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Consumer Realm

The consumer sector in Indonesia is a dynamic and vibrant segment of the country's economy, reflecting the rapidly growing population's needs and preferences.

With over 270 million people, Indonesia boasts one of the largest consumer markets in the world, and this sector plays a pivotal role in driving economic growth.

From food and beverages to retail, e-commerce, and entertainment, the consumer sector in Indonesia is marked by a continuous surge in demand for products and services, fueled by rising incomes, urbanization, and an increasingly tech-savvy consumer base.

PT Indofood Sukses Makmur Tbk (INDF), a comprehensive food solutions provider, is engaged in every facet of food production, from sourcing raw materials to delivering finished consumer goods. It's widely recognized as a longstanding industry leader, excelling in every sector it participates in.

INDF leverages its robust business model and economies of scale through four interconnected Strategic Business Groups: 1) Consumer Branded Products (CBP), 2) Bogasari, 3) Agribusiness, and 4) Distribution.

Source: Company, Sucor Research

INDF reported a net profit of IDR1.7 tn in 2Q23, marking a -55.4% decline qoq but a robust +216.2% increase compared to the same period last year.

2Q23 revenue amounted to IDR25.5 tn, representing a -16.4% decrease qoq but a modest +0.8% growth yoy. Cumulative revenue for 1H23 reached IDR56 tn, reflecting a +6.3% yoy increase.

Source: Company, Sucor Research

During 1H23, Bogasari reported an EBIT margin of 6.4%, a decline from the 8.0% recorded in the same period in 2022. Going forward, we anticipate that margins will stabilize within the 5-7% range, aligning with the company's provided guidance.

According to the US Department of Agriculture's projections, wheat consumption in Indonesia is anticipated to reach 12.6mn metric tons by 2027, showing an increase from the 10.5mn metric tons reported in 2022.

This growth is being primarily driven by the expanding middle-income class and the rising demand for wheat-based products in restaurants and upscale bakeries located in major cities.

Being the largest flour miller in the country with a market share of approximately 50%, Bogasari is well-positioned to benefit from the potential surge in wheat demand within Indonesia.

ICBP, on the other hand, is on a trajectory towards achieving robust earnings growth, supported by several factors.

These include improved profit margins resulting from last year's aggressive price adjustments, a more favorable sales mix with a greater contribution from higher-margin segments such as noodles, food seasonings, and snack foods, as well as a moderation in input costs compared to the high base experienced in 2022.

Source: Company, Sucor Research

In this thriving landscape, businesses are continually adapting and innovating to meet the evolving desires of Indonesian consumers, making it a fascinating and competitive arena for both domestic and international companies.

Our earnings projections for 2023-24F stands at IDR9.5 tn and IDR10.3 tn, reflecting significant yoy increases of +50.5% and +9.0%, respectively.

We reiterate our BUY recommendation with TP of 9,100, based on our SOTP-based valuation.

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