1Q26 review: Dairy-related product sales overwhelmingly strong

In line with our previous report (read: 1Q26 FMCG result preview), overall FMCG sales grew solidly in 1Q26, reaching +8% on average y-y, despite fewer working days and reduced shipment activities due to an earlier Lebaran; this strong result was attributable to higher free meal program disbursement to support consumption (see Fig. 3). Dairy-related companies have continued to show superior sales growth (i.e., Ultrajaya [ULTJ IJ, Buy] dairy +30% y-y, Cimory [CMRY IJ, Buy] dairy +52% y-y, and Mulia Boga Raya [KEJU IJ, Buy] cheese +29% y-y), driven by increasing demand from free meal program kitchens. Tier-2 cigarette players such as Wismilak (WIIM IJ, Buy) have also enjoyed higher sales of +18% owing to pricing adjustment capability and distribution expansion, while tier-1 players such as H.M. Sampoerna (HMSP IJ, Buy) and Gudang Garam (GGRM IJ, Reduce) have continued to lose market share, given more expensive price levels. Sariguna Primatirta (CLEO IJ, Buy) sales also recovered strongly at +16% y-y, thanks to an ASP hike and market share gains outside the Java market.

Interestingly, premium alcoholic drink firm Multi Bintang (MLBI IJ, Buy) was able to grow by double digits at +13% y-y as well; we suspect this was driven by ASP hikes and more entertainment activities in the Java and Bali regions. On the other hand, for some festive items, companies selling items such as biscuits Mayora (MYOR IJ, Buy) and digestive medicine (Kalbe Farma [KLBF IJ, Buy] consumer health) had been front-loading sales since Dec-25; hence, they booked weaker sales in 1Q26 due to a shift in sales period. However, we expect to see stronger sales growth in 2Q26F, as our channel checks on sales to market activities (from stores to consumers) in 1Q26 grew faster; therefore, restocking activities from distributors should accelerate in 2Q, in our view.

Higher free meal program disbursement to push consumption

We are aware that government has cut the free meal program budget from IDR335tn initially to an estimated IDR250tn this year, which is still very big amount compared to last year’s disbursement of only IDR60tn (or up by >300% y-y). With a significant increase of free meal program spending this year, we expect the strong FMCG sales growth trajectory to sustain, especially for dairy products. We believe ULTJ and CMRY will be the main beneficiaries, as demand from kitchens is far exceeding UHT milk supply. We note that currently not all kitchens provide milk for the free meal menu; we expect more kitchens to serve UHT milk going forward, given its practicality and food safety. More importantly, it may create new habit for young consumers to drink more milk, which would help to sustain to some extent even without free meal program in the future.

GT may continue to outperform MT

We maintain our view since last year that general trade (GT) has the proximity and product range advantages to capture increasing consumption in lower-tier cities and rural areas. We note that the budgets for three key government programs – the free meal, village cooperative, and agriculture programs – are mostly spent in lower-tier cities and rural areas. Thus, FMCG transaction growth in GT should continue to outperform that in the modern trade (MT) channel. MT stores, especially mini-markets, should also benefit to some degree from government stimulus to grassroots, reflected in AMRT’s and MIDI’s higher sales growth level in outside greater Jakarta and outside Java region.

Weaker pricing power to pass on costs

As we have mentioned in our previous report (read: Consumer anchor), FMCG firms nowadays have weaker pricing power in comparison to FY22 during the Ukraine war, when many big brands had room to increase selling prices; for instance, Indomie brand (Indofood CBP [ICBP IJ, Buy]) raised prices three times (~12% y-y) in a year. In our view, the inability to raise price is because consumers’ buying power has not been able to catch up with cumulative price increase over the past three years. Our survey of FMCG firms also confirms that price hikes are the last resort for most of companies; adjusting A&P cost, resizing, and even reformulating strategy are their preferred first options. However, if cost pressure is severe, especially for categories with high exposure to plastics and oleochemical-based raw materials such as ready-to-drink beverages and home & personal care products, cCompanies may have to raise prices immediately, as CLEO has already done, while Unilever (UNVR IJ, Reduce) may soon increase prices in this May as well. There are also some companies with the luxury of raising prices, such as ULTJ due to significant free meal program demand and WIIM due to its price gap with 1-tier cigarette players. But all in all, we conclude that FMCG firms will not be able to fully pass on the costs, and we will see further margin erosion start in 2Q26F.

Top picks for FMCG: stocks with high sales growth to offset margin erosion

In our view, GPM erosion is mostly inevitable; that said, we think that stocks with superior sales growth that can compensate for margin erosion will be the preferable choices. Our pecking order would be: ULTJ > CMRY > WIIM > MYOR > MIDI > INDF > ICBP > KLBF > AMRT > MLBI > KEJU > CLEO > HMSP > SIDO > ROTI > UNVR > GGRM. ULTJ is our top pick – the company has the largest additional UHT milk production capacity among peers to serve free meal program demand. Hence, above 15% top-line growth trajectory and double-digit earnings growth seem very feasible over a multiyear horizon, not to mention extra room for price hikes, which we believe should be more than enough to offset higher raw material prices.

CMRY is our second choice – valuation is more expensive than for ULTJ, but its dairy division is still able to enjoy spillover demand from the free meal program. The Kanzler brand has also still been consistently booking double-digit growth. On top of that, management still has room to adjust A&P costs to stabilize potential GPM erosion, in our view. WIIM is our best pick among cigarette firms, as the company comes from a lower base, has more room to adjust prices, and could expand its market. We like MYOR on margin improvement, as the coffee and cocoa costs downturn as well as higher export margin on forex gains will exceed the impact of more expensive packaging and distribution costs. Alfamidi (MIDI IJ, Buy) is also a good pick, in our view, as we expect the firm will benefit from stronger demand in lower-tier cities while its margin will be more stable than those of FMCG manufacturers.

