4Q24 result was in line

The company recorded +4% y-y Indonesia sales growth in 4Q24, driven by instant noodles volume growth of +4% y-y. Meanwhile, Pinehill (unlisted) sales volume grew by +18% y-y on the back of smaller packaged product contribution; however, the smaller-size product has a lower pricing point, so Pinehill blended sales value only grew by +1% y-y. We suspect the launch of smaller packaged Indomie (56 grams vs 70g previously) last year aims to counter competitors such as Noodi (unlisted) and Kellogg’s (K US, Not rated), which are becoming aggressive in selling more affordable instant noodles, especially in Egypt. We think this is a measure necessary to terminate potential competition risks in the future. Margin-wise, despite higher contribution from smaller packaged products and higher CPO prices, ICBP was still able to expand EBIT margin by +190bp q-q / +30bp y-y, thanks to a lower A&P-to-sales ratio (-120bp q-q / -100bp y-y) and a better dairy margin. ICBP also recorded goodwill impairment for Nigeria asset amounting to IDR1.5tn (non-cash item). All in all, the company’s results were in line with our forecast.

Resilient growth

ICBP recorded a strong +16% core earnings CAGR 2020-2024, thanks to Pinehill contribution and strong Indonesia pricing power. We forecast ICBP to continue to book low-teens core earnings growth over the next two years. We believe ICBP will be a beneficiary of the downtrading trend amid weakening buying power conditions, and we believe Pinehill (~30% of ICBP sales) could provide a buffer should the Indonesia market be under pressure. In our view, the company is on track to achieve its sales guidance of 7-9% (similar to its FY24 target) despite weakening buying power. We think the target makes sense, since ICBP has already raised domestic prices by an average of 4%; achieving additional 3% domestic volume growth is possible, in our view, as Indomie may get a tailwind from the downtrading trend, and assuming Pinehill sales experience the same growth as last year at +10%. All in all, we believe it is feasible that the company can achieve high-single-digit sales growth this year. Meanwhile, for EBIT margin, management expects the company to reach 20-25% (vs 22.3% in FY24), which we believe is achievable on the back of higher Indonesia pricing points and operating leverage advantages.

Maintain Buy at TP of IDR18,700

We think Indonesia pricing power + downtrading trend + Pinehill penetration will sustain ICBP’s low-mid-teens core profit growth. We maintain our Buy recommendation on ICBP with TP of IDR18,700, using a FY25F P/E target of 20x. Currently, the stock is trading at 11.1x FY25F P/E. Downside risks include better-than-expected buying power conditions.

Fig. 1: ICBP core earnings forecast

Fig. 3: ICBP P/E band

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Sandy Ham (sandy.ham@verdhana.id)

Jody Wijaya (jody.wijaya@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)