MNCS COMPANY UPDATE MNC Sekuritas Research Division May 11, 2018

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1 MNCS COMPANY UPDATE MNC Sekuritas Research Division May 11, 2018 PT Industri Jamu dan Farmasi Sidomuncul Tbk (SIDO) Consumer : Pharmacy When Local Go International HOLD Target Price : IDR 810 Stock Data Current Price : IDR wk Range H-L : IDR Share Outstanding : 15,000 mn Free Float (%) : 18.40% Mkt Capitalization (IDR bn) : 12,600 Major Shareholders PT Hotel Candi Baru : 81.60% Public : 18.40% 1Q18 : Softer Top Line, Stronger Bottom Line SIDO successfully booked revenues of IDR billion (+2.88% YoY), supported by the growth of herbal product segment, contributing 65.68% to total sales in 1Q18. This 1Q18 revenue reflects 22.50%/22.61% of MNCS/Consensus estimates. SIDO also successfully managed to maintain its operational performance, so that gross profit increased by 17.77% YoY from IDR billion to IDR billion, with a maintained margin of 49.27% (vs 43.04% in 1Q17). The efficiency of SIDO has an impact on net profit increase by 32.57% YoY in 1Q18, with a net profit margin maintained at 27.23% level (vs 21.13% in 1Q17), which representing 27.08%/30.78% of MNCS/Consensus estimate. When Local Go International Attracts FDI Interest In order to expand its market, SIDO exported the Tolak Angin products to 12 countries and targeting a 5% revenues contribution this year (vs 2.5% in FY17). As the first step to strengthen sales in the regional market, SIDO planned to open a new marketing office in the Philippines in 1Q18. Promising business development, supported by good fundamentals has turned out to attract Affinity Equity Partners, a foreign private equity, to collaboration with SIDO. We see this could have a positive impact on SIDO in developing domestic and export markets supported by more than 250 products, with proven track record in their flagship products like Tolak Angin and Kuku Bima Energi. Recommendation HOLD with Target Price IDR810 We recommend HOLD for SIDO at a TP: IDR810 which implies PE/PBV 19.48x/3.97x in FY18E and 16.98x/3.73x in FY19E. We believe a strong brand and the potential of entering the international market will become a positive catalyst for SIDO. SIDO also offers 3-5% dividend yield in the last three years to attracts investor. On the other hand, rampant circulation of illegal herbal products that are free to circulate can threaten the well-being of the herbal medicine industry. SIDO is currently trading at a level of +2 STD (average 3-years PE) with PE of 21.73x. Key Financial Highlight In billion IDR FY15 FY16 FY17 FY18E FY19F Revenues 2, , , , , EBITDA Net Income ROA (%) Research Analyst Victoria Venny N.S. victoria.nawang@mncgroup.com ROE (%) PER (x) PBV (x) (021) ext Source: Bloomberg, MNCS as of May 11, 2018 Page 1

2 Company Update Report MNC Sekuritas Research Division 1Q18: Higher than Expected Earnings stemmed from Cost Efficiency amid flat Revenue Growth Up to 1Q18, PT Sido Muncul Tbk (SIDO) successfully booked revenues of IDR billion, supported by the growth of herbal product segment, contributing 65.68% to total sales. This 1Q18 revenue reflects 22.50%/22.61% of MNCS/Consensus estimates. SIDO succeeded in reducing the cost of goods sold by 8.38% YoY, so that gross profit increased by 17.77% YoY from IDR billion to IDR billion, with a maintained margin of 49.27% (vs 43.04% in 1Q17). The efficiency of SIDO has an impact on net profit increase by 32.57% YoY in 1Q18, with a net profit margin maintained at 27.23% level (vs 21.13% in 1Q17), which representing 27.08%/30.78% of MNCS/Consensus estimate. SIDO s success in maintaining its financial performance is reflected in healthy margins, low leverage and a ROE that grew by an average of 19% in the last 5 years. Exhibit 01. 1Q18 Financial Results IDR Billion 1Q17 4Q17 1Q18 QoQ YoY FY18E Consensus FY18E MNCS % Consensus % MNCS Sales % 2.88% 2,745 2, % 22.50% COGS Gross Profit % 17.77% 1,223 1, % 23.87% Gross Profit Margin Operating Income 43.04% 45.21% 49.27% 44.53% 46.44% % 31.69% % 27.55% EBIT Margin 25.99% 21.93% 33.27% 24.30% 27.17% PBT % 29.66% % 27.72% Net Profit % 32.57% % 27.08% Net Margin 21.13% 21.42% 27.23% 20.01% 22.63% Source : Company, MNCS Tolak Angin and Kuku Bima Stay as Primadonna Based on the Ministry of Industry, Indonesia ranks 4th as a herbal producer in the world after China, India and Korea. This is certainly a potential development of our traditional medicine industry and organic-based cosmetics, which is a current trend in the market. SIDO, as one of the largest herbal medicine producers, has more than 250 products, with superior brands like Tolak Angin and Kuku Bima Energi. According to the rating agency TOP Brand Award in FY17, Tolak Angin occupied the first position with Top Brand Index by 58.90% of the cold medicine category and Kuku Bima was in second position, with Top Brand Index of 29.50% of the energized drink non-liquid category. Two of the SIDO's flagship products were awarded again by the Indonesian Customer Satisfaction Award (ICSA) in 2017, organized by Swa Sembada Magazine. It proves that SIDO has strong competitiveness in the herbal medicine industry. Page 2

