2Q26: Strong set of results

We conclude that overall, 2Q26 FMCG firms’ earnings results were strong, in line with our previous forecast (read: 2Q26F result preview). Improving y-y core profit was generally driven by revenue expansion, thanks to stronger government expenditure, especially toward free meal + village cooperative + agriculture/food security programs. Most of the money disbursement from those programs flows to lower-tier cities, which translates into increasing FMCG consumption as well. In terms of categories, dairy-related firms continued to outperform; Ultrajaya (ULTJ IJ, Buy), Cimory (CMRY IJ, Buy), Mulia Boga Raya (KEJU IJ, Buy), and Indofood CBP (ICBP IJ, Buy) are the main beneficiaries of free meal kitchens spending. We note that the dairy-related segment in our coverage recorded an average of +56% revenue growth y-y in 2Q, much higher than average FMCG growth of +14%. Stronger dairy-related sales volume growth buffered the hike in raw material costs, translating to double-digit EBIT growth.

Meanwhile, the increasing money supply in grassroots can also trigger a recovery in out-of-home products consumption. For example, beverages firms such as Sariguna Primatirta (CLEO IJ, Buy) and Multi Bintang (MLBI IJ, Buy) booked strong revenue growth. In the cigarettes space, most of the companies, including Wismilak Inti Makmur (WIIM IJ, Buy), H.M. Sampoerna (HMSP IJ, Buy), and Gudang Garam (GGRM IJ, Reduce), enjoyed margin expansion on the back of ASP hike + muted excise tax increase. Another interesting story is that companies with a large export market base and collecting USD payments, such as Mayora Indah (MYOR IJ, Buy) can enjoy significant forex gains, translating to margin expansion.

2H26F: Strong revenue growth to endure

We expect the strong consumption trend will continue in 2H26F, backed by the government programs mentioned above as well as relatively stable energy costs. In our view, the government will prioritize stabilizing energy and staples food inflation going forward, as this would have a direct impact on government popularity. That said, the consumption pattern will be similar to 1H, in our view, with dairy-related firms leading the growth. Noted that despitea reduction in the free meal budget, total expenditure this year will be still 350% higher than last year, and big brands should continue to supply dairy products to free meal kitchens given a lack of supply, in our view. Out of home products' recovery, a cigarettes margin revival, and USD earner margin expansion themes will still play out in 2H26F, in our view. ASP adjustment will be muted, but stronger overall FMCG sales volume due to front-loading activities anticipating an earlier 2027 Lebaran season will be more apparent in 4Q26F. In terms of margin, packaging costs should ease, and FMCG firms may start to rebuild cheaper packaging inventories in 3Q26F, in our view.

Our top picks

We maintain our overweight view on the FMCG sector on the back of increasing money supply in lower-tier cities to push FMCG demand, as well as relatively lower government intervention risks compared to other sectors. We prefer FMCG firms with strong potential revenue growth to drive earnings. Our pecking order would be ULTJ > CMRY > MYOR > WIIM > HMSP > MIDI > AMRT KEJU > CLEO > MLBI > KLBF > INDF > ICBP > SIDO > GGRM > UNVR > ROTI. The main pushback for the FMCG sector is relatively low stock liquidity in comparison to sectors such as banks and commodities.

Fig. 1: FMCG 2Q26 result table

 

Fig. 2: Average FMCG firms revenue growth versus government expenditure trend

 

Fig. 3: Free meal program progress

 

Fig. 4: Farmers’ terms of trade

 

Fig. 5: Village cooperative top ten transactions as of July-26

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),

Samuel Christian (samuel.christian@verdhana.id),

Jody Wijaya (jody.wijaya@verdhana.id),

Nayla Yasmin (nayla.yasmin@verdhana.id)