After experiencing its first negative year in five years (mainly due to high base effect), we expect SIDO to bounce back in FY23F, with projected revenue growth of +10.8% YoY and net profit growth of +12.5% YoY. Some of the factors projected to boost SIDO's future performance include (i) better GPM, (ii) business expansion (expansion of distribution channels, online sales, and export destinations), (iii) promotion and product innovation. We reiterate our BUY rating on SIDO with a TP of IDR 915 (22.1x FY23F PE).

FY23F projection. SIDO reported a slight decline in revenue in FY22 (-3.9% yoy), its first negative year in five. It should be noted, however, that the slump was mainly caused by high base effect in 2021 (from the spike in demand for Covid-19-related healthcare products). Thus, we believe the slump is only temporary and the company will bounce back in FY23F, with projected revenue and net profit growth of +10.8% YoY and +12.5% YoY. We believe that all of SIDO's business segments will experience positive growth in FY23F, especially its herbal medicine and supplements segment (SIDO’s main segment, 68% of revenue), supported by post-Covid-19 mobility recovery. We also expect to see improvements in SIDO’s profit margins in FY23F, driven mainly by the drop in raw material prices for its food and beverage segment, including aspartame and citric acid (the drop in raw material prices had led to a +359bps qoq spike in the segment’s 4Q22 GPM to 30.6%), while the GPM of herbal medicine and supplements segment is projected to remain stable and once again become SIDO’s segment with the highest GPM segment (68%) supported by the stability of the price of raw materials coming from local farmers. However, we might see some qoq decline in SIDO's performance in 1Q23, mainly due to seasonality factor (the fourth quarter is usually the best quarter in terms of sales (contributing ~30% of SIDO’s annual sales) due to increased demand for SIDO’s herbal medicine products during the rainy season).

Business expansion. One of the factors that might help boost SIDO’s future performance is the expansion of its distribution channels, both GT (156,000 outlets, +21,000 outlets in FY22) and MT (including Alfamart and Indomart). Not only that, but we also expect to see better online sales numbers from SIDO, both from B2C (e-commerce and sidomunculstore.com) and B2B (including from EMOS), with projected contribution to SIDO's FY23 sales of 3.5% (FY22: 2.5%). Regarding international sales, SIDO plans to expand its export destinations (to China and Vietnam in 1H23) and targets export sales to contribute 6% of its FY23F sales (FY22: 4.5%). Aside from expanding its distribution channels, SIDO will also continue to actively promote its products (A&P/sales ratio: ~10%) and launch new ones this year (the company launched seven new products in FY22). Lastly, SIDO had raised the price of its herbal medicine and supplements products in Dec-22, which should also boost its future revenue.

BUY, TP IDR 915. BUY, TP IDR 915. In light of the factors outlined above, we decided to upgrade our rating for SIDO to BUY (from HOLD) with a new TP of IDR 915 (prev: IDR 760), implying 22.1x FY23F PE (3-year PE average). Risk: a decline in people's purchasing power, raw material surge.