Signs of progress

We estimate KLBF to record a sales CAGR of +7.5% (2018-2024F), driven by distribution (+11.7%; 32% contribution), pharma (+10.0%; 30% contribution), nutritional (+3.6%; 26% contribution), and consumer health (+1.7%; 12% contribution). Based on the above numbers, we can see the low-hanging-fruits that the company would rely on to be consumer health and nutritional performance. Management’s more aggressive marketing initiatives to reposition and revamp the company’s FMCG related brands may translate into a strong growth trajectory this year, starting with consumer health in 1H25F and nutritional in 2H25F, in our view. A stronger sales growth trajectory for the two divisions will be driven by market share gains. Here is our view on KLBF’s sales growth trajectory by division:

1. Consumer health: this division will likely achieve 8-10% sales growth this year (vs a 1.6% 2018-24F CAGR), in our view. Our channel checks indicate the Jan-Feb sales run-rate hovers at high-single-digit growth. And, the strong growth was driven by new campaigns in Extra Joss, Promag, and Bejo brands in 4Q24, based on our observation.

2. Nutritional: sales continue to be under pressure in 1Q25F, at flattish growth y-y, on our estimates. Based on our market survey, we think the company needs to reduce inventory levels at the distributor level first, before pushing sales with a new campaign strategy. We notice that KLBF has started to endorse the Diabetasol and Entrasol brands with new campaigns in 1Q25F. Hence, we project that an improved growth trajectory will be more apparent from 2Q25F. For this division, 3-5% y-y sales growth this year appears feasible, in our view.

3. Pharma: will likely book steady high-single-digits to low-teens sales growth y-y in FY25F, based on our projection, driven by its unbranded products and vast distribution networks which act as competitive advantages, compared with peers.

4. Distribution: This segment also may record steady high-single-digit y-y sales growth level in FY25F, driven by third-party contribution and robust medical devices sales.

Margins: USD-linked costs’ impact is manageable along with a better product mix

We view that margin levels can be maintained this year. We calculate USD cost exposure hovers at 20% at the COGS level (lower than the market forecast of 60%); every +1% change in the USD/IDR can translate into a -0.5% impact to NPAT, which is smaller than its peers’ average of a 1.0-1.5% impact. The higher sales contribution from consumer health can expand blended margin; we note that consumer health’s GPM hovers at 59% (vs pharma at 50%, nutritional at 51%, and distribution at 10%). In terms of opex, we do not expect any significant change in the A&P-to-sales ratio, but we think management will likely reallocate more budget for brand building purposes, in order to sustain long-term growth.

Favourable time to accumulate: the stock currently trades at -2SD its five-year mean

We project KLBF’s earnings growth to reach high-single-digits to low-teens this year, driven by market share gains and a better sales mix. Our channel checks suggest that the 2M25 NPAT run-rate was still within the high-single-digits growth level. We believe the impact of USD/IDR fluctuation is not as severe as the market perceives it to be. The share price has been down 37% over the past six-months (vs the JCI -19%). Currently, the stock is trading at 14.3x FY25F P/E (-2SD to its five-year mean). We maintain our Buy rating and TP of IDR2,200, using a target P/E of 28x FY25F. Investors should accumulate the stock at this price level, in our view, and also given its ample liquidity. Downside risks would be weaker-than-expected buying power condition.

Fig. 1: KLBF – sales CAGR per division

Fig. 2: KLBF – P/E band

Fig. 3: KLBF – consumer health sales growth y-y forecast

Fig. 4: Consumer health new campaign strategy, driven by three brands, in our view: Extra Joss (new products target more premium customer base), Promag (persuading consumers to increase frequency of consumption), and Bejo (targeting market share gain in herbal medicine category)

Fig. 5: KLBF – nutritional sales growth y-y forecast

Fig. 6: Nutritional division started the new campaign in 1Q25, starting with Diabetasol brand (milk product which helps to manage blood sugar levels for diabetics) and Entrasol brand (milk product which helps to maintain bones and muscles)

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)