Indonesia FMCG has better value than that of regional peers

Indonesia listed FMCG firms have performed quite well relative to other ASEAN peers in terms of sales and earnings over the past five years (see Fig. 1); and, we expect this trend to continue going forward. Moreover, regarding valuation, Indonesia FMCG stocks are also more attractive than ASEAN and India FMCG stocks. We believe in the short-to-medium term, Indonesia FMCG stocks have limited downside risks fundamentally as we forecast a strong volume recovery this year as well as potentially more pro-growth programs during the Prabowo era. Meanwhile, the risks of a declining middle-income class also has a limited impact on the FCMG sector, in our view, given its low-ticket prices. Going forward, we believe that the Prabowo regime might increase investment in education, healthcare, and food programs, which should spur higher consumption by the lower-end income class, in our view, mainly benefiting the FMCG sector. We believe local FMCG firms could enjoy higher sales growth on the back of GDP/capita improvement, as well as market share gain from foreign FMCG firms. Our top picks for mid-large-cap FMCG firms are MYOR > ICBP > KLBF (all rated Buy), while our top picks for smaller caps are CLEO > CMRY > ULTJ (all rated Buy).

Strong FMCG sales momentum continues in 3Q, driven by GT market

Indonesia-listed FMCG firms recorded a strong sales recovery of +12% y-y on average in 2Q24, in line with our previous prediction (read: 2Q likely a turning point). In Jul-Aug-24, we conducted a survey of distributors and wholesalers to predict 3Q24F FMCG sales performance; we concluded that listed FMCG companies continue to book strong +14% average y-y sales growth. The solid sales performance has mainly been driven by stronger demand in general trade (GT). Growth is mostly attributable to food and beverages, where 90% of the growth has come from volume recovery, in our view. Based on our observations, local companies continue to dominate the market, taking share from foreign companies in almost every category. Our channel checks also found that some foreign FMCG companies may conduct major layoff programs in the near future, which might prolong their market share deterioration.

Potential consumption booster for lower-end segment in 4Q24F

4Q24F may provide additional upside surprises for FMCG sales on the back of the simultaneous election of local leaders in Nov-24, the first time this has happened in Indonesia. During this election, we think there will be potential additional cash circulating to the grassroots, boosting consumption, with campaign activities to be done simultaneously in 37 provinces, 415 regencies, and 93 cities. On top of that, we also believe that inventory stock-up activities by distributors and wholesalers might be done in December, in anticipation of the earlier Lebaran period next year.

Expect stable FMCG sales performance in 2025F

For the next year, we believe that after the high-capex period (i.e., infrastructure program) during the Jokowi era, the Prabowo regime could monetize growth through increased investment in human development (i.e., education, healthcare, and food programs). The first flagship program during the Prabowo era, which we expect to be implemented in 4Q24, would be a free nutritious meal program; this program aims to improve nutrition intake and improve school attendance level for poor students. Moreover, this program could potentially create more jobs at the grassroots level, which could translate into higher disposable income for lower income class people; this group of consumers have more room to expand their consumption of FCMG due to a low base. Hence, we project a solid sustainable FMCG sales performance over the next five years.

Fig. 1: FMCG peers’ valuation

Fig. 2: Indonesia FMCG sales growth y-y forecast

Fig. 3: Indonesia FMCG monthly sales value index

Fig. 4: Verdhana Macro-Micro Index’s (VMMI) tight correlation with nominal GDP and corporates' topline growth

 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)