Taking Back to Havana
Consumption Sector Still in Lagging Quadrant in FY17
Household consumption as the main driver of national economic growth, contributed 56.13% to total GDP in FY17, with growth of 4.95% YoY at FY17 or lower than FY16 (5.01% YoY). Retail industry sales which is one of the driving factors for consumer sector growth, have been observed to decline sharply in December 2017 to 2.60%. The weakening of purchasing power was the main concern which caused most of the consumer sector shares to be lagging in its movement for sector quadrant during FY17, except for UNVR.
Outlook FY18E : Benefiting from Government Supports Program
We believe the consumption sector in FY18E has the potential to improve along with retail sales growth at 7.95% YoY. We see potential for improvement of purchasing power in FY18F, supported by momentum regarding the implementation of several national and international activities such as: 1) Direct Regional Head (Pilkada) election in 171 regions in FY18E and Presidential General Elections in FY19F; 2) Asian Games in Jakarta and Palembang; 3) IMF and World Bank Annual Meeting in Bali. Government program support is also expected to encourage improvements in purchasing power, such as: 1) Village Fund distribution FY18E budgeted at Rp60 trillion; 2) Enhancement Regional Minimum Wage (UMR) of 8.71% in FY18E; 3) The Elimination of 13 Principal Material; 4) Increase non-cash food aid (Bantuan Pangan Non-Tunai) through e-warung; 5) Increasing number of beneficiaries from BPJS Health.
OVERWEIGHT Recommendation with Top Picks: ICBP and SIDO
We predict the trend of purchasing power and the political year momentum are some things that must be observed. In addition, the development of e-commerce business, raw material prices and exchange rate fluctuations are also of special concern. Looking at some of the positive catalysts and the risks involved, we assessed OVERWEIGHT for Indonesia's Consumer Sector with top picks: ICBP (BUY; TP: Rp9,825), SIDO (BUY; TP: Rp810), ERAA (BUY; TP: Rp1,200), HOKI (BUY; TP: Rp550) and GGRM (BUY; TP: Rp87,500) are still in the lagging quadrant and potentially going back to the Havana.
