4Q24: Competitive pricing and strong GT distribution drove growth

Overall, FMCG firms’ 4Q24 earnings were mostly in line with market expectations. We observe that food products with competitive pricing points and strong general trade (GT) presence tend to achieve stronger domestic sales growth y-y, i.e., Mayora Indah ([MYOR IJ, Buy]; +22% y-y), Sariguna Primatirta ([CLEO IJ, Buy]; +23% y-y), Mulia Boga Raya ([KEJU IJ, Neutral]; +13% y-y), Garudafood ([GOOD IJ, Not rated]; +23% y-y), Akasha Wira ([ADES IJ, Not rated]; +44% y-y), Ultrajaya ([ULTJ IJ, Buy]; +5% y-y), and Indofood CBP ([ICBP IJ, Buy]; +4% y-y). Meanwhile, FMCG firms with more premium price positioning and weaker GT distribution recorded sluggish sales performance, i.e., Unilever Indonesia [(UNVR IJ, Reduce]; -5% y-y), Nippon Indosari Corpindo ([ROTI IJ, Buy]; -3% y-y), Multi Bintang ([MLBI IJ, Buy]; +1% y-y), and Uni-charm ([UCID IJ, Not rated]; +1% y-y). However, we also see strong demand tailwinds for certain product categories due to shifting consumption behavior. For example, frozen food -the fastest-growing FMCG category post-Covid – has gained traction as consumers seek more practical products amid higher mobility. This is reflected in Cimory (CMRY IJ, Buy)’s strong sales (+18% y-y). Blended average A&P to sales ratios for companies under our coverage hovered at 7.5% in FY24 (vs 6.8% in FY23), with the increase mostly taking place in the dairy-related business (i.e., CMRY and ULTJ). Interestingly, companies like MYOR and ICBP, which reduced their A&P-to-sales ratios, still managed to accelerate sales growth in 2024, reflecting their strong brand equity. Lastly, healthcare-related companies like Kalbe Farma (KLBF IJ, Buy) and Sidomuncul (SIDO IJ, Buy) showed strong sales recoveries in FY24 after a low base year.

2M25 consumption pulse

Based on our market surveys, we estimate FMCG companies’ average sales growth may hover at ~5% y-y in 2M25, which we consider a very strong performance compared to the high base level in 2M24 (when higher money circulation during the presidential election period boosted consumption). Similar to 4Q24 trends, we noticed companies with competitive pricing and strong presence in GT outperformed with high single-digit to double-digit growth levels – notably MYOR, CLEO, KEJU and ICBP. Demand for frozen food remains strong, reflected in CMRY’s robust sales run rate as well, based on our channel checks. Meanwhile, companies with premium-priced products with weaker presence in GT like UNVR and ROTI remain under pressure, in our view. Healthcare companies like KLBF continued to see high single-digit sales growth, thanks to stable pharma performance and brand transformation in their consumer health divisions. Overall, we maintain our thesis (read: Follow the money and Indonesia grocery’s growth engine) that social assistance and free nutritious meal programs, not to mention developing agricultural sector, will support low-end purchasing power in lower-tier cities and rural areas. This should drive the demand for low-ticket, affordable branded FMCG products. Meanwhile, we believe the middle-income class’ downtrading trend will persist, benefiting products with competitive pricing and strong brands.

Top picks

We like companies with strong GT distribution + competitive pricing + strong overseas business + low valuation + buyback program. Our pecking order is MYOR > ICBP > CLEO > CMRY > KLBF > SIDO > KEJU > Indofood (INDF IJ, Buy) > MLBI > ROTI > UNVR. Our key considerations are as follows:

MYOR may maintain its sales double-digit growth trend this year, supported by both domestic and export sales (45% of sales); the downside risk would be coffee and cocoa raw material prices, which we believe is a temporary issue. Its valuation is undemanding with a significant buyback program in place;

ICBP should benefit from its affordable pricing this year and a strong performance in Pinehill (unlisted) regions (30% of sales), not to mention a cheap valuation and ample liquidity;

CLEO should continue to gain market share, eyeing a consistent strong double-digit earnings growth this year, which justifies its premium valuation;

CMRY should continue to enjoy a strong Kanzler sales growth this year. The company has a proven track record of maintaining a consistent strong double-digit earnings growth, which supports its premium valuation.

KLBF may book a strong consumer health sales growth this year, driven by brand transformation. Its valuation is also undemanding with a continuous buyback program.

SIDO currently trades at an undemanding valuation, with decent growth and high ROE level this year, based on our estimates.

KEJU has a considerable growth opportunity post the capex cycle.

INDF has continuously delivered stable earnings growth, given its integrated business, not to mention its cheap valuation; a potential one-off expense would be a downside risk.

MLBI and ROTI offer high dividend yields and undemanding valuations; however, liquidity is quite small.

Lastly, even though UNVR’s share price has fallen steeply, the company’s fundamentals remain challenging.

Fig. 2: FMCG firms’ FY24 sales growth comparison

Fig. 3: FMCG firms’ sales growth vs. A&P to sales ratio

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)