Sido Muncul (SIDO IJ) - 1Q24 earnings beat on solid volume and margins, but headwind from weak purchasing power

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Sido Muncul (SIDO IJ)

1Q24 earnings beat on solid volume and margins, but headwind from weak purchasing power

On the back of solid 1Q24 revenue (driven mostly by volume) and higher margins, SIDO booked brisk 1Q24 net profit growth of 30% yoy.
We expect soft input prices to sustain the high margins going forward. As such, we raise our FY24-25F net profit estimates by 2.7%.
We see risk of rising inflation and weak purchasing power to potentially hinder sales in 2Q24 onwards. Maintain Hold with a higher TP of Rp710.

FY24-25F NP estimates raised by 2.7%, soft input prices to support margins

At the latest meeting, SIDO indicated that Apr24’s sales improved slightly compared to last year (Apr23). In 2Q24, we estimate slower growth qoq post Ramadhan festive. Continued strong exports (7% contribution to sales) should be maintained thanks to demand from the large number of construction workers in Nigeria and Malaysia with energy drink products. Combined with the contribution from the Philippines, new markets in Vietnam and Myanmar, the contribution from exports to revenue may reach 15% over the longer-term. For Herbal products (Tolak Angin), the rainy weather (La Nina – estimated to start in Jul-24) should support sales volume ahead. Also, with the low prices of Taurine, Citric Acid and Creamer, the company expects gross margins to remain high. As such, we raise our FY24-25F gross margin assumptions by 100bps with maintained A&P and opex expenses, leading to 2.7% higher FY24-25F net profit forecasts.

Potential headwind from weak purchasing power in 2Q24 onward

1Q24 saw robust performance due to the seasonality of Ramadhan, which led to increased consumer spending. However, we noted that historically SIDO’s revenue was susceptible to factors like higher inflation and downturn in purchasing power (example in 2015 and 2017). In FY23, prolonged dry season and reduced purchasing power also negatively impact SIDO’s revenue. We noted the quarters after Ramadhan were also soft within the consumer sector. Therefore, with the absence of election-related spending and risk of higher food inflation in 2Q24 onward, we see headwinds for purchasing power which may hinder revenue growth for SIDO in the coming quarters.

Maintain Hold with a higher TP of Rp710

We raise our TP to Rp710 (implying FY24F PE of 19.5x), taking into account our new forecast. We see current 19.9x PE (lower vs. 5-year mean of 20.5x) and versus peers of 15.7x has already priced in EPS growth of 15% and thus we maintain our Hold recommendation. Upside risk: continued stronger-than-expected revenue growth and sustained high margins in the coming quarters.

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