---
endpoint: analytics
pattern: Consumer
status: done
latency_ms: 227429
conversation_id: f27783cc-890d-46ff-882b-91dcd6b346bb
citations: 0
created: 2026-05-31 18:58:43Z
---

# What’s the bull case bear case for Kalbe Farma?

# Kalbe Farma (KLBF IJ) — Bull Case / Bear Case

**Snapshot (per CLSA, priced 16 May 2025):** Rp1,505, market cap US$4.3bn, foreign holding 73.3%, 12M TP Rp1,740 (+16% upside), Outperform; major holders PT Ladang Ira Panen 10.5%, PT Gira Sole Prima 10.3% [9]. CLSA upgraded KLBF from Hold to Outperform on 18 May 2025, transferring coverage to Omar Abdulaziz [1].

This synthesis is built from CLSA's internal coverage: the Kalbe-specific O-PF initiation (18-May-2025), the Indonesia Healthcare sector update (10-Apr-2025), and the prior Indonesia Healthcare outlook (28-Nov-2024).

---

## Bull Case

### 1) Prescription pharma is a re-accelerating growth engine
- Prescription pharma is ~28% of revenue (second-largest segment after distribution at 33%) and CLSA expects it to grow **10% YoY in 2025**, ahead of all other segments (5–8% YoY), underpinned by unbranded generics and specialty products [3].
- Management guides the segment to 10–13% growth in 2025, the fastest of any division (distribution 9–11%, consumer health 8–10%, nutritionals 5–6%) [15].
- **Specialty mix is moving up the value chain**: specialty's share of pharma rises from 11.0% (2023) → 12.5% (2024) → 14.5% (25CL) → 16.5% (27CL); specialty's share of total revenue moves from 3.0% to 5.0% over the same window [7]. Specialties carry higher margins than unbranded generics.
- The **biosimilar / novel biologic pipeline** is the long-duration catalyst — these carry "better margin than unbranded generics" and successful launches should re-rate the margin profile [11].

### 2) Margin inflection — gross margin expanding ~100bps in 2025
- CLSA expects **gross margin to expand ~100bps to 39.8% in 2025**, supported by improving GM in distribution and nutritionals as **skimmed-milk raw-material prices have fallen** (nutritionals GM has already recovered from a ~46% trough in 3Q22 back toward 55% in 1Q25 as skimmed milk dropped from US$4,400/MT to US$2,600/MT) [5].
- Product-mix management has offset the dilution from lower-margin unbranded generics and distribution growth [5].
- **EBIT margin expansion of ~50bps to 13.2% in 2025**, with EBIT growth of 11% on 8% revenue growth; net profit +8% in 2025CL [5]. Marketing intensity has structurally declined from 12.2% of sales (2018) to ~7.0% (25CL), reflecting disciplined cost management [6].

### 3) Management guidance is consistent and credible
- Management targets **8–10% revenue and net profit growth in 2025** and has explicitly stated **"margin has reached the bottom"**, guiding flat-to-up gross margin. Kalbe is also **shifting raw-material procurement from USD to RMB** to dampen currency volatility, a structural mitigant to its historic FX exposure [10].

### 4) Distribution & medical devices — an under-appreciated optionality
- Distribution is dominated by intra-group sales (Kalbe Group 63%, third-party principals 24%, raw material 8%, medical devices 5%); CLSA expects distribution to grow ~8% YoY in 2025 [8].
- Management is digitalising the channel via **Emos and Mostrans** (B2B transportation), and shifting from imported medical-device distribution to **local assembly** — a new growth vector [8].
- Other segments — consumer health (+8% YoY) carried by brand strength (Extra Joss, Promag) and nutritionals (+5% YoY) with affordable RTD launches — round out a diversified growth picture [4].

### 5) Fortress balance sheet
- Kalbe is **net cash** (net debt/equity of -17.6% in 2024A, deepening to -22.6% by 2027CL), with ROE of 14.7% (2024A) rising to 15.3% by 2027CL, ROIC of 15.4% → 18.1%, and dividend payout ratio averaging 40–50% [17].

### 6) Valuation — re-rating room with a near-trough multiple
- TP Rp1,740 is set at **22x PE on 25-26CL average earnings**, which is near **−0.5 SD below the five-year mean** (5-yr avg PE 24.22x, +1SD 29.25, −1SD 19.19) — i.e., already a discounted multiple [2].
- The valuation gives **+16% upside** to the 16-May-2025 price of Rp1,505 [9].

---

## Bear Case

### 1) Earnings growth is solid but not exceptional vs. peers
- Five-year financial forecast: revenue growth of just **7.6–7.8% per annum (25CL–27CL)**, EBIT growth 7.8–10.9%, net profit growth 8.1–9.1% — recovery from the -18.2% 2023 trough but not a high-growth story [17].
- Vs. domestic consumer staples peers, KLBF trades at **19.9x 25F PE (above the domestic-staples weighted average of 14.3x)** with comparable EPS growth (8.1%) — implying limited valuation cushion if growth disappoints. For context, INDF trades at 5.9x and ICBP at 11.1x for higher EPS growth (10–15%) [16].

### 2) Generic cannibalisation is a structural drag
- The pharmaceutical division faces a **continued short-term risk of cannibalisation of branded generics by unbranded generics** — branded generics grew 17% YoY in 1Q25 but only 3% QoQ as the mix continues shifting toward lower-margin unbranded generics. CLSA believes this drag will be "to a lesser degree going forward," but the trend has been the central de-rating overhang for a decade [12].
- The stock has been **de-rating since mid-2014 due to stronger-than-expected unbranded-generic cannibalisation post-JKN (national health insurance) implementation** — the de-rating thesis remains structurally intact even as CLSA upgrades on a margin/growth recovery [13].