3 Company Update Report MNC Sekuritas Research Division Exhibit 02. TOP Brand Award: Tolak Angin and Kuku Bima in FY17 OBAT MASUK ANGIN MINUMAN PENAMBAH TENAGA NON CAIR BRAND TBI TOP BRAND TBI TOP Tolak Angin Sido Muncul 58,90% TOP Extra Joss 55,20% TOP Antangin 37,60% TOP Kuku Bima Ener-G 29,50% TOP Bintang Toedjoe 1,90% Hemaviton Jreng 4,40% Source: Company, Top Brand Award Indonesia When Local Go International Attracts FDI Interest Dividend Player: Average Dividend Payout Ratio 82% in FY14-FY17 In order to expand its market range, SIDO exported the Tolak Angin products to 12 countries and targeting a 5% revenues contribution this year (vs 2.5% in FY17). In 1Q18, SIDO plans to open a marketing office in the Philippines, with the aim of improving export performance. Promising business development, supported by good fundamentals has turned out to attract foreign investors. In early 2018, Affinity Equity Partners, a foreign private equity, is interested in a broader cooperation with the Company. We see this could have a positive impact on SIDO in developing domestic and export markets. SIDO distributed fat dividends, averaging 82.10% of its net profit over the last four years. This demonstrates the SIDO's well-established business position. The fat war chest resulted in SIDO being able to provide high dividends to attract investors to purchase its shares. Although the Dividend Payout Ratio offered is quite high, the Company still has the potential to grow, along with several expansions made in FY17 such as a liquid herbal medicine plant in Central Java. Exhibit 03. Dividend Trend FY14-FY19F Dividend (IDR bn) DPR (%) E 2019F 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Average Dividend Percentage 82% in FY14-FY17 Source: Company, Bloomberg, MNCS Page 3

4 Company Update MNC Sekuritas Research Division The rise of Herbs and Illegal Herbs Potentially Seize Market Share According to the Association of Herbal and Traditional Medicines Indonesia (GP Jamu) rampant circulation of illegal herbal products that are free to circulate can threaten the well-being of the herbal medicine industry. The distribution of medicinal herbs and illegal herbs is observed to increase approximately 20%-30% per year. This is not proportional to the growth of herbal medicine requirement of only 10% per year. Recommendation HOLD with Target Price IDR810 We recommend HOLD for SIDO at a TP: IDR810 which implies PE/PBV 19.48x/3.97x in FY18E and 16.98x/3.73x in FY19E. We believe a strong brand and the potential of entering the international market will become a positive catalyst for SIDO. On the other hand, rampant circulation of illegal herbal products that are free to circulate can threaten the well-being of the herbal medicine industry. SIDO is currently trading at +2 STD (average 3-year PE) with PE at 21.73x. Exhibit 04. SIDO s FY15-FY18 PE Band trades at +2 STD level (average 3 years PE) PE Ratio Mean STD -1 STD -2 STD +1 STD May/15 Jul/15 Sep/15 Nov/15 Jan/16 Mar/16 May/16 Jul/16 Sep/16 Nov/16 Jan/17 Mar/17 May/17 Jul/17 Sep/17 Nov/17 Jan/18 Mar/18 May/18 Source : Bloomberg as of May 11, 2018 Page 4

