Company Update

13 Januari 2022

Consumer Non-Cyclical Sector Updates - January 13, 2022

Awaiting for the Old Star Comeback 


Rise the Optimism Supported by Macro Improvement

• We expect the Indonesian economy to grow higher in 1H22 mainly driven by: 1) better covid handling; 2) credit expansion; 3) accelerated government spending and 4) increased domestic consumption.
• We note that wholesale retail should continue to rise as it contributed by 13.10% of national GDP or equivalent to IDR369 trillion, followed by F&B which was contributed by 2.77%, reaching IDR73.78 trillion. Meanwhile, the Consumer Confidence Index (CCI) fell 2 points to 118.3 in Dec-21 (vs 118.5 in Nov-21). Three out of six sub-indices weakened (economic outlook, income expectations for the next six months and job availability expectation.


Do this Sector Deserve a Spotlight?

• The domestic economic is sensitive to mass mobility, thanks to the well handling of daily Covid-19 transmission. The government decided to implement PPKM level 1 since January 4, 2022 to January 17, 2022 for Java and Bali and the reopening 100% of public facilities and 75% for cafe, restaurant, and cinema. On the other hand, the government also set the offline school learning for the green zone area with low daily case transmission. We note that the domestic consumption will reflect a positive figure along with the easing of mobility.  
• The unemployment rate nationally has reached 8,746,008 people or equivalent to 6.49%, decreased by -10.46% YoY. The downward trend in unemployment data is in line with the economic recovery in FY21.    
• Meanwhile, national consumption in 3Q21 recorded to IDR1,446.50 trillion, it’s +1.03% higher than 3Q20 figure. We assume that our national consumption potentially increase in line with the determination of the increase in the provincial minimum wage (UMP) with an average at 1.09% level.
• We hope a better outlook for consumer non-cyclical sector along with several stimulus that given by the government, followed by the economic recovery and manageable of domestic CPI at 1.75% YoY. Our estimate the inflation rate is 2.78% for FY22F.


Eyes on Rising Commodity ASP and Unfriendly Fiscal Policy!    

• Seasonally, CPO’s ASP went up higher at the early year due to production supply being hampered by the impact of La Nina. BMKG estimates that the La Nina will last until the end of Feb-22. We estimate that the CPO price next year will be around RM4,700 – RM3,500 with a potential increase in CPO prices until early 2Q22 and towards the end of 2022. Higher CPO’s ASP can reduce margin of consumer staple companies.
• The government has decided to increase VAT to 11% on April 01, 2022F and to 12% latest on January 01, 2025F.
• In addition, government also set the tobacco excise tax to increase by averagely 12%. This might result in the increased production costs and public consumption costs and lower purchasing power.


Neutral Outlook in FY22F

We are maintaining our Neutral view for consumer non-cyclical sector for 1H22E. Our top picks are: UNVR IJ (BUY; TP:IDR4,890), INDF IJ (BUY; TP:IDR8,700) and ICBP IJ (BUY; TP:IDR10,850) as a proxy of consumer food spend. We also picks SIDO IJ (BUY; TP:IDR1,100) and GGRM IJ (BUY; TP:IDR34,850) as a dividend player.


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