remains the fastest-growing firms in terms of revenue among our stock coverage over the past three quarters. Companies with a wider range of products such as Mayora Indah (MYOR IJ, Buy), Garudafood (GOOD IJ, Not rated), and Alfamart (AMRT IJ, Buy) also shared that local consumption remained robust in 2Q. We also observe that the anomalous packaging price surge in March-May forced many small local FMCG players to cut production. This opportunity has been used by some aggressive and agile players such as Sariguna Primatirta (CLEO IJ, Buy) to grab more market share quickly. In this quarter, we do not see many companies adjusting selling prices, as the largest local players such as Indofood CBP (ICBP IJ, Buy) and Wings Group (unlisted) prioritized volume and market share, while multinational firms such as Unilever Indonesia (UNVR IJ, Reduce) and P&G (unlisted) were more active in raising the price in June – we believe this also triggered a “last bite” demand effect in 2Q. In our view, maintaining selling price points relevance is very important, and we have been seeing this happen in the cigarette, industry where lower-tier players such as Wismilak (WIIM IJ, Buy) continue to gain market share from tier-one players on the back of a widening price gap, while we also witnessing that some companies are losing market share and sales volume after aggressive price hikes over the past five years – for instance Sidomuncul (SIDO IJ, Buy) and Sariroti (ROTI IJ, Neutral).

Some companies may enjoy a spike in core earnings growth

Overall, we expect FMCG firms under our coverage will record decent core earnings growth (see Fig. 3), mainly driven by stable consumption trends underpinned by government stimulus and excellent working-capital management amid rising raw material costs. However, we believe CLEO, ULTJ, MYOR, KEJU, CMRY, and cigarette firms may book double-digit EBIT growth in 2Q. We expect CLEO will be the fastest-growing FMCG in 2Q, driven by a higher utilization rate, +6% y-y price hikes, lower direct promotional expenses, and more usage of cheaper recycle packaging that have expanded margin level substantially. This is likely followed by ULTJ, in our view, with incremental demand from free meal kitchens as well as +6% y-y price increases boosting profit. MYOR also may record higher-than-expected core earnings, thanks to cheaper overall raw material costs and forex gain benefit. KEJU keeps expanding product penetration aggressively, benefited by Indonesia’s young cheese industry landscape. CMRY would likely consistently book double-digit growth as well, backed by strong dairy sales. On cigarettes, i.e., WIIM and H.M. Sampoerna (HMSP IJ, Buy), we expect to see margin expansion on the back selling price adjustments and the absence of an excise tax hike.

Our stock recommendation

We suggest investors accumulate more FCMG stocks, as we think this is a good relative shelter, assuming less government interventions in comparison to other sectors such as banking and natural resources. On top of that, some quality FMCG firms are also capable to generate sustainable double-digit earnings growth with undemanding valuation. Based on growth profile and valuation level (see Fig. 1), we choose our pecking order as follows: ULTJ > MYOR > CMRY > WIIM > HMSP > KEJU > CLEO > INDF > ICBP > KLBF > MLBI > UNVR > ROTI > SIDO > GGRM.

Fig. 1: Estimated 2Q26F FMCG firms’ revenue and EBIT growth

 

Fig. 2: Estimated 2Q26F FMCG firms’ revenue growth

 

Fig. 3: Estimated 2Q26F FMCG firms’ EBIT growth

 

Fig. 4: Average FMCG firms’ revenue growth versus government expenditure trend

 

Fig. 5: Free meal program progress

 

Fig. 6: Indonesia’s paddy selling price trend

Fig. 7: Indonesia’s corn selling price trend

 

Fig. 8: Local CPO price trend

Fig. 9: FMCG sales performance by area in 4M26 y-y

 

Fig. 10: Suzuki Carry and Daihatsu Gran Max sales (000 units)

Fig. 11: DGWG (one of the largest fertilizer and crop protection producers in Indonesia) revenue growth trend

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)