Indonesia Company Update

29 June 2020 Consumer Non-cyclical | Food & Beverage Products

Mayora Indah (MYOR IJ) Buy (Maintained)

Conference Call KTA: 60-80% Recovery For Exports Target Price (Return): IDR2,700 (+20%) Price: IDR2,260 Market Cap: USD3,553m Avg Daily Turnover (IDR/USD) 6,569m/0.44m

 Maintain BUY and IDR2,700 TP, 20% upside. We recently had a Analyst conference call with management. Mayora Indah saw a recovery in its exports market in 2Q20 – China (+60%) and the Philippines (+80%). Michael Setjoadi Dragged by export sales in 1Q20, it targets FY20 sales by -3% YoY, while +6221 5093 9844 exports are expected to contribute 40% to total sales (from 45%). However, [email protected] the company is optimistic of seeing positive YoY growth recovery in 2H20, especially for exports.

 2Q20 was still at an early stage of recovery for exports. MYOR sees the domestic market as less impacted as the Government did not implement a

full lockdown. This is unlike China or the Philippines – its two largest export destinations – that implemented a full lockdown at the end of January and Share Performance (%) March, which halted export sales to these countries in 1Q20. 60-80% of YTD 1m 3m 6m 12m sales demand has recovered for China and the Philippines as they Absolute 10.2 6.6 40.4 9.7 (8.5) reopened their economies in April and June. Although the company is Relative 32.4 0.6 27.4 32.1 13.8 expecting a full recovery of its exports to these markets by 2H20, FY20 topline growth is still forecasted to decline c.3% YoY. In addition, its 52-wk Price low/high (IDR) 1,415 – 2,540

factories have been running at 80% production time, with workers given a half-day off on Saturday and full day off on Sunday vs 24-hour operations Mayora Indah (MYOR IJ) Price Close Relative to Jakarta Composite Index (RHS) pre-COVID-19. 2,700 121

 Several new product launches to support sales. MYOR recently 2,500 115 launched a new brand of instant coffee, Gilus Mix, at a retail price of 2,300 108

IDR1,000/sachet. Given the tight competition in the instant coffee industry 2,100 102

and low raw material prices, its competitors have resorted to the standard 1,900 95 promotion of giving an additional sachet for free with every purchase of two 1,700 89 coffee sachets. Each sachet retails at IDR1,500, or IDR3,000 for the three sachets (which includes the free sachet). However, MYOR believes that this 1,500 82

strategy may not be as effective. Hence, it launched the new product at 1,300 76

Jul-19 Jul-19

Oct-19 Oct-19 Apr-20 Apr-20

Jun-20 Jan-20 Jan-20 Jun-20

Feb-20 Feb-20 Mar-20 Mar-20

Nov-19 Nov-19 Dec-19

Aug-19 Sep-19 Sep-19 IDR1,000/sachet, directly priced against its competitors after the promotion, Aug-19 May-20 to regain lost market share. Feedback has been positive for the past one Source: Bloomberg month post launch. The company has also launched a new premium biscuit line – Malkist Keju Tabur. It currently offers 250 SKUs, of which 40% are available for export markets (c.85 countries).  GPM kept at >30%, while EBIT to be supported by lower advertising &

promotion (A&P). Cheaper costs for imported sugar and lower flour prices may continue to support 2Q-3Q20 margins. Management guided for gross margin to be kept at >30%. We expect EBIT margin to expand as the company plans to lower its A&P spending this year. 2019 A&P was abnormally high due to intense competition in China and the Philippines’ markets, which ebbed in 2020. Recent domestic advertising has marginally shifted towards digital (ie YouTube), but c.65% of its budget is still on free- to-air, while the remainder is for direct promotional activities.

Forecasts and Valuation Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total turnover (IDRb) 24,061 25,027 25,077 28,333 30,966 Recurring net profit (IDRb) 1,568 2,112 1,962 2,272 2,529 Recurring net profit growth (%) 2.0 34.7 (7.1) 15.8 11.3 Recurring P/E (x) 32.22 23.92 25.76 22.24 19.98 P/B (x) 6.1 5.2 4.5 3.9 3.5 P/CF (x) 109.13 16.50 15.21 21.36 19.42 Dividend Yield (%) 1.2 1.3 1.3 1.4 1.6 EV/EBITDA (x) 17.07 14.25 13.86 12.11 10.68 Return on average equity (%) 22.1 22.1 21.1 19.6 17.4 InterestNet debt cover to equity (x) (%) 5.33 41.1 8.93 28.5 8.77 7.1 net 11.80 cash net 12.14 cash

Source: Company data, RHB

See important disclosures at the end of this report 1 Market Dateline / PP 19489/05/2019 (035080)

Mayora Indah Indonesia Company Update

29 June 2020 Consumer Non-cyclical | Food & Beverage Products

Financial Exhibits

Asia Financial summary (IDR) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Indonesia Recurring EPS 70.14 94.47 87.73 101.61 113.10 Consumer Non-cyclical DPS 27.58 29.00 29.25 30.58 35.72 Mayora Indah BVPS 373.13 432.17 501.29 576.35 646.76 MYOR IJ Return on average equity (%) 22.1 22.1 21.1 19.6 17.4 Buy Valuation metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Valuation basis Recurring P/E (x) 32.22 23.92 25.76 22.24 19.98 We derive our 12-month TP of IDR2,700 based on DCF P/B (x) 6.1 5.2 4.5 3.9 3.5 (WACC: 10% and terminal growth: 3.5%) FCF Yield (%) (0.7) 4.1 5.2 2.9 3.1

Dividend Yield (%) 1.2 1.3 1.3 1.4 1.6 Key drivers EV/EBITDA (x) 17.07 14.25 13.86 12.11 10.68 i. Lower trade tension to boost export sales; EV/EBIT (x) 20.64 16.89 17.16 15.11 13.49 ii. Depressed valuation.

