Sido Muncul, Continued Rebound In Herbal Medicine Products

Based on our recent ground checks visiting several Sumber Alfaria Trijaya’s (Alfamart) (AMRT IJ, Neutral, TP: IDR570) minimarkets, we have found that Tolak Linu is gaining more acceptance. The stores we had visited confirmed that Tolak Linu’s sales are increasing. Its leading herbal cold remedy, Tolak Angin, continued to rebound with Jan-Mar 2016’s sales volume as follows: (in sachets): 59m, 59m, and 63m respectively.

The new herbal medicine product Tolak Linu has been getting solid traction with Oct 2015-Mar 2016’s sales volumes as follows (in sachets): 2m, 4m, 10m, 10m, 2m, and 6m respectively. Tolak Linu’s 1Q16 average sales volume of 6m sachets/month has exceeded management’s monthly sales target of 4m sachets/month. As a whole, the herbal medicine division’s sales grew 27.2% YoY in 1Q16.

Food & Beverage (F&B) division
F&B sales increased 11.7% YoY in 1Q16 and was accompanied by a 160bps gross margin expansion to 19.5% in 1Q16, benefitting from the IDR appreciation vs USD. It is also encouraging to note that F&B sales volume increased 5.4% YoY in 1Q16. Sido Muncul’s (SIDO) leading energy drink, Kuku Bima, accounted 69.6% of F&B sales in 1Q16 (compared to 64.1% of F&B sales in 1Q15).

Maintain BUY
With a sustained strong rebound in Tolak Angin, good traction from Tolak Linu, slower-than-expected decline in Kuku Bima and healthy balance sheet with no debt, we see limited downside risks. The key downside risk is the USD/IDR rate, as 40% of SIDO’s cost of goods sold (COGS) are in USD.