In April, Indonesia experienced a decrease in its annual inflation rate, falling to 3.00% from 3.05% in March. This figure was below market and our expectation, which had anticipated 3.40%, and our forecasts of 3.80%. It marks the twelfth consecutive month that inflation has remained within Bank Indonesia's target range of 2–4%.
The largest contributors to headline inflation were consumer prices of foods, beverages, and cigarettes, which rose by 7.04% YoY (compared to 7.43% in March). This increase was primarily driven by significant rises in the prices of rice, chicken meat, and onions, which saw year-on-year increases of 15.90%, 13.08%, and 28.95%, respectively.
Core inflation increased to 1.82% YoY (compared to 1.77% in March), while volatile food inflation decreased to 9.63% YoY (compared to 10.33% in March). Administered prices rose to 1.54% YoY from 1.39%.
Source: Sucor Sekuritas Research
We acknowledge that the recent geopolitical turmoil in the Middle East poses a risk of imported inflation to Indonesia if it escalates further and drives up oil and other key commodity prices. It should be noted that the rupiah has depreciated by 5.45% against the US dollar in 2024. We anticipate further rate hikes from Bank Indonesia despite the inflation rate remaining well within the target range. This is aimed at protecting the rupiah's exchange rate, which may ultimately pose a threat of imported inflation in the future.
YTD USD IDR Exchange Rate
Due to this weakening of USD IDR exchange rate, we favor dollar earner companies as they are likely to benefit despite that there is also risk from weaker demand amidst current unresolved geopolitical turmoil. Considering the top-down analysis, we see that MYOR is one of the best option given its c. 36% export contribution to its total sales and more stable business nature of a consumer company.
Aside from its top-down analysis, we also see that MYOR currently offers a very undemanding valuation, trading below its -2SD valuation band. MYOR's PE multiples remain stable and making the stock more attractive as we put into account its growth in earnings.
MYOR 5 Years PE Band
MYOR 5 Years EV/EBITDA Band
on 1Q24, MYOR booked net profit of IDR1.1tn (+52.9% YoY/-4.7% QoQ), beating both ours (32%) and consensus estimates (34%). The stellar earnings growth was mainly driven by lower selling expense which decline -6.2% YoY and IDR75bn gain on forex.
Gross margin improved slightly to 27.8% (vs. 27.4% in 1Q23) driven by normalized input costs. Additionally, a reduction in opex (-3.6% YoY) and lower interest costs (-38.9% YoY) helped boost net margin to 12.7% (vs. 8.6% in 1Q23).
Revenue grew modestly by +3.7% YoY, in line with estimates with Packaged foods segment posted strong sales growth of +10.2% YoY, while Packaged beverages segment only grew by +1.1% YoY.
That being said, we also see that the top-line growth was very weak, that the robust growth were mainly contributed by lower expenses as well as forex gain. This raised a concern to us considering that there is risk to higher commodity prices and lower export should the geopolitics tension escalates which then could offset the forex gain.
Putting all of the above into consideration, we believe MYOR offers one of the best risk to reward ration compared to its peers given its undemanding valuation band, showing divergence of its earnings against its share price. We reiterate our buy call with TP of IDR 3,300/share which implies 21.0x 2024F PE. However, we urge to be cautious on the geopolitics development as it may alter our thesis instantly.