Maintain Buy with a higher TP of IDR4,300; roll forward base year to FY25F
Margin likely bottoming out in 3Q24F; only a temporary phase
We believe Mayora’s 3Q24F GPM will likely be lower than market expectation due to the full impact of higher coffee and cocoa costs in 3Q, as the company started buying new inventory in 2Q24, as well as higher fixed costs from the operation of its new factory in East Java in Sep-24. We expect a lower A&P-to-sales ratio in 3Q24F but this, in our view, would not be enough to offset the rise in raw material costs. That said, we assume that 3Q24F margin should bottom out with a likely recovery in 4Q24F, as the company will absorb the stronger price hike impact and lower USD-related costs, while coffee price contracts have been locked in until 2Q25. We also believe the new factory can ramp up utilization quickly to meet wafer demand, offsetting higher fixed costs. Moreover, MYOR could accelerate price hikes in 4Q24F, given a strong consumption backdrop amid election of local leaders, in our view. We are not concerned about margins, as historically MYOR has gradually passed on costs, and whenever raw material prices normalize, it has enjoyed strong margin recovery. Mayora's GPM declined in 2022, quickly recovering from 22.3% to 26.7% in 2023.
Most important metric is sales: strong consumption plus market share gain
We believe MYOR could record mid-high-teens sales growth in 3Q24F, higher than Bloomberg consensus estimates. We would expect this to be equally driven by both domestic and export sales volume, while ASP may only contribute 1-2% YTD We think a jump in coffee and cocoa prices could be a blessing in disguise for MYOR as its competitors may suffer more severely, allowing the company to gain market share rapidly. Notably, MYOR has expanded its market share in the instant coffee market in the Philippines from ~40% last year to 50% level in 2024. Domestic market also enjoys strong organic consumption, with even stronger sales in Sep-24, nearing the local leaders’ levels during Nov-24 election period. We also expect another sales surprise in 4Q24F.
Still undervalued; rolling forward our TP to IDR4,300, implying 63% upside
We raise our sales forecasts by 6%/8% for FY24F/FY25F, while adjusting EPS by -12%/-3% to factor in higher input costs. We believe there could be a knee-jerk reaction post-3Q24F results release due to subpar margins and forex loss. Next year, we expect consumer companies such as MYOR will benefit from potential Prabowo regime consumption-push programs, i.e., free nutritious food, cash transfer, and tax relaxation programs. We roll forward our TP using a FY25F P/E of 26.5x (unchanged; equivalent to +0.2SD of its 5-year-mean), resulting in a higher TP of IDR4,300. We maintain our Buy call. The stock currently trades at what we view as an undemanding FY25F P/E valuation of 16.3x.
Company profileMYOR is a leading player in Indonesia's food market, offering high-quality products at affordable price points. MYOR is also a market leader in some of its products, not only in Indonesia but also in the export market. Its products include food processing (53% of sales) and coffee products (47% sales). Its processed-food products include wafers, biscuits, chocolates, milk and cereals. The company also exports to the Philippines, Vietnam, Malaysia, Thailand, China, India, Africa, US, Russia, Middle East, Lebanon and Africa. Philippines, MYOR’s biggest export market, accounts for 30% of its exports.
Valuation MethodologyOur target price of IDR4,300 is based on FY25F P/E of 26.5x (equivalent to +0.2SD of its 5-year-mean). The benchmark index of the stock is JCI.
Risks that may impede the achievement of the target priceDownside risks would be another spike in raw material prices and lower-than expected buying power during election period.
ESGMYOR is among the best Indonesian consumer companies in terms of good corporate governance practices, in our view. It has contributed to the Indonesian Food and Nutrition Society’s house-to-house and in-school education programs and has been promoting the ‘healthy breakfast movement’ across Southeast Asia. MYOR has also been offering technical assistance and training in planting coffee (one of its major raw materials) to reduce environmental waste, as well as ensuring long-term ability to produce high-quality products in order to help farmers and their communities.
Fig. 1: MYOR— GPM trend vs. commodity prices movement
A swift margin change will be driven by commodity prices and ability to raise pricesSource: Company data, Verdhana estimates
EBIT keeps expanding, underpinned by larger sales volume + new ASP level, despite volatility in commodity pricesSource: Company data, Verdhana estimates
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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