### 3) FX exposure is a substantial unhedged tail risk
- **80% of raw-material costs are USD-denominated; 95% of sales are in IDR.** USD/IDR volatility is the single largest cross-business risk and is not fully offset even with the partial RMB-procurement shift [12].
- The 2025 IDR weakness against USD episodes since the November 2024 review can compress nutritionals and consumer-health margins faster than ASP increases can be passed through.

### 4) Consumer health and nutritionals exposed to down-trading
- Powdered milk market contracted -4.2% YoY in 2024; nutritionals saw -0.5% growth in 2024. Kalbe's response is RTD and affordable SKUs (Chil-Go, Diabetacare), but the consumer is **down-trading and management itself flags it as a risk** to consumer health and nutritionals [15].
- Nutritionals revenue grew at -1% YoY in 1Q25 — the segment remains the weakest link with CLSA modelling only 5% growth in 25CL [4].

### 5) Post-COVID normalisation and competition are still working through
- CLSA's own investment-thesis paragraph identifies the headwinds plainly: "Kalbe has a solid financial position and is currently net cash. It is now seeing challenges due to **shifting spending patterns, post-Covid normalisation and competition**" [14].

### 6) Limited gross-margin upside; EBIT margin lift hinges on opex discipline
- Beyond the +100bps GM lift in 2025, CLSA's own forecast keeps gross margin flat at ~40%, EBIT margin flat at ~13%, and net margin flat at ~10% from 25CL through 27CL — i.e., **after 2025 the margin story is over and the equity becomes a low-double-digit earnings grower** [17]. The "margin inflection" narrative loses force beyond next year.
- EBIT margin expansion depends on continued declines in marketing/salary expense ratios, which are already at decade lows (7.2% marketing, 8.3–8.7% salary) — diminishing returns to further cost compression [6].

### 7) Healthcare-policy / BPJS-adjacent risk
- While Kalbe is not directly BPJS-exposed (unlike Hermina at 50% BPJS revenue), any BPJS-driven shift toward formulary austerity, drug-price controls, or accelerated unbranded-generic substitution would hurt Kalbe's prescription-pharma mix — and CLSA's sector view explicitly contemplates a BPJS premium increase only in 2026, leaving 2025 as a deficit year for the system [10].

---

## Where the Bulls and Bears Meet — Verdict

CLSA's net call is **Outperform, Rp1,740, +16% upside** [2]. The bull case is grounded in three concrete drivers: (a) prescription pharma's re-acceleration to 10% growth and the rising specialty share, (b) a 2025 gross-margin step-up driven by skimmed-milk price relief and product-mix management, and (c) a net-cash balance sheet with rising ROIC.

The bear case is not that any of those points are wrong — it's that **(i) the cannibalisation drag is structural and has driven a decade-long de-rating, (ii) 80/95 USD-cost/IDR-sales asymmetry remains the dominant tail risk despite the partial RMB shift, and (iii) post-2025 growth and margin profiles flatten to a ~7.6% revenue / ~13% EBIT margin steady state** — i.e., a quality compounder at a reasonable but no longer trough multiple, not a re-rating story.

---

**Sources**

[1] Kalbe Farma – O-PF (Solid roadmap) — CLSA, 18 May 2025 — 607959722LinqAlpha.PDF (Continue growth momentum / upgrade summary)
[2] Kalbe Farma – O-PF — CLSA, 18 May 2025 (Valuation rationale: 22x PE, –0.5 SD)
[3] Kalbe Farma – O-PF — CLSA, 18 May 2025 (Prescription pharma 10% YoY 2025 thesis)
[4] Kalbe Farma – O-PF — CLSA, 18 May 2025 (Other segments outlook 25CL)
[5] Kalbe Farma – O-PF — CLSA, 18 May 2025 (Gross margin +100bps to 39.8%; raw material tailwind)
[6] Kalbe Farma – O-PF — CLSA, 18 May 2025 (EBIT margin expansion, marketing/salary ratios)
[7] Kalbe Farma – O-PF — CLSA, 18 May 2025 (Specialty contribution table)
[8] Kalbe Farma – O-PF — CLSA, 18 May 2025 (Distribution / Emos & Mostrans / medical devices)
[9] Kalbe Farma – O-PF — CLSA, 18 May 2025 (Company snapshot, TP +16%)
[10] Indonesia healthcare – Navigating growth strategies — CLSA, 10 Apr 2025 — 607955557LinqAlpha.PDF (8–10% revenue/NP guidance, RMB procurement shift)
[11] Indonesia healthcare – The rising pulse — CLSA, 28 Nov 2024 — 607945683LinqAlpha.PDF (Biosimilar / novel biologic catalyst)
[12] Kalbe Farma – O-PF — CLSA, 18 May 2025 (Investment risks: branded-generic cannibalisation + 80/95 USD/IDR)
[13] Kalbe Farma – O-PF — CLSA, 18 May 2025 (De-rating since mid-2014 post-JKN)
[14] Kalbe Farma – O-PF — CLSA, 18 May 2025 (Investment thesis: spending shift / post-Covid / competition)
[15] Indonesia healthcare – Navigating growth strategies — CLSA, 10 Apr 2025 (Down-trading; segment guidance detail)
[16] Kalbe Farma – O-PF — CLSA, 18 May 2025 (Domestic consumer staples peer comp table)
[17] Kalbe Farma – O-PF — CLSA, 18 May 2025 (5-year financial ratios: growth, margins, ROE/ROIC/net debt)

