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Our Daily Bread

Have you ever started your day with a warm cup of coffee and a slice of Sari Roti, its inviting aroma wafting through the morning air?

If you're familiar with Indonesia's rich and diverse culinary landscape, chances are you've indulged in the comforting embrace of this beloved breakfast staple.

Source : Sari Roti

As you savor that first bite, you might not be aware of the incredible journey that brought Sari Roti to your table.

Behind every slice lies a story of passion, innovation, and a deep-rooted commitment to quality – all of which are at the heart of Nippon Indosari Corpindo (ROTI).

Nippon Indosari Corpindo, or simply "Nippon Indosari," is the force behind the iconic Sari Roti brand. Established in 1995, this company has been a pioneer in the Indonesian bread industry, revolutionizing breakfast tables and snack times across the nation.

With 14 strategically positioned production facilities and aggressive expansion beyond Java in recent years, the company has been quick to adapt to the changing landscape of consumer preferences.

Source : Sari Roti

Notably, sales contributions from the western and eastern regions, outside Java, have been on a positive trajectory. They've risen from just 14% of total sales in 2017 to 44% in the first half of 2023.

This shift signifies more than just geographical expansion; it reflects the evolving dynamics of Indonesia's consumer market. As the middle-income class continues to burgeon, gaining increased purchasing power, Nippon Indosari and its flagship product, Sari Roti, have become a testament to the changing tastes and demands of a vibrant nation.

Looking ahead, ROTI is poised for continued growth. Financial projections suggest that earnings are set to reach Rp450 billion in 2023, marking a significant 4.2% year-on-year increase.

In 2024, earnings are projected to soar even higher to Rp510 billion, representing an impressive 13.2% year-on-year growth. This growth is attributed to a gradual recovery in sales volume and margin improvement, largely stemming from softening input costs.

For ROTI, EBITDA is expected to reach Rp833 billion in 2023, with an EBITDA margin that's slightly on the rise, reaching 20.7% (up from 20.4% in 2022).

But what's even more noteworthy are the improvements in gross and net margins, set to reach 53.8% and 11.2% in the current year.

These figures not only signify the company's efficient cost management but also reflect the positive impact on profitability. As a result, we anticipate a higher ROE of 16.8%, a notable increase from the 16.1% reported in the previous year.

Looking forward, there are promising signs that the company is set to deliver a stronger performance in the 2H23.

One of the key drivers behind this expected surge in performance is the recovery in demand. After a somewhat challenging first half of the year, marked by lower sales during Lebaran and an increase in return rates during the first quarter, ROTI is poised for a comeback. The company's resilience is demonstrated by its ability to bounce back from these setbacks.

A significant factor contributing to this anticipated recovery is the upcoming election, which typically brings about stronger consumer spending. Additionally, declining raw material costs, primarily in wheat, have positioned ROTI in a favorable cost environment.

Source : Company, Sucor Sekuritas

One of the standout qualities of ROTI is its ability to generate strong cash flows. What's even more intriguing for investors is the company's potential for high dividend payouts. With a low utilization rate and a net cash position, ROTI is well-positioned to maintain minimal capital expenditures in the coming years. This, in turn, paves the way for sustainably high dividend payouts to its shareholders.

For investors eyeing Nippon Indosari Corpindo, our analysts, Clara reiterate a BUY recommendation with a DCF-based TP of Rp1,700, implying a 20.6x 2024F PE. Key assumptions include a WACC of 13.4%, a terminal growth rate of 5.0%, and a favorable current valuation, trading at 16.4xPE (-1.2SD) compared to its 5-year mean of 25.3x.

The stock's solid long-term growth, strong balance sheet, and potential for high dividend payouts make it an attractive prospect for investors seeking both value and income.

So, grab a cup of your favorite beverage, find a comfortable spot, and let's embark on a delicious exploration of Indonesia's culinary heritage with Sari Roti and Nippon Indosari Corpindo as our guides.


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