Date: October 28, 2024
Broker: UOB Kay Hian

Company Overview

Sido Muncul (SIDO IJ) is Indonesia’s largest herbal medicine (jamu) and energy drink producer. The company operates within the Consumer Staples sector and is listed with the Bloomberg ticker: SIDO IJ. Its market capitalization stands at approximately Rp18.45 trillion (US$1.18 billion), with around 30 billion shares issued. The company’s major shareholder, Hotel Candi Baru, holds an 81% stake.

Financial Summary for 3Q24

• Net Profit: The company reported a 3Q24 net profit of Rp218 billion, marking a 47.5% year-on-year (yoy) increase but showing a 22.2% quarter-on-quarter (qoq) decline. This qoq decline is attributed to weak purchasing power.
• Nine-Month 2024 (9M24) Performance: The 9M24 net profit reached Rp778.1 billion, rising 32.7% yoy. Export sales surged by 70% yoy for 9M24, demonstrating strong demand outside of Indonesia.
• Target Price: UOB Kay Hian maintains a “Buy” rating with a target price adjusted to Rp800, down from the previous target of Rp900, reflecting a potential 30.1% upside.

Key Products and Market Expansion

• Herbal Products: New product launches such as Tolak Linu and Esemag have gained traction, with Tolak Linu accounting for 5% of herbal sales and Esemag for 2%.
• Export Markets: SIDO’s exports grew significantly, with Malaysia contributing 4% of total sales. Other target markets include Cambodia and Vietnam, with product approvals pending.
• Pharmaceutical and F&B Segment: The company’s pharmaceutical sales in 3Q24 declined by 3.9% yoy, but gross profit rose 9.7%. The F&B segment showed strong growth, with a 19.6% increase in sales, attributed mainly to a 56% export growth.

Outlook for 4Q24 and Beyond

SIDO anticipates a recovery in 4Q24 due to seasonal factors, including increased demand during the rainy season and year-end festivities. Additional drivers include:

• Inventory Restocking: Retailers are expected to increase stock toward year-end.
• Government Policies: Anticipated consumption-friendly policies from the new administration are likely to boost consumer spending, positively impacting SIDO’s sales.

Financial Projections

For the fiscal year ending December 2024, SIDO’s projected revenue is Rp3,950 billion, with an EBITDA forecast of Rp1,634 billion. UOB Kay Hian estimates net profit for FY24 at Rp1,212 billion, representing a yoy increase of 27.5%.

Key Financial Metrics:

• EBITDA Margin: Expected to rise to 41.4% in 2024.
• Dividend Yield: Projected at 5.6% for FY24.
• Price-to-Earnings (PE) Ratio: Forecasted at 15.2x for 2024, with a potential decrease to 13.3x in 2025.

Risks and Adjustments

• Profit Forecast: The broker has adjusted SIDO’s 2024 and 2025 net profit forecast downward by 6.2% and 3.8%, respectively, due to lower-than-expected 9M24 earnings. However, the revised forecasts remain 3.9% and 9.4% above consensus projections.
• Cost Concerns: Increased raw material costs, especially for sugar, have impacted margins in 3Q24, causing a 203-basis point decline in herbal products’ gross margin.

Recommendation

UOB Kay Hian reaffirms a “Buy” rating on Sido Muncul with an adjusted target price of Rp800, applying a five-year average PE multiple of 19.4x against the 2025 EPS projection. This updated target reflects a 30.1% potential upside from the current share price level.