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The Bread and Butter of ROTI Turnaround Story

Indonesia is a country which main staple food is rice. However, sometimes short timespan for breakfast has pushed us to consume more bread in order to catch up the rush hour of working class schedule. Hence, we believe that bread remains a good substitution for Indonesian breakfast.

ROTI recently posted its 4Q23 earnings which declined -7.9% QoQ and -39.2% YoY on the back of higher-than-expected return rate that delcined -3.2% YoY from 13.0% in 4Q22 to 16.2% in 4Q23 on top of the weaker year-end sales which fell -3.0% QoQ and -18.4% YoY.

ROTI FY23 earnings fell slightly below estimates at IDR333bn (-22.9% YoY), yet gross margin experienced a slight improvement of +1.0% to 54% from 53.0% from prior year. This margin expansion was mainly boosted by the normalizing raw material despite the flat ASP. That said, net profit margin decreased from 11.0% to 8.7% due to the rising of higher opex.

Our analyst, Clara, projected that ROTI can grew 6.5%, boosted by the recovery sales volume and normalized rate of product return to c. 13%. Our analyst projected that ROTI can grow its sales at single digit growth YoY on the back of recovery sales volume and normalizing sales volume .

That said, net profit margin slightly decreased at 11.0% compared to 8.7% in 2023 which was mainly due to higher opex. Therefore, we expect ROTI net sales to grow by 6.5% YoY. Our analyst, Clara, expect ROTI to have a CAGR OF 12% for the next five years, boosted by the recovery of volume which mostlikely topped by with margin improvement from softening input cost.

We maintain buy recommendation with a TP of IDR1,410 per share as the company offers strong cashflow with minimum capex requirement in medium term, not to mention 12% CAGR over the next five years, and solid balance sheet to maintain high dividend payout. Our TP implies 24.5x 2024F PE assuming 12.7% WACC and terminal growth of 4%.


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