Sariguna Primatirta (CLEO IJ)

Higher growth ahead

With more events expected ahead of the elections coupled with the end of the pandemic, the outlook for beverage products looks brighter. The company is optimistic of booking double digit earnings growth in FY22-23. Continued capacity growth will also pave the way for a larger distribution footprint, supporting volume growth going forward.

Expect FY22 earnings growth of 15-20% yoy. The management of CLEO is optimistic of achieving FY22 top line growth +30% yoy with lower growth at the bottom line ranging from 15-20%, given challenges in raw material prices leading to lower margins. In 2022, the company raised its product ASP 3 times as its raw material prices are linked to oil prices which increased. The company claims its packaged water has a 99.99% purity content in 100% BPA free packaging. In addition, it also undertakes ESG initiatives by using recyclable materials, recovers wastewater and uses solar panels at several factories. By the end of 2022, CLEO had already completed 3 new factories located in Balikpapan (East Kalimantan), Palangkaraya (Central Kalimantan) and Palembang (South Sumatera), bringing the total number of factories to 30 by the end of December 2022.

The elections & increasing mobility will lead to double-digit growth in 2023. CLEO is optimistic of recording higher volume growth in FY23 given more events expected ahead of the elections in addition to the people’s increasing mobility. Historically, 2Q, the end of 3Q and December have been the peak seasons for the mineral water business. For 2023, the company foresees 30% yoy growth at the top line and the bottom line, supported by its expansion plans to add 3 new factories and 270 internal distribution channels via its sister company (Sentralsari Prima Sentosa – SPS). Traditional channels accounted for a sizeable 76% of total sales, followed by Modern Markets (14%) and Horeca/special outlets (10%). At present, CLEO has 5% market share in Indonesia’s packaged water industry.

With 30% yoy earnings growth expected, CLEO is trading at FY23F PE of 21x. With growing capacity and the expectation of solid demand ahead, we see further room for growth for CLEO. At present, Java and Bali provide the major contribution to total revenues (88%). A bigger distribution footprint especially in Greater Jakarta and outer Java will support volume growth ahead. Among its products, we expect a more balanced contribution between bottled and non-bottled water (each 49% to total revenues), with more product usage/greater product recognition in Indonesia. If we assume FY22-23 earnings growth of 15% and 30% yoy, CLEO is trading at FY22-23F PE of 27.4x and 21x, respectively.

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