Income statement (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Key risks Total turnover 24,061 25,027 25,077 28,333 30,966 i. Intensifying coffee competition; Gross profit 6,397 7,917 7,968 8,804 9,544 ii. Weak consumer purchase power environment. EBITDA 3,177 3,760 3,727 4,189 4,667 Depreciation and amortisation (549) (588) (716) (833) (971) Operating profit 2,628 3,172 3,010 3,356 3,696 Company Profile Net interest (446) (303) (281) (201) (193) Mayora Indah manufactures candies and cookies. Pre-tax profit 2,382 2,704 3,051 3,277 3,292 Through its subsidiaries, the company also Taxation (622) (665) (796) (855) (859) manufactures food, coffee powder, instant coffee and cocoa beans. Reported net profit 1,716 1,988 2,199 2,362 2,373 Recurring net profit 1,568 2,112 1,962 2,272 2,529

Cash flow (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Change in w orking capital (1,791) 528 405 (829) (742) Cash flow from operations 463 3,063 3,321 2,366 2,603 Capex (820) (1,006) (717) (875) (1,033) Cash flow from investing activities (1,240) (1,865) (718) (892) (1,046) Dividends paid (617) (648) (654) (684) (799)

Cash flow from financing activities 1,071 (712) (1,593) (151) (1,757) Cash at beginning of period 2,202 2,496 2,982 3,992 5,315 Net change in cash 294 486 1,010 1,323 (200) Ending balance cash 2,496 2,982 3,992 5,315 5,115

Balance sheet (IDRb) Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Total cash and equivalents 2,496 2,982 3,992 5,315 5,115 Tangible fixed assets 4,258 4,675 4,676 4,718 4,779 Total assets 17,592 19,038 19,646 22,279 23,155 Short-term debt 2,630 1,422 1,462 1,302 1,174 Total long-term debt 3,377 4,386 3,349 3,848 2,850 Total liabilities 9,049 9,138 8,145 9,039 8,281 Total equity 8,543 9,900 11,501 13,239 14,874 Total liabilities & equity 17,592 19,038 19,646 22,279 23,155

Key metrics Dec-18 Dec-19 Dec-20F Dec-21F Dec-22F Revenue grow th (%) 15.6 4.0 0.2 13.0 9.3 Recurrent EPS grow th (%) 2.0 34.7 (7.1) 15.8 11.3 Gross margin (%) 26.6 31.6 31.8 31.1 30.8 Operating EBITDA margin (%) 13.2 15.0 14.9 14.8 15.1 Net profit margin (%) 7.1 7.9 8.8 8.3 7.7 Dividend payout ratio (%) 35.9 32.6 29.7 28.9 33.7 Capex/sales (%) 3.4 4.0 2.9 3.1 3.3 Interest cover (x) 5.33 8.93 8.77 11.80 12.14

Source: Company data, RHB

See important disclosures at the end of this report 2 Market Dateline / PP 19489/05/2019 (035080)

Mayora Indah Indonesia Company Update

29 June 2020 Consumer Non-cyclical | Food & Beverage Products

Figure 1: Historical local vs export sales contribution

 As at 1Q20, MYOR’s export sales dropped to 30% of total sales contribution due to fully lockdown in the Philippines and China  On 3-year average, MYOR’s export sales is at 46% of total sales.

Source: Company data, RHB

Figure 2: MYOR’s 5-year historical P/E band; currently trading at -0.7SD from its 5- year mean

(x) 40.0 +2stdev, 38.5x

35.0 +1stdev; 32.6x

30.0 mean; 26.7x 25.0 PE = 22.2x -1stdev; 20.8x 20.0

-2stdev; 14.9x 15.0

10.0

Jun-15 Jun-17 Jun-18 Jun-20 Jun-16 Jun-19

Oct-16 Oct-17 Oct-15 Oct-18 Oct-19

Apr-16 Apr-19 Apr-17 Apr-18 Apr-20

Feb-16 Feb-20 Feb-17 Feb-18 Feb-19

Dec-15 Dec-18 Dec-19 Dec-16 Dec-17

Aug-15 Aug-19 Aug-16 Aug-17 Aug-18

Rolling PER mean +1stdev +2stdev -1stdev -2stdev Linear (mean)

Source: RHB, Bloomberg

Recommendation Chart

Date Recommendation Target Price Price Price Close 2020-04-27 Buy 2,700 2,190 3,300

Recommendations & Target Price 2019-12-23 Buy 2,600 2,000

na

2,600 2,600 2,700 3,300 3,300 2019-07-23 Buy 3,300 2,350 2,800 Source: RHB, Bloomberg

2,300

1,800

1,300

800 Buy Neutral Sell Trading Buy Take Profit Not Rated Jul-15 Oct-16 Jan-18 Apr-19

Source: RHB, Bloomberg

See important disclosures at the end of this report 3 Market Dateline / PP 19489/05/2019 (035080)

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HONG KONG BANGKOK RHB Securities Hong Kong Ltd. RHB Securities (Thailand) PCL 12th Floor, World-Wide House 10th Floor, Sathorn Square Office 19 Des Voeux Road Tower Central 98, North Sathorn Road, Silom Hong Kong Bangrak, Bangkok 10500 Tel : +852 2525 1118 Thailand Fax : +852 2810 0908 Tel: +66 2088 9999 Fax :+66 2088 9799

SINGAPORE RHB Securities Singapore Pte Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore 049315 Tel : +65 6533 1818 Fax : +65 6532 6211

6 Market Dateline / PP 19489/05/2019 (035080)