5 Company Update MNC Sekuritas Research Division Exhibit 05. Financial Projection Income Statement IDR Billion FY15 FY16 FY17 FY18E FY19F Revenues 2,219 2,562 2,574 2,760 2,963 COGS 1,335 1,494 1,412 1,478 1,556 Gross Profit 883 1,068 1,162 1,282 1,407 Operating Expense Selling Expenses General and Administrative Operating Profit EBITDA Interest Expense Interest Income Other Profit Before Tax Tax Expense Net Income Before MI Minority Interest Net Income Balance Sheet IDR Billion FY15 FY16 FY17 FY18E FY19F Current Assets 1,707 1,794 1,629 1,649 1,651 Cash and Cash Equivalents 1,027 1, Trade Receivable Inventories Others current Assets Non-Current Assets 1,089 1,193 1,529 1,730 1,948 Fix Asset - net 962 1,051 1,215 1,393 1,586 Other Non-Current Assets TOTAL ASSETS 2,796 2,988 3,158 3,378 3,599 Current Liabilities Account Payable Short Term Debt Other current liabilities Non-Current Liabilities Long-term Liabilities - Net Other Non-Current Liabilities TOTAL EQUITY 2,598 2,758 2,896 3,068 3,266 EPS (full amount) TOTAL LIABILITIES & EQUITY 2,796 2,988 3,158 3,378 3,599 Cash Flow Ratios IDR Billion FY15 FY16 FY17 FY18E FY19F CFO Total Net Income Depreciation Ratio FY15 FY16 FY17 FY18E FY19F Revenue Growth (%) Operating Profit Growth (%) Net Profit Growth (%) Change in Working Capital (37) (54) (68) 51 (42) Change in others (36) (26) CFI Total (198) (158) (396) (270) (297) Change in ST Investment Change in LT Investment Capex (240) (143) (224) (247) (272) Change in Others 42 (15) (172) (23) (25) CFF Total (360) (355) (347) (448) (514) Net Change in Debt Equity financing Dividend payment (360) (369) (387) (452) (518) Others Net Cash Increase (228) (25) (90) 31 (53) Closing Balance 1,027 1, Current Ratio (%) Quick Ratio (%) Receiveable Days Inventory Days Payable Days Debt to Equity (x) Debt to EBITDA (x) Gross Profit Margin (%) Operating Profit Margin (%) EBITDA Margin (%) Net Profit Margin (%) ROA (%) ROE (%) Source : Company, MNCS Page 5

6 Company Update MNC Sekuritas Research Division Thendra Crisnanda Head of Institutional Research, Strategy (021) ext Victoria Venny Telco, Toll Road, Logistics, Consumer, Poultry (021) ext MNC SEKURITAS RESEARCH TEAM Edwin J. Sebayang Head of Retail Research, Technical, Auto, Mining (021) ext Gilang Anindito Property, Construction, Mining, Media (021) ext I Made Adi Saputra Head of Fixed Income Research imade.saputra@mncgroup.com (021) ext Rheza Dewangga Nugraha Junior Analyst of Fixed Income rheza.nugraha@mncgroup.com (021) ext Rr. Nurulita Harwaningrum Banking, Auto, Plantation roro.harwaningrum@mncgroup.com (021) ext Muhamad Rudy Setiawan Research Associate,Construction muhamad.setiawan@mncgroup.com (021) ext Tomy Zulfikar Research Analyst tomy.zulfikar@mncgroup.com (021) ext Khazar Srikandi Research Associate khazar.srikandi@mncgroup.com (021) ext Krestanti Nugrahane Widhi Research Associate, Plantation, Consumer krestanti.widhi@mncgroup.com (021) ext Sukisnawati Puspitasari Research Associate, Cement, Mining sukisnawati.sari@mncgroup.com (021) ext MNC SEKURITAS EQUITY SALES TEAM T. Heldy Arifien Head of High Networth heldy.arifien@mncgroup.com (021) ext Harun Nurrosyid harun.nurrosyid@mncgroup.com (021) ext Agus Eko Santoso agus.santoso@mncgroup.com (021) ext Okhy Ibrahim okhy.ibrahim@mncgroup.com (021) ext Gilang Ramadhan gilang.ramadhan@mncgroup.com (021) ext Muhamad Fauzan Saputra Junior Equity Sales Muh.saputra@mncgroup.com (021) ext Nesya Kharismawati nesya.kharismawati@mncgroup.com (021) ext Iman Hadimulya, ST iman.hadimulya@mncgroup.com (021) ext Paksi Jaladara Junior Equity Sales paksi.jaladara@mncgroup.com (021) ext MNC Research Investment Ratings Guidance BUY : Share price may exceed 10% over the next 12 months HOLD : Share price may fall within the range of +/- 10% of the next 12 months SELL : Share price may fall by more than 10% over the next 12 months Not Rated : Stock is not within regular research coverage PT MNC SEKURITAS MNC Financial Center Lt Jl. Kebon Sirih No , Jakarta Pusat Telp : (021) Fax : (021) Call Center : Disclaimer This research report has been issued by PT MNC Sekuritas, It may not be reproduced or further distributed or published, in whole or in part, for any purpose. PT MNC Sekuritas has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; PT MNC Sekuritas makes no guarantee, representation or warranty and accepts no responsibility to liability as to its accuracy or completeness. Expression of opinion herein are those of the research department only and are subject to change without notice. This document is not and should not be construed as an offer or the solicitation of an offer to purchase or subscribe or sell any investment. PT MNC Sekuritas and its affiliates and/or their offices, director and employees may own or have positions in any investment mentioned herein or any investment related thereto and may from time to time add to or dispose of any such investment. PT MNC Sekuritas and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discusses herein (or investment related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. Page 6