Based on research conducted by Euromonitor, bread products have become increasingly popular among the Indonesian people (especially the younger generations) over the past couple of years. Bread sales - in terms of volume - grew by an average of 6 percent compound annual growth rate (CAGR) between the years 2010 and 2015. It is worth mentioning that this growth particularly originates from the cities or urban areas (in the rural areas people are not consuming much bread products yet).

Securities company Trimegah Securities stated that bread consumption is rising in Indonesia on the back of widening distribution networks of bread manufacturers (the biggest being Nippon Indosari Corpindo). For example in the numerous minimarkets and supermarkets you can now find the Sari Roti line of bread products.

Nippon Indosari's best sold bread product is Sari Roti White Bread. In full-year 2015 white bread accounted for 55 percent of the company's total sales. This is partly due to the cheap price. White bread is the cheapest bread product among the 40 bread products that are sold by the company.

In the first half of 2016, Nippon Indosari recorded a 15 percent (y/y) increase in sales to IDR 1.2 trillion (approx. USD $92 million), while its net profit grew 9 percent (y/y) to IDR 129 billion over the same period. Improving corporate earnings were also the result of low inflation, a stronger rupiah exchange rate, and people's strengthening purchasing power. In the second half of the year sales are expected to be supported by the launch of 10 new bread products. This year the company eyes a 20 percent increase in sales to IDR 2.6 trillion.

Future Forecast Nippon Indosari Corpindo's Financial Highlights:

     2014    2015   2016F   2017F   2018F
Net Sales 1,880.3 2,174.5 2,478.0 2,896.0 3,357.0
Gross Profit   901.4 1,155.0 1,280.0 1,502.0 1,728.0
Net Income   188.6   270.5   271.0   313.0   364.0
P/E Ratio (x)
  42.80   29.50   29.80   25.80   22.20

in billion IDR rupiah, except stated otherwise
Source: Trimegah Securities (13/10/2016)

Another interesting development is Nippon Indosari's decision to establish a joint venture - named Sarimonde Foods Corporation - with Philippine-based food producer and distributor Monde Nissin Corporation (MNC) in early 2016. The Indonesian side controls a 55 percent stake in this entity. For Nippon Indosari Corpindo this is a chance to expand into the lucrative market of the Philippines, the second-largest market in the ASEAN region. In the Philippines the context is similar to Indonesia: an expanding middle class is increasingly consuming bread products. A factory is currently being developed in the Philippines by the joint venture and should become operational by the second half of 2017.

Trimegah Securities set its target price for Nippon Indosari's shares at IDR 1,900 a piece (reflecting a P/E ratio of 35.4 times). Although the company's shares plunged 3.77 percent to IDR 1,530 per share on Thursday (13/10), Nippon Indosari's shares have gained 20.95 percent so far this year.