As highlighted in our 23 March note (Repositioning, revamping, and reallocating), KLBF’s strategy to drive a transformation (led by Rudolf Tjandra, the CEO of KLBF’s consumer health and nutritional division) of its consumer health brand has proven to be largely effective. Based on our observation, over the past seven months, Mr Rudolf and the team have been able to rejuvenate and strengthen the brand equity of KLBF’s FMCG-related products, akin to what he previously achieved at Sampoerna (HMSP IJ, Not rated) (developing the famous A-Mild brand), at Softex (unlisted) (repositioning it as a premium sanitary pad brand), and at Sasa (unlisted) (turning around a declining MSG business into ~20% sales CAGR category). KLBF kicked off the process of its brand transformation campaigns in the consumer health division in Sept-24, which in our view resulted in its sales rising +12%/+9% y-y in 4Q24/1Q25 (vs a 1% sales CAGR over 2018-23). There are four brands that have contributed the most (double-digit sales growth y-y) in the past two quarters on the back of KLBF’s renewed brand campaigns, in our view — Bejo, Promag, Extra Joss, and Fatigon.

Bejo (herbal medicine) – The brand now has strong differentiation through a more aspirational and internationally styled campaign (vs peers employing a local and traditional approach), in our view, which makes Bejo to be perceived as a more premium herbal medicine, despite its 30% lower selling price than the market leader. We believe Bejo has gained market share from the market leader (we note that the market leader’s sales were down by ~40% y-y in 1Q25) in the past two quarters. We estimate the size of the herbal medicine market in Indonesia at ~IDR4tn, in which Bejo accounts for an 8% share, suggesting significant room for growth, in our view.

Promag (antacid) – Currently, it is the largest revenue contributor to the consumer health division. KLBF has tried to push its Promag herbal (pioneer in antacid herbal) category as the new growth engine by increasing consumption frequency by targeting coffee drinkers, which is a potential big new market, in our view.

Extra Joss (energy drink) – KLBF rejuvenated the brand as a lifestyle energy drink, targeting the larger youngster consumer base (vs the blue-collar workforce previously) by launching Extra Joss Ultimate in Feb-25, a premium ready-to-drink beverage. KLBF invests in brand building via sports and music activities. Based on our observation, Extra Joss could also be considered an alternative to coffee as a stimulant drink. On top of that, Extra Joss now has the opportunity to gain share from the premium energy drink market leaders such as Red Bull (unlisted).

Fatigon (supplement) – The vitamin product has the largest potential market size of >IDR10tn, based on our estimates. Hence, we believe Fatigon is on the right track to reposition its brand by targeting a bigger market in the younger consumer segment.

The majority of KLBF’s products are considered premium, which might not be relevant to the current situation of weakening consumer purchasing power; however, through the ongoing brand transformation, KLBF can potentially gain market share and even create new markets as sources of growth, in our view. We project the sales in the company’s consumer health segment to record ~9% y-y growth in 1H25F, and potentially double-digit growth in 2H25F due to the “snowballing effect” of brand building. We note that consumer health had the highest GPM of 66% as of 1Q25 (vs pharma at 51%, nutrition at 54%, and distribution at 13%), leading to structural margin expansion going forward. For the nutrition segment, KLBF has gradually normalized stock levels at distributors, followed by new campaign initiatives starting in Feb-25; thus, we expect the sales growth to be more apparent in 2H25F. Despite greater advertising initiatives, we estimate total A&P expenses should be manageable as management can reallocate the budget from promotional activities.   

Potential for a double-digit earnings growth trajectory: maintain Buy

We estimate KLBF’s NPAT CAGR over 2024-27F at 15% (vs 2% CAGR over 2018-23), driven by structurally stronger contributions from the consumer health and nutrition segments ahead. We maintain Buy and TP of IDR2,200, based on a target P/E of 28x FY25F (vs average peer target P/E at 24x); we believe the valuation premium is justified by its ample liquidity and stable long-term double-digit growth potential. Currently, the stock is trading at 19.8x FY25F P/E. Downside risks include weaker-than-expected buying power condition.

Fig. 1: KLBF sales growth forecast by division

Fig. 2: KLBF consumer health sales growth y-y forecast

Fig. 3: Consumer health sales contribution forecast

Fig. 4: KLBF GPM by division (1Q25)

Fig. 5: KLBF A&P-to-sales ratio forecast

Fig. 6: KLBF NPAT growth y-y forecast

Fig. 7: BEJO new advertising creates more luxurious brand image, despite cheaper selling price than market leader

Fig. 8: New ready-to-drink Extra Joss Ultimate, lifestyle energy drink, targeting younger consumer base, selling at premium price

Fig. 9: Promag herbal new campaign targets coffee drinker to increase frequency to consume

Fig. 10: More vibrant advertising for Fatigon to stay relevant with younger consumer

Fig. 11: Annualized P/E vs ROE trend

Fig. 12: Forward P/E band

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. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.

This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

RESTRICTIONS ON DISTRIBUTION

By accepting this report, the recipient hereof represents and warrants that you are entitled to receive such report in accordance with the restrictions and agrees to be bound by the limitations contained herein. Neither this report nor any copy hereof may be distributed except in compliance with applicable Indonesian capital market laws and regulations. 

Sandy Ham (sandy.ham@verdhana.id)

Jody Wijaya (jody.wijaya@verdhana.id)

Samuel Christian (samuel.christian@verdhana