Mayora Indah: A Safe Haven Amid Strong Greenback

Report by PT Maybank Sekuritas Indonesia

Date: November 8, 2024

Introduction

Mayora Indah (MYOR IJ), a major Indonesian confectioner, stands as a robust entity in the consumer staples sector. This analysis delves deep into MYOR’s financial performance, market strategies, and future outlook, providing a comprehensive overview for investors.

Investment Thesis

We maintain a BUY rating for Mayora Indah with a target price (TP) of IDR3,500. MYOR’s expansive market base is poised to drive medium-term EPS growth while mitigating dependency on a single market. The unchanged TP is grounded on a 19x FY25E PER. The FY25E PER of 14.4x, close to 1SD below its 3-year mean, coupled with significant exposure to USD-denominated business, positions MYOR attractively within Indonesia’s consumer sector.

Sales Performance

MYOR has consistently outperformed sales expectations, achieving record-high 3Q/9M24 sales. October 2024 sales growth of 20% YoY surpassed MIBG’s +11% and management’s +12% guidance. This performance is attributed to high double-digit sales volume growth, fueled by pent-up demand from the 2-month election campaign across 545 electoral districts and successful new product launches.

Pricing Power and Export Sales

MYOR’s strong pricing power and extensive export business are key margin-accretive attributes. The company raised prices by 10% for cocoa- and coffee-related products following a 3Q/9M24 ASP hike of 5%. Despite price increases, MYOR has maintained a steady market-share position. With the USD strengthening (+1.3% QTD), MYOR’s sales, more tied to USD movements than costs, are expected to boost gross margins.

Beneficiary of IDR/USD Weakness

MYOR remains the only consumer name with a significant USD-denominated earnings share. The sensitivity analysis indicates MYOR as the sole beneficiary among consumer names when the IDR depreciates against the USD. The FY24-26 earnings estimates imply a robust 11.6% FY23-26E EPS CAGR.

Company Description and Statistics

Mayora Indah produces and markets consumer food products, specializing in biscuits, candy, coffee, nutrition (cereal), wafers, and chocolate. Major shareholders include Unita Branindo (32.9%), Mayora Dhana Utama (26.1%), and Jogi Hendra Atmadja (25.2%). The company’s market capitalization stands at IDR58.4T (USD3.7B) with a 52-week high/low of 2,970/2,230 IDR.

Financial Metrics

• Revenue: Expected to grow at a 10.6% CAGR over FY23-26E, driven by gradual purchasing power improvement.
• Gross Margin: Estimated at 25.5%/26.0%/26.3% for FY24-26, up from 24% in 9M24.
• EBIT Margin: Projected to expand to 13.8% in FY25E from 12.5% in FY24E.
• Free Cash Flow: Expected to remain positive over FY24-26E, turning MYOR into a net-cash company by FY25E.

Value Proposition

MYOR is a major Indonesian confectioner with a focus on high-equity brand products such as Roma, Kopiko, and Torabika. The company employs a defensive pricing policy in a highly competitive market. MYOR’s substantial export business (~40-50% of revenue) helps mitigate the impact of currency volatility. The company’s return on capital is above the cost of capital, supported by an asset-light model and continuous growth.

Price Drivers and Historical Share Price Trend

1. 1Q20 sales dropped by -11% YoY due to China’s lockdown (c.14% of sales).
2. Elevated input costs in 1H21 affected profit margins.
3. Solid 3Q22 earnings recovery despite elevated soft commodity prices.
4. Benefited from IDR depreciation in 3Q23 as sales are more tied to USD movement than production costs.
5. Delivered robust 2Q/1H24 earnings, although concerns about profit margin sustainability arose due to soft commodity price re-escalation.

Financial Metrics Breakdown

MYOR’s revenue growth is expected to accelerate at a 10.6% CAGR over FY23-26E, driven by both domestic and export markets. The company generally needs to increase ASP by 5-6% to pass through a 10% increase in raw material costs. EBIT margin is projected to expand to 13.8% in FY25E from 12.5% in FY24E. Free cash flow is expected to remain positive over FY24-26E, turning MYOR into a net-cash company by FY25E.

Gross Profit Margin vs. Commodity Index

MYOR’s gross profit margin has shown resilience against fluctuations in the CRB CMDT Index, indicative of the company’s ability to manage input costs effectively.

Market Share and Product Performance

MYOR’s resilient market share performance across various categories and regions highlights its strong brand loyalty and competitive edge. The company has maintained or improved its market position in key export markets, including the Philippines and Malaysia.

Product Innovation and New Launches

MYOR’s continuous product innovation has played a crucial role in sustaining growth. The company launched several new products in 9M24, including soluble black coffee for the overseas market and new flavors for Roma Bonita, Fruita Gummy, and Roma Kelapa & Roma Lavita.

Profit Margin Improvement Outlook

MYOR’s profit margins are expected to start improving in FY25E, supported by strong brand equity, active product innovation, and extensive market reach. The recent USD strength against the IDR and higher utilization of the new factory in Pasuruan are expected to contribute to this improvement.

Commodity Price Impact

Persistent price increases in cocoa and coffee, as well as the re-escalation in vegetable oil, sugar, and wheat prices, have led MYOR to raise the price of its cocoa- and coffee-related products by 10% in Oct’24. This decision is expected to improve overall gross margin, though it has not yet reached the target of 24-25%.

Market Share Trends

MYOR’s market share trends in Indonesia and key export markets demonstrate its ability to maintain and grow its position. The company has shown strong performance in the highly competitive coffee and wafer markets in Indonesia, with products like Torabika Creamy Latte and Roma Malkist gaining traction.

Future Outlook and Sensitivity Analysis

Maintaining a BUY rating, MYOR’s large market base is expected to boost medium-term EPS growth while limiting sales dependency on a single market. The large overseas business (c.44% of total sales) positions MYOR as the only beneficiary in the Indonesia consumer sector with minimal earnings risks due to currency factors. Sensitivity analysis indicates significant positive impacts from ASP and sales volume increases, as well as gross margin improvements.

Conclusion

Mayora Indah’s strong market position, effective pricing strategies, and continuous product innovation make it a compelling investment in the consumer staples sector. Despite recent share price underperformance due to soft 3Q/9M24 earnings, the company’s robust fundamentals and favorable currency exposure provide a solid foundation for future growth.