Consumer: 3Q24 preview: sustained solid core profit growth on stable margins, in line with our and consensus (OVERWEIGHT)

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Consumer

3Q24 preview: sustained solid core profit growth on stable margins, in line with our and consensus

We estimate 3Q24/9M24 sector revenue growth of +2.6%/+4% yoy and 9M24 operating profit of +7% yoy, in line with our and cons. est.
We expect solid revenue and stable margins to support 9M24 core profit growth of 9% yoy, in line with meeting our FY24F and Cons.
Festive events and export markets should drive sales in 4Q24. We maintain our OW rating, with ICBP and MYOR as our top picks.

Expect a solid 3Q24 top line, potentially in line operating earnings

We estimate the consumer sector to post 3Q24 revenue growth of 2.6% yoy and 4.9% qoq, primarily driven by MYOR (+12% yoy and +21% qoq), while we also estimate SIDO (+7% yoy) and KLBF (+9% yoy) to show solid topline growth from a low base last year. We estimate that this shall drive 9M24 sector revenue growth of 4% yoy, on track to meet our/cons FY24 forecast of 5%/6% yoy growth. On the margin side, we see the sector may report lower gross margins for both 3Q24 and 9M24 due to rising raw material prices (e.g. coffee +123% yoy and cocoa +126% yoy). These price increases have started to be reflected in the companies’ COGS beginning in 2Q24, especially impacting MYOR. We expect most consumer companies to maintain similar or lower opex/rev. ratios vs. 2Q24, anticipating increased A&P spending in 4Q24 due to year-end festivities. Overall, we expect 9M24 sector operating profit growth of 7% yoy, representing 75% of our and cons. FY24F (in line).

9M24 core profit growth of 9% yoy; in line with our FY24F of +8% yoy

Below the operating line, the strengthening of the Rupiah (end of Sept24: Rp15,138 vs Dec23: Rp15,416) may result in an FX gain for ICBP but an FX loss for MYOR. Despite this, we estimate the sector to record 9M24 core profit growth of 9% yoy, on track to achieve our FY24F core profit growth of 8% yoy. Within our coverage, we expect ICBP to report the strongest 9M24 core profit growth of 27% yoy [above our FY24F: 17% yoy], driven by higher margins. Meanwhile, we also expect SIDO to post a robust 9M24 core profit growth of 37% yoy [in line], followed by KLBF (+19% yoy, [in line], both off a low base in 9M23.

Maintain Overweight with ICBP and MYOR as top picks

Historically, 4Q has contributed 25-26% to the sector’s annual revenue, offering an opportunity for a final boost in sales as demand surges towards the year-end holiday season. Additionally, with Ramadhan 2025 beginning in late Mar25, we expect increased demand in 1Q25, driven by the fasting and Ramadhan Season, which will help sustain the sector’s performance. On the risk front, escalating geopolitical conflicts pose a risk to commodity prices and supply chains, which could lead to higher input costs for consumer companies, though we still expect earnings growth to be supported by resilient topline. By the end of Sep24, local mutual funds maintained their positions in the sector with +2.7% OW vs. JCI. We maintain our OW rating, with ICBP and MYOR as our top picks, supported by both export and domestic demand in 4Q24.

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