Waiting for the Harvest
3Q18 Results: Slow but Sure!
Household consumption, which contributed 55.26% to total GDP in 3Q18, grew by 5.01% YoY. The Retail Sales Index also continued to increase, up by 4.77% YoY throughout 9M18 (vs 6.04% in 8M18), driven by independence festivals and major international events such as the 2018 Asian Games. Revenue from consumption sector companies included in our coverage in 9M18 recorded an average increase amounting to 11.95% YoY, reflecting 74.12%/73.50% of the MNCS/Consensus’ target. We predict FY18E-FY19F, the consumption sector has the potential to improve with a rate of retail sales growth at the level of 3.59%/4.66% YoY, in line with expectations of GDP growth increasing 5.2%/5.3%.
2019: Hoping for Populist Government Policies, although...
We see the Government continuing to focus on populist policies to encourage people's purchasing power in FY19F through : 1) Increasing the amount of funds for the Hope Family Program (PKH); 2) Resisting any increase infuel and electricity rates until the end of FY19F; 3) Increasing allocation of village funds to IDR85 trillion in FY19F; 5) Increasing Provincial Minimum Wage Increase (UMP) of 8.03% in FY19F; 6) Increasing Non-Cash Food Aid to 15.6 million families; 7) Broadening number of beneficiaries covered by BPJS Kesehatan.
Shadowed by Negative Sentiment for the FY19F Free Float Adjustment Plan
The implementation of the free float adjustment by the IDX, which will