Kalbe Farma (KLBF IJ)

Sustainable Moat Underpins Steady Earnings Growth; Resuming Coverage with Buy rating

• 1Q25 strong earnings were driven by cost-efficiency; we expect 2Q25 revenue to normalize post-Eid yet still on-track to meet FY25F guidance.
• KLBF’s strength remains its strong distribution network, while rising RMB exposure and peaking JKN coverage should offer margin support.
• Resuming coverage with a Buy rating but with a slightly lower TP of Rp1,780 on an attractive 3-year earnings CAGR of 11%.

Normalization in 2Q25 Earnings Post-Eid, Still On-Track to Meet Guidance

KLBF’s historical trend shows a relatively evenly distributed earnings seasonality between 1H/2H, despite a slightly higher portion in 1H (Exhibit 9) due to Ramadhan & Eid consumption. 1Q25 earnings contributed a relatively higher run-rate to cons. FY25F at 31%, yet more driven by input costs and opex efficiencies (Exhibit 4). Meanwhile for 2Q25, the company sees a slight normalization post-Eid especially in Consumer Health business yet still believes that it is on-track to meet FY25F guidance (8-10% yoy Rev/Net Profit Growth).

Cost-Efficiency and Moat from Distribution to Support Stable Earnings

Given the relatively weak macro backdrop (Exhibit 3), we expect KLBF’s FY25F/26F earnings of 12%/10% yoy to be driven by cost efficiency (managing raw materials, employee, and A&P costs), with top-line growth to remain relatively stable at 8%, in line with its 5-year historical CAGR. While RMB-based raw materials remain insignificant to overall raw materials costs (~<10%), we believe rising RMB exposure should provide room for further margin improvement. KLBF’s strong distribution and marketing network to doctors continues to offer moat for its positioning in the industry, due to the “below-the-line” marketing nature of prescription pharmaceuticals. A structurally aging population (Exhibit 2) may also propel higher healthcare expenditure as non-communicable diseases potentially increase, making KLBF an Indonesian defensive compounder. In addition, the peaking JKN coverage (Exhibit 18) may also help slow down the prescription margin erosion from unbranded generics.

Resuming coverage with Buy rating, with a slightly lower TP of Rp1,780

Incorporating the 1Q25 results, we revised our FY25F/26F net profit by 7/9% to Rp3.6/3.9tr. We changed our valuation method to DCF (previously P/E-based), given KLBF’s stable OCF & annual capex trend (Exhibit 10), to arrive at a slightly lower TP of Rp1,780 (Exhibit 11). We believe KLBF’s 3-year earnings CAGR of 11% is attractive as current valuation of 21x PE is also at 14% discount to 5-year mean. Further IDR strengthening IDR may act as catalyst given the share price high correlation with USD/IDR movement (Exhibit 13). Risk include: Weak top-line growth, higher unbranded generics contributions, slower cost-efficiency progress, weakening IDR propels selling action.

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