• Keep BUY, new IDR1,830 TP (from IDR1,970), 51% upside and 3% yield. Kalbe Farma's 4Q24 indicative revenue stood at IDR8.4trn (+6.3% QoQ, +6.6% YoY) with indicative net income of IDR862bn (+50.3% QoQ, +22.8% YoY) - in line with our and Streets' estimates. Topline growth was mainly from its steady sales volumes, as there were no significant price hikes by the company in 2024. The stellar 4Q24 earnings growth was partly from FX gains. We cut our earnings assumptions for 2025 and 2026 by 1.5% and 2.2%.
• Guidance for 2025. KLBF expects sales and EPS to grow at 8-10% each, suggesting a steady margin profile amidst the challenging local purchasing power environment, in addition to geopolitical tensions. This is in line with our forecasts. While the company expects its pharmaceutical, consumer health, and distribution logistics segments to book solid growth, it will remain cautious on the nutritional segment (expecting it to only book mid-single digit growth) due to the expected downtrading behaviour among consumers of milk products in 2025. KLBF expects capex to be at IDR1trn in 2025 (vs IDR1.1-1.2trn in 2024) with inventory days at 110-115 days (vs 118 in 2024), resulting in better working capital.
• Strategies to bolster pharmaceutical and consumer health businesses. The company continues to focus on its specialty products, particularly on biologics, oncology medicine, and cell therapy, which make up 10-12% of the pharmaceutical division's revenue. Two of its novel biologics products (Zerpidio and Efesa) reached the commercialisation phase in 2024, and KLBF is in the process of registering these products in other South-East Asian countries as well. It also aims to rejuvenate some of its consumer health legacy products such as Bejo, Extra Joss, Promaag, and Fatigon with new stock-keeping unit (SKU) launches and innovative marketing strategies to support growth. The company has reduced the USD exposure for its raw material purchases from China for the two divisions.
• Challenges in the nutritional segment. KLBF noted some challenges in the segment, due to downtrading behaviour among consumers of its milk products, which are its core products for the nutritional division. The company has launched several affordable products such as Chil-Go and DiabetaCare to deal with this issue. It also launched the Hydro Coco-Coco Latte to keep up with preferences of its consumers. KLBF has participated in the Government's free nutritious meal programme in several areas, but has remained selective in its participation. The revenue contribution from this programme remains minimal.
• Valuation and ESG. KLBF is trading at 16x 2025F P/E, at around -3SD from its 5-year mean. We have applied a 6% ESG premium to our TP.

Source: RHB Research - 6 Feb 2025