In terms of valuation, Indofood (INDF IJ, Buy) offers limited downside at the current price, in our view. On top of that we expect the agribusiness segment can support the growth on a potential CPO price hike. ICBP also has an undemanding valuation, and we understand that margin pressure would be inevitable, but the company also may gain market share via Pinehill (unlisted) given its better supply chain advantages than peers, which should be good for long-term growth. KLBF, in our view, may lack pricing power, hence margin should erode. However, we forecast top-line growth should be steady, driven by a recovery in the nutritional division. We expect Alfamart (AMRT IJ, Buy) will have more stable profitability margins than FMCG manufacturers, but potential passive fund outflows from MSCI reweighting. MLBI might face tougher competition ahead, but we like the company's high dividend yield as well as undemanding valuation. We still like CLEO’s long-term growth opportunity, and we forecast the company to book double-digit sales growth this year backed by market share gains; however, margin might be under pressure due to substantial packaging costs hike.

We still have a Buy recommendation on HMSP, given its potential margin expansion due to the muted excise tax hike. The main risk would be if the government were to announce another excise tax hike, which could deteriorate margin further. For Sidomuncul (SIDO IJ, Buy), we view financial performance may continue to be weak due to high inventory level in distributors alongside soft demand as Tolak Angin price is already relatively expensive. Sariroti (ROTI IJ, Neutral) also has the same issue as SIDO, where the company keeps raising prices until the pricing is too expensive for the mass market; hence, sales continue to be sluggish. In our view UNVR’s market keeps shrinking; in addition, substantial increases in packaging and oleochemical costs will likely hit margins. Management’s plan to distribute a dividend post-divestment offers little appeal for investors, in our view, as the share price may decline further. Lastly, we still maintain our Reduce call on GGRM, as its market share has continued to deteriorate due to illegal cigarette operations. On top of that, unwise cash deployment also poses along-term risk, in our view.

Fig. 1: FMCG peers’ 1Q26 result comparison table

Ticker	Rating	Mkt Cap (IDRtn)	y-y Sales growth 2Q25 (%)	y-y Sales growth 3Q25 (%)	y-y Sales growth 4Q25 (%)	y-y Sales growth 1Q26 (%)	y-y Change in OPM 1Q26 (bp)	y-y EBIT growth 1Q26 (%)	Nomura expectations	Implied FY26F P/E (x)	ROE FY26F (%)	Div. yield FY26F (%)	P/E stdev to 5-year mean
MYOR	Buy	38.5	6.4	-0.6	10.5	-4.7	240	39.1	In-line	10.8	18%	6%	-1.3 SD
KLBF	Buy	40.5	3.4	12.6	11.3	9.4	-30	-5.0	In-line	10.1	16%	6%	-2.2 SD
CMRY	Buy	34.3	20.6	22.7	19.3	27.9	340	24.3	In-line	14.2	32%	6%	-1.9 SD
ULTJ	Buy	17.4	-16.3	0.8	10.4	21.8	160	48.7	Above	11.4	19%	7%	-1.3 SD
KEJU	Buy	3.1	16.5	22.8	28.4	29.0	580	6.3	In-line	14.9	22%	3%	-0.4 SD
ICBP	Buy	78.4	2.2	0.8	8.6	7.6	120	3.3	In-line	7.7	19%	6%	-3.0 SD
CLEO	Buy	9.4	4.1	6.7	1.9	15.8	550	7.2	In-line	18.9	13%	1%	-1.1 SD
SIDO	Buy	15.2	23.3	23.3	4.5	-18.8	-1,250	-38.1	Below	12.0	39%	8%	-1.6 SD
MLBI	Buy	12.2	10.2	-4.3	11.0	13.2	-1,330	20.0	In-line	10.1	91%	11%	-1.3 SD
INDF	Buy	59.7	6.7	5.0	12.7	7.4	-60	0.9	In-line	5.3	16%	5%	-1.8 SD
ROTI	Buy	4.0	-6.2	-7.6	6.0	1.3	-1,620	-21.5	Below	13.2	15%	6%	-3.2 SD
AMRT	Buy	55.2	3.8	5.7	7.5	7.5	-90	14.4	In-line	14.6	19%	3%	-1.7 SD
MIDI	Buy	11.6	-2.9	0.0	3.2	6.4	190	43.7	In-line	13.8	17%	3%	-1.7 SD
WIIM	Buy	4.0	30.4	42.9	34.3	18.3	170	95.5	Above	8.0	22%	6%	+0.5 SD
HMSP	Buy	87.8	-8.1	-6.8	-3.3	-5.5	90	3.7	In-line	10.9	28%	9%	-1.0 SD
GGRM	Reduce	31.3	-10.3	-3.8	-11.0	-12.8	710	892.8	In-line	19.3	3%	4%	-0.1 SD
UNVR	Reduce	58.9	8.0	9.4	17.5	2.8	140	11.1	In-line	12.9	87%	6%	-1.7 SD

 

Fig. 2: Indonesia average FMCG sales growth versus government expenditure growth y-y

 

Fig. 3: Free meal program disbursement progress

 

Fig. 4: AMRT sales growth trend by areas

 

Fig. 5: GPM trend of FMCG companies under our coverage

 

Fig. 6: FMCG companies ownership structure (1/4)

 

Fig. 7: FMCG companies ownership structure (2/4)

 

Fig. 8: FMCG companies ownership structure (3/4)

 

Fig. 9: FMCG companies ownership structure (4/4)

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)