Domestic market: volume recovery + market share expansion

Based on our survey of distributors and wholesalers, MYOR's domestic sales may have grown 18-20% y-y in July and August 2024. We believe that the company can still book high-teens y-y sales growth in the month of August alone despite the high base from last year. We note a strong volume recovery in the biscuit category, i.e. the Better and Slai Olai brands, with consumers likely to have adjusted to MYOR’s new prices since the company hiked the ASP for these two brands by >30% in 2022. We also think that MYOR has continued to gain market share in the wafer category, given the weakening Orang Tua Group (unlisted) performance. On top of that, new product categories such as soft candy (Fruita Gummy brand) and soft cake (Bonita brand) are also seeing strong acceptance from consumers, based on our conversation with management; hence, this could be a new growth driver in the medium to long term.

Export market: strong momentum in Malaysia

Our checks also suggest that MYOR's export sales may have recorded strong, double-digit growth y-y in Aug-24, similar to its domestic growth trajectory, driven by strong sales growth in Malaysia and China. MYOR’s Roma Kelapa biscuit product has enjoyed strong sales momentum in Malaysia, backed by the company's strong marketing campaign featuring famous Korean actor Lee Min-Ho. Management plans to roll out more product categories in Malaysia. Meanwhile, the company also enjoys strong Danisa Butter Cookies demand in China. 

EBIT margin still manageable despite pressure on GPM, due to operating leverage

We believe MYOR's EBIT margin may hover around 13% in 3Q24F, despite higher raw material costs. In our view, the pressure on GPM could persist in 3Q due to the steep increase in coffee prices so far; we note that MYOR continuously adjusts its ASP gradually to offset the impact. However, we see the pressure on GPM as a temporary issue as it may rebound strongly after the high coffee and cocoa prices subside, as was the case last year; we assign a low probability to MYOR cutting prices in the near future. MYOR’s opex-to-sales ratio (especially A&P) remains low on the back of strong sales performance and operating leverage, which has helped offset higher raw material costs this year, in our view.

Stronger-than-expected sales growth; maintain Buy rating

We estimate MYOR’s blended sales growth may reach 12-13% y-y in 8M24, which is higher than our estimate. More importantly, we believe core earnings may also record double-digit growth. In our view, MYOR should see stronger core earnings growth in FY25F on the back of stable double-digit sales growth and GPM recovery. We maintain our Buy rating and TP of IDR3,800, based on a target P/E of 26.5x FY24F. Currently, the stock is trading at 16.7x FY25F P/E. A key downside risk is weaker-than expected consumer buying power.

Fig. 1: MYOR's genius marketing in Malaysia using a famous Korean actor

Fig. 2: MYOR - 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. 

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Sandy Ham (sandy.ham@verdhana.id)

Jody Wijaya (jody.wijaya@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)