Sido Muncul is on track to book solid earnings growth in FY18-20F given: (1) additional production capacity and (2) the full commercialization of its expanded extraction plant which will support higher margins. The plan to improve distribution and penetrate export markets will also drive growth. Maintain BUY with a TP of IDR1,000.
Strong 11M18 sales; on track to achieve 9.2% yoy FY18F revenues growth. In a recent conversation with the company we learnt that the new factory in Semarang – which will provide additional capacity of 100mn sachets/month – is on track to commence operations by the end of 2018. This will raise the total capacity to around 180mn sachets/month. In addition, the company also reported strong sales in November 2018 in line with the 4Q18 seasonality. As such, we remain confident that SIDO is on track to meet our FY18F revenues growth estimate of 9.2% yoy.
Solid earnings growth forecast in FY19F of 18%. We estimate revenues growth of 14.9% yoy in 2019, supported by the additional capacity and the continued improvement in SIDO’s sales force with a greater focus on Modern Trade (around 90% of revenues are still from General Trade). The soft oil price and full commercialization of its expanded extraction plant will improve the gross margin to 52%. Combined with manageable opex, we estimate FY19F earnings of IDR 805bn, +18.3% yoy.
Maintain BUY. In November 2018, the company already started to supply more goods to Philippines’ modern trade (MT) channel. Going forward, product availability should increase in 2019 with a more extensive MT network. Combined with the improvement in the national distribution system, the way should be paved for the company to record higher growth ahead. We estimate FY18-20F earnings CAGR of 19.6% with additional capacity supporting sales in the coming years. We view favorably the company’s shift from its F&B product Kuku Bima to its herbal product Tolak Angin, noting the latter’s higher margins which should underpin earnings growth going forward. At the current share price, SIDO is trading at FY19F PE of 14.8x. Maintain BUY with TP IDR1,000 (FY19F PE of 18.5x).