Supported To Improve People's Purchasing Power, Sido's Performance Prospects Will Appear Bright In 2024

JAKARTA - The performance of PT Industri Jamu Dan Pharmacy Sido Muncul Tbk (SIDO) is believed to have bright prospects in 2024. Investment Analytic Lead Stockbit, Edi Chandren in his research stated, Sido Muncul's worst performance period had passed in the third quarter of 2023 (the worst is over).

"Although Sido Muncul's prospects are not too bullish in the short-term due to the lack of strong purchasing power of the public, we consider that the company provides quite an attractive dividend opportunity with a yield potential of around 5 percent per year," wrote Edi Chandren in his research some time ago.

According to him, the dividend will provide convenience for investors while waiting for performance growth, which is believed to be accelerating again to the double digit range in a longer term. In addition, the potential for additional upside comes from the valuation of Sido Muncul (SIDO) shares which has the opportunity to experience re-rating in the future.

Reflecting on relatively more advanced countries such as China and India, consumer health companies have growth in the double-digit range per year, with P/E's forward valuation 21-35 times or much higher than SIDO's current P/E 16.6 times.

"After negative performance in 2023, we predict that SIDO's performance will recover in 2024, although not very significantly. The company's performance recovery will be driven by better people's purchasing power, so that sales can grow positively again," said Edi.

The improvement in people's purchasing power will be supported by spending related to campaigns in the election year, an increase in the budget for social protection programs, and a low inflation rate at the level of 2-3 percent.

He projects SIDO's net profit to grow 8 percent in 2024, which will be supported by sales growth of 5 percent and a margin higher than a little efficiency in operating costs. That way, SIDO's net profit in 2023 and 2024 will reach IDR 857 billion or a decrease of 22 percent (yoy) and IDR 923 billion, an increase of 8 percent (yoy).

The estimated performance is based on several things. First, sales growth in 2024 will be driven more by sales volume, while selling prices will be relatively stable as significant price increases have been carried out in the last 1-2 years.

Second, the price of raw materials will tend to be stable in 2024, so increasing sales volume will also encourage gross margins. Third, advertising and promotion activities will tend to be more moderate in 2024, after spending increases in 2023.

"In a few years after 2024, we predict that SIDO's performance will tend to grow moderately in the mid single digits per year because there is no significant demand driver," explained Edi.

Stockbit considers that net profit of IDR 850 billion-IDR 900 billion per year is an achievable and sustainable net profit for Sido Muncul.

With a net profit in that range and a dividend payout ratio assumption of 95 percent (average of the last 3 years: 96.7 percent), SIDO has the potential to provide dividend yield of 5.2-5.5 percent per year, if using the SIDO price assumption of IDR 520.

SIDO itself has a strong financial position, high profitability (ROE >20 percent), and is free of debt with cash of IDR 783 billion as of September 2023. Meanwhile, since significant capital expenditure (capex) in 2017-2018, SIDO has not needed a large capex in the near future.

With the need for a relatively small capex in the range of IDR 100 billion-IDR 200 billion per year, as well as healthy cash flow, SIDO has the ability to produce high net cash flow (free cash flow). These factors make SIDO have the capacity to pay high dividends, at least in the next few years.

The main risk for SIDO is weak purchasing power, coupled with prolonged dry conditions that suppress demand. Then, a significant increase in raw material prices that can reduce profitability. Furthermore, the macroeconomic progress is slow, so that long-term potential cannot be realized.

Sido Muncul submitted a monthly report on the company's shareholder registration as of January 31, 2024.

It is recorded that PT Hotel Baru still controls 18,137,404,580 shares of SIDO or 60.46 percent, the same as the previous month. Concordant Investments also still owns 5,140,877,862 shares or 17.14 percent. Meanwhile, non-citizens hold 22.39 percent of Sido Muncul's shares.

The number of shareholders decreased by 410 to 189,991 parties. As of December 31, 2023, the number at that time was 190,401 shareholders.

The final beneficiaries of Sido Muncul are Irwan Hidayat, Jonatha Sofjan Hidayat, Johan Hidayat, David Hidayat, and Sandra Linata Hidajat.