Consumer
A Laggard Sector with Potential Catalysts to Support Growth; Resuming Coverage with OW
- We expect govt’s economic stimulus and stronger IDR to support purchasing power and Consumer companies’ earnings in 2H25.
- We foresee a decent +6.4%/+5.2% rev/core net profit growth in FY25F, supported by ongoing cost efficiencies to help limit EBIT margin decline.
- Resuming our coverage with an Overweight rating given the resilient sector’s growth outlook. Our top pick is ICBP (Buy, TP Rp14,000).
Deceleration in domestic demand may lead to another soft 2Q25 growth
Slowing GDP growth with soft 1Q25 earnings despite the Lebaran season highlighted the weakening domestic demand and ongoing consumer downtrading. While Apr25 run-rate for some Consumer companies shows some encouragement, we think May-Jun25 performance will be key in assessing the sustainability of the improvement in Apr. We conservatively expect 2Q25F topline growth of 3-10% yoy except for UNVR, with negative qoq growth mainly due to the high base figures in 1Q25.
Potential catalysts to support growth beyond 2Q25
We see some major potential catalysts that may help to boost consumption and support Consumer companies’ earnings:
- IDR strengthening. We believe IDR’s appreciation (~4% from its peak in Apr25) will help ease margin pressure for Consumer companies given their high USD exposure in raw material costs (>50% of raw materials) and USD-denominated debt.
- Govt’s five economic stimulus (Exh. 5) that has been rolled out since early Jun25. While the most anticipated two-month electricity subsidy has been cancelled, we think the wage subsidy assistance (BSU) still has the potential to boost purchasing power, as it directly increases their disposable income by Rp300k/month for two months for 17.3mn workers with <Rp3.5mn salaries/ < min. wage.
- Larger coverage of MBG. We see potential for incentives for students (more disposable income) and job creation assuming Govt to increase the no. of kitchen starting 3Q25.
Resilient growth outlook despite margin pressures
We project aggregate Consumer companies under our coverage to post +6.7% revenue growth in FY25F. Despite our expectation of 60bps GPM contraction this year due to soft commodity prices volatility, we expect ongoing cost efficiencies such as salary & employee benefits and freight & handling, to cushion margin impact, hence limiting EBIT margin decline to only 20bps. We project aggregate core profit growth of +5.2% yoy in FY25F, before improving to +8.7% in FY26F, driven by better purchasing power.
Resuming coverage on Consumer with OW; preferred pick on ICBP
We are resuming coverage on Consumer sector with an Overweight rating given the resilient sector’s growth outlook even during downturn period such as in 3Q21 and 2Q23-3Q23. We think the current sector’s valuation at 12.7x PE FY25F remains attractive while the sector has also remained laggard (-8.4% ytd). We favor ICBP (BUY, TP Rp14,000) as our top pick in the sector given its resilient topline growth outlook. ICBP currently trades at 12.3x PE FY25F. Key risks to our call are: 1) weaker purchasing power in the upcoming quarters, 2) higher soft commodity prices than expected, which may further compress margin.
… Read More 20250612 Consumer
