• Cocoa prices rose +10.9% over the past 5D, driven by potential supply constraints. Cocoa inventories at US ports have been trending down for 17 consecutive months, reaching a 19-year low of 1.7 million bags on Monday. Also, on 30 August, the International Cocoa Association (ICCO) raised its 2023/24 global cocoa deficit estimate to -462k MT (May: -439k MT), the largest shortage in over 60 years. The increase in cocoa prices is expected to negatively impact Mayora Indah (MYOR) the most among consumer companies.
• Coffee prices increased +4.5% in the past 5D due to weather forecasts predicting lower rainfall at Minas Gerais, Brazil's main Arabica coffee-producing region. This could adversely affect coffee yields and production levels, further applying pressure on MYOR.
• Sugar prices declined -3.3%, stemming from USD strengthening (3M DXY: +2.6%) and 12.1% drop in crude oil prices over the past three months. These conditions have reduced incentives for producers to shift to convert sugar into ethanol, thereby increasing market supply. Lower sugar prices will benefit MYOR> CMRY> UNVR> KLBF>SIDO> ULTJ.
• Raw materials prices remained mixed, impacting consumer companies’ costs in different ways. Stock-wise, we maintain ICBP as top pick with TP of IDR 14,000/share (PE 2024F: 20.6x), as the company may benefit from lower wheat prices, On the flip side, we expect MYOR’s gross margin to remain under pressure due to higher coffee and cocoa prices.