Kalbe Farma (KLBF IJ)

Improving Growth Outlook at Reasonable Valuation

• KLBF targets FY25 revenue and EPS growth of 8-10% YoY, driven by growth in the Consumer Health and Nutrition divisions.
• We expect greater adoption of RMB-based API purchases and a strengthened product portfolio to improve earnings prospects in KLBF.
• We think KLBF’s underperformance should have priced in concerns on Rupiah thus, current valuation is attractive; maintain our Buy rating.

FY24 NP growth of 17% (i.e inline); FY25 EPS growth guidance of 10%

KLBF reported unaudited FY24 revenue growth of 7.2% YoY to Rp 32.6tn. On the bottom line, KLBF posted 17% YoY net profit growth in FY24. The FY24 net profit accounted for 103% of our FY24F and 102% of consensus, i.e inline. For 2025, the company projects 8% to 10% growth in revenue and EPS with a stable margin. KLBF aims for stronger growth in Consumer Health (8–10%) and mid-single-digit growth in Nutrition, while maintaining similar growth targets for the Prescription and Distribution segments.

Cost initiatives & strengthening product portfolio will yield positive result

Greater adoption of the Renminbi-based Active Pharmaceutical Ingredient (API) purchases should pave the way for improved margins outlook, in our view. This shift will gradually reduce dependency on USD-linked raw materials, particularly APIs for the pharmaceutical and consumer health (CH) segments. On the product side, we see KLBF continuing to strengthen its portfolio through strategic partnerships in regional markets and launching new marketing campaigns for several key products, including Bejo and Ultimate Extra Joss. Meanwhile, rising demand from the National Health Program will drive a higher contribution from the lower-margin unbranded generics, potentially reaching 30% by 2030. However, this should be offset by increasing contributions from specialty products (i.e., oncology, biologics, and cell therapy). In 2025, KLBF expects specialty products to account for 10-12% of pharmaceutical revenue (or approximately 3.5% of total revenue), offering higher margins. For 2025, we estimate 7.5% yoy rev. growth with maintained margins, as we have not yet accounted for potential margin improvements from RMB adoption and a higher contribution of specialty products.

Attractive valuation post underperformance, maintain Buy rating

Over the medium term (3 to 5 years), we believe these initiatives will yield positive results and drive strong growth for Kalbe, as reflected in our EPS CAGR of 9.5% in FY23-26. We believe recent share price underperformance has reflected concerns on Rupiah depreciation. KLBF is trading at 16.7x PE, below its -1SD five-year average PE. We maintain our Buy rating on KLBF with an unchanged TP of Rp1,800, implying a FY25F PE of 24.9x.

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