Sido Muncul (SIDO IJ)

Bright outlook post solid 1H24; upgrade to Buy

• Post robust 1H24, we raised our FY24-25F NP growth by 9.5-11%; expect solid volume growth and higher margins to support a strong 2H24.
• We expect rainy season and volume from direct distribution and export markets to support FY24 vol growth of +15% yoy (2018-13 avg 6%).
• We raise our rating to Buy with a higher TP of Rp810, as we expect robust FY24/25F NP growth of 26%/10% yoy, respectively.

We raise FY24-25F net profit by 9.5-11%

Following a robust 1H24, we raised our FY24-25F revenue by 9.5%-11%, supported by the expected continuation of strong sales in the F&B segment both in local and export markets. Additionally, the direct distribution to Alfamart and Indomaret, which began between May and Jul24, has boosted sales volume (around 5%). The export market also showed positive developments in 1H24, with strong demand for energy drinks, from Malaysia (4% contribution to 1H24 rev), Philippines (2% of total revenue with Tolak Angin products), and Nigeria (around 2% contribution), resulting in a 73% yoy growth in 1H24 export revenue. We expect lower input prices, especially for Taurine and Aspartame in F&B segment, along with a solid growth higher-margin Herbal segment, to sustain FY24-25F gross margin at 57.9%/57.8%, 20bps higher than our previous forecast. Despite our estimate of higher A&P spending (now 11% vs 10.3% prev) to support sales, we have raised our FY24-25F net profit by 9.5%/11% to Rp1.2tr/1.3tr, translating to 26% and 10% yoy growth, respectively.

Domestic and export to support growth

We expect La Nina and the rainy season in 2H24, coupled with higher volume turnover from Alfamart and Indomaret, to support sales volume. In the export market, SIDO aims to expand further into Vietnam as a new market, as well as other African countries.  Domestically, SIDO reported solid demand for energy drinks (Kuku Bima), driven by extreme weather and increased activities in commodity business. However, SIDO remains cautious about the economic conditions and thus has maintained its FY24 top and bottom-line growth projections at above 10% yoy.

Upgrade rating to Buy with a higher TP of Rp810

In addition to our higher FY24-25F est., we also roll over our valuation to FY25, raising our DCF-based TP to Rp810 (FY25F PE of 18.5x) (WACC 10.2%, Terminal growth 3%). We expect continued strong growth in 2H24, supported by higher volume and export market growth, to sustain earnings and share price. The downside risks include lower volume from export and domestic markets and above-expectation A&P spending, which may hamper earnings.

… Read More 20240726 SIDO