Strong 4Q24 result

CLEO booked strong 4Q24 sales growth of 23% y-y, driven by both bottle (+33%) and non-bottle (+17%) segments. We believe CLEO will continue to gain market share at the expense of other players. 4Q24 EBIT margin also improved substantially, thanks to a lower A&P-to-sales ratio (-400bp q-q / -240bp y-y), indicating strong product acceptance.

2025F growth drivers: shifting trend + ASP hike + market share gain + cheaper PET + higher utilization rate + higher R-PET mix + product launches

We expect NPAT to continue to grow strongly at >30% y-y in FY25F. We identify seven growth drivers for CLEO amid weakening buying power conditions, such as: 1) the urbanization trend, which forces consumers to switch from boiled water to packaged water, given a lack of clean water sources and higher mobility/busier lifestyle, which explains strong packaged water industry growth of 11-12% over the past three years; 2) the company consistently raising ASP by 4-5% pa, 3) factory and distribution expansion (especially outside Java) and proximity advantages, which should help CLEO to gain market share rapidly; 4) polyethylene terephthalate (PET) costs are declining on the back of oversupply situation in China, not to mention lower oil prices, which may expand GPM further; 5) sales expansion will improve the utilization rate in factories (lower factory overhead per unit) and distribution facilities (lower distribution cost per unit), which will result in EBIT margin expansion; 6) recycled PET (r-PET) materials are cheaper than original PET, and the higher portion of r-PET will contribute to higher level of GPM level; and 7) new product launches in tea category (Nogu Green Tea brand). We estimate 1Q25F sales growth may hover at a low-mid-teens level; stronger growth will be more apparent in 2Q25F onwards after the commencement of new factories.

Maintain Buy; 2014-2024 NPAT CAGR at +58%

CLEO has shown consistently strong double-digit earnings growth over the past ten years (see Fig. 1-4), along with expansion of ROE. The company recorded a +58% NPAT and +28% OCF 2014-2024 CAGR, with ROE reaching 28%, which justifies the company’s premium P/E multiple, in our view. Hence, we maintain our Buy call on CLEO with TP of IDR1,780, using a target P/E of 32.8x FY25F. Currently, the stock is trading at 19x FY25F P/E. The recent sell-off (1M: -26% vs the JCI’s -8%) was triggered by the macroeconomic and political situation in Indonesia, and was not related to CLEO’s fundamental performance, in our view. A downside risk would be a tougher-than-expected competition landscape.

Fig. 1: CLEO sales growth trend

Fig. 2: CLEO NPAT growth trend

Fig. 3: CLEO operating cash flow growth trend

Fig. 4: CLEO ROE trend

Fig. 6: CLEO 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)