Company Update

22 Juni 2022

Consumer Cyclical Sector Update June 22, 2022

Mid to High Retailers Remains Upbeat

Indonesia Consumer Remained Strong
• According to Indonesia Statistics, Retail sales for clothing and ICT rose by +37.07% MoM/+12.6% MoM respectively on Apr-22, mainly driven by: 1) Eid & Fasting moment; 2) improving people's incomes; 3) a gradual recovery in mobility.
• Retail sales performances usually peaks during Ramadhan and Eid along with the average of 2Q contribution to annual revenue in FY17-FY21 reaching 39.61% for RALS.
• Meanwhile, MAPI and ERAA usually enjoy the 4Q peak with an average of 29% to annual sales in FY17-FY15.
• Furthermore, the proportion of public spending on consumption and loan instalments in May-22 increased in the category of: 1) IDR3.1-IDR4 mn; 2) IDR4.1-5 mn; 3) >IDR5 mn (exhibit 03), in line with the increase in CCI and CEI May-22.
• We are optimistic that the retail sector remain upbeat in FY22E, supported by: 1) a solid omnichannel ecosystem; 2) re-allowed events in public spaces; 3) low interest consumer loan. In Feb-22, the average consumer loan interest rate was 10.28% vs pre-pandemic level of 11.68% in Feb-19.

Compelling Omnichannel Ecosystem
According to NielsenIQ, 49% of global consumers switch to using omnichannel in their shopping activities, while offline is about 42%. However, the companies in our coverages have implemented omnichannel concepts such as MAPI (MAPCLUB), ACES (MISS ACE &, RALS (Ramayana Member Card) and ERAA (Eraspace) (exhibit 09). In 1Q22, MAPCLUB has 5.2 mn members with an average value per transaction of IDR836,000 and an average shopping frequency of 1.6x/year, MAPI also reported that revenue from the digital segment including own sites & 3rd marketplaces has contributed to total revenue in 1Q22 as much as 10.3%.

Re-allowed Events in Public Spaces
We see that the increased mobility trends can have a series of positive impacts on the retail industry. According to Google Covid-19 mobility report, the average Retail & Recreation (shopping centers, restaurants) traffic in 5M22 grew +9.33% compared to 5M21 at -15.90%, in line with the decrease in PPKM levels. The re-allowed of events such as music concerts and exhibitions will encourage the level of public consumption to matters related to appearance such as clothes, accessories, shoes, and electronic devices. Furthermore, the opening of outlets at public events will be used by the company to maintain market share.

Attractive Interest Loan
The Fed's monetary tightening plan targeting the FFR until the end of FY22 to reach 3.4%. We see a possibility for central bank (BI) to increase the BI7DRR by 3 times (+25 bps, each) starts in 3Q22, in line with manageable inflation. The BI7DRR at the end of FY22E is projected to be 4.25%. In applying the installment interest rate, we see a lagging for 3-6 months to adjust the amount of installment interest. Hence, with the low interest rate, it can encourage the level of public expenditure through credit to collect retail needs (clothes, electronics, accessories, etc.).

Recommendation: Overweight for 2H22
We transfer our coverage on consumer cyclicals sector from Rifqi Ramadhan to Raka Junico and maintain Overweight recommendation in 2H22E. We preferred MAPI IJ (BUY; TP:IDR1,150) as top picks for the potential outperforming FnB & Speciality Stores along with the increase in occupancy rate, accelerating digital segments and growth of the SSSG projection up to +2% YoY. We also like ERAA IJ (BUY; TP:IDR1,030) with the potential JV earnings and ASP (+26.96% YoY in 1Q22) coupled with sales volume improvement this year. RALS IJ (BUY; TP:IDR735) along with gradually recovery in public community. We considered ACES IJ (HOLD; TP:IDR850) due to underperformed 1Q22 performances and neutral outlook for home-improvement industry.

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