Unexpectedly Declined
1H22: Surprisingly Upset, Below Estimate
• SIDO IJ booked a revenue of IDR1.61tn in 1H22, dropped -2.58% YoY (vs IDR1.65tn in 1H21), implying 34.40%/35.19% of ours and consensus estimates, respectively.
• The unexpected fall of revenue in 1H22 was largely caused by the declined of Herbal segments which -6.85% YoY to IDR989.73bn (contributed: 61.33% of its 1H22 revenue). Conversely, F&B and Pharmacy continued its growth by +3.53% YoY/+17.07% YoY, with the contribution of total sales to be 33.80%/4.87% (vs 31.80%/4.05% in 1H21).
• Gross profit tumbled -8.13% YoY to IDR854.49bn (vs IDR930.08bn in 1H21) due to high raw material prices. GPM lower to 53.00% (vs 56.21% in 1H21).
• Moreover, operating profit recorded at IDR558.61bn or fell -10.01% YoY (vs IDR620.74bn in 1H21), which translates to the lower OPM to 34.65% (vs 37.51% in 1H21).
• Net profit slipped -11.24% YoY to IDR445.60bn (vs IDR502.00bn in 1H21), implying 30.77%/30.94% of ours and consensus estimates, while NPM stood at 27.64% (vs 30.34% in 1H21).
A Strategy to Recovery
• In our view, the extra AMP (advertising, marketing and promotion) allocation can uplift SIDO’s sales. Whereby in 1H22, AMP cost stood at IDR118.04bn or lower -22.65% YoY compared to its 1H21. Historically, we see a positive correlation between AMP and revenue growth in 1Q13-2Q22 (exhibit 04). Moreover, the management plans to escalate its promotions through digital platforms that efficient to maintain the margins to stay elevated.
• In addition, the management decided to boost its digital frequency on B2C & B2B channels which we anticipate will attract the more customers attentiveness. We see an effective approach to the bundle's product on marketplaces which could raise customer attraction and encourage of new products launched (exhibit 06).
• The international trade expansion into untapped market countries continued its positive results (+80% YoY in 1H22), as the contribution of export sales 1H22 climb up to 6% from 4% in FY21 driven by exports to Nigeria and Malaysia. In FY22E, management targets a 5-7% contribution from international trade on the back of expansion to Africa & China in 2H22. Note, Kuku Bima Energ-G’s export sales reached 16% of total sales in 1H22.
• Moreover, SIDO will expands its domestic market by targeting to open retailer by +4,000 outlets (135,000 in FY21) given the allocation capex of ~IDR210bn, along with the ever-increasing mobility mainly post-pandemic and increasing CCI (Jun-22 at 128.16 poin).
Weak Performance due to Inflation Push
A stubborn inflation hike was a pressure regarding 1H22’s performance. Note that, Jul-22 inflation hit +4.94% YoY or highest since FY15. Given that concern, the customers tend to allocate their spendings along the rising staples product prices. We see a similar scenario in FY14-FY15, where SIDO’s revenue declined on the back of the rising inflation at pace +8% YoY (exhibit 05). Yet, we projected that inflation in FY22E stood at 4.44% YoY mainly by: 1) adjustment of BI7DRR; 2) trade balance surplus.
We Favor Fine-Tuning ASP
We see that it is necessary to adjust ASP for Herbal segments particularly along with the lower demand occured. We are confident of SIDO’s market share remaining solid. In the past FY11-FY12, SIDO had managed to maintain its revenue growth (+17.77% YoY/+8.80% YoY) alongside the inflation hikes by +4% YoY, by increasing its ASP by 5%-15%. We revised our figures regarding the outlooks and strategy as well as estimated SIDO’s top-bottom line in FY22 to fall by -13.19% YoY/-28.23% YoY.
Valuation and Recommendation: HOLD SIDO with a Target Price IDR780
We transfer our coverage on SIDO IJ from Rifqi Ramadhan to Raka Junico. We recommend HOLD with target price of IDR780, implies PE/PBV of 25,86x/6,44x in FY22E. Currently, SIDO is below -2STD PE of its 3 year average. Key downside risk: 1) continued lower demand; 2) ineffective export market’s penetration; 3) inflation hikes above expectation.
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