16% upside, BUY

27th August 2026

Price Rp 352

Target price Rp 406

Investment Considerations

Channel Inventory Normalization Completed in 1H26

• PT Industri Jamu dan Farmasi Sido Muncul Tbk (SIDO) recorded a 20.5% YoY decline in total sales to IDR826.15 billion in 2Q26, although sales improved 29.0% QoQ. In 1H26, total sales declined 19.8% YoY to IDR1.46 trillion, primarily reflecting the planned channel inventory normalization, particularly in the core Herbal & Supplements segment.
• The Food & Beverage (F&B) segment recorded strong growth, with revenue increasing 47.2% YoY and 22.2% QoQ to IDR418.15 billion in 2Q26. Growth was supported by higher volumes, favorable dry-season demand, and strong traction from newer product categories. C+Collagen sales increased more than fivefold, while ready-to-drink products, including new Alang Sari variants, more than doubled. Energy drinks remained resilient, while milk products were relatively softer.
• F&B gross margin moderated slightly to 43.8% from 44.3%. Margin resilience was supported by significantly lower Vitamin C input costs and a stronger contribution from higher-growth product categories, although these benefits were partly offset by inflation in several commodities. Management highlighted that sugar costs increased by high-single digits, while taurine costs rose by approximately 20%. Other ingredients, including flavoring, citric acid, and creamer, also experienced cost pressure. Despite these headwinds, management expects portfolio mix optimization and procurement discipline to help protect gross margins.
• The Herbal & Supplements segment recorded the largest contraction, with sales declining 48.3% YoY but improving 38.0% QoQ to IDR370.4 billion in 2Q26. The decline largely reflected the temporary normalization of Tolak Angin inventories at the distributor level. Nevertheless, SIDO maintained its strong market leadership, with Tolak Angin holding a 71% market share in 1H26.
• Despite weaker sales volumes, the Herbal & Supplements gross margin remained relatively resilient at approximately 60%, although lower Tolak Angin volumes reduced operating leverage. This was partly mitigated by procurement savings, particularly from lower costs for patchouli oil, ginger, and packaging boxes. Management emphasized that the weakness in reported sell-in materially overstated the decline in underlying consumer demand, with channel inventory correction remaining the primary driver while sell-out was considerably more resilient.
• Sell-in remained below sell-out during the normalization process as the company deliberately reduced distributor inventories and transitioned toward a more demand-led distribution model. The normalization process was largely completed in May and confirmed by June data. April sell-out rebounded following temporary Lebaran-related logistics disruptions, softened in May as demand normalized, and began to reconnect with sell-in during June. Management indicated that July trends were broadly normalized.
• As a result, the benefits of distributor inventory normalization should become more visible from 3Q26 onward, with the entire quarter expected to operate under a normalized channel structure.
• The Pharmaceuticals segment recorded a 4.2% YoY decline in revenue but improved 25.7% QoQ to IDR37 billion. Performance was supported by resilient OTC demand, broader institutional reach, improved e-catalog execution, and stronger distribution channel coverage.
• Looking ahead, management revised its FY2026 sales guidance to approximately a 10% YoY decline, primarily reflecting the deeper-than-expected distributor inventory adjustment in 1H26 and a more conservative recovery assumption for the remainder of the year. Nevertheless, management expects sequential improvement in both 3Q26 and 4Q26, supported by the completion of channel inventory normalization and a healthier distribution structure.

Q2 2026 Result: Sequential Recovery Despite YoY Earnings Pressure

• SIDO’s operating profit declined 48.5% YoY but improved 27.0% QoQ to IDR236.7 billion in 2Q26, while operating profit margin contracted to 28.7% from 44.2% in 2Q25. The YoY decline primarily reflected weaker sales and lower operating leverage following the channel inventory adjustment.
• Net profit declined 49.3% YoY but improved 26.6% QoQ to IDR186 billion, broadly in line with operating performance. Net profit margin stood at 22.6%, compared with 23.0% in 2Q25.
• Advertising and promotional expenses increased 19.7% YoY as the company continued to support brand demand and new product development, while freight-out expenses increased 14.3% YoY.
• Despite continued YoY earnings pressure, the sequential improvement in sales and profitability, together with the completion of distributor inventory normalization, provides a stronger base for earnings recovery in 2H26.

Valuation: Maintain Buy, TP IDR 406 (+16% Upside)

• We maintain our BUY recommendation on SIDO with a revised 12-month target price of IDR406 per share, implying 16% upside from the current share price.
• Our valuation is based on a forward P/E multiple of 11x, reflecting expectations for a gradual earnings and margin recovery following the completion of channel inventory normalization, supported by seasonal demand improvement, new product growth, and continued export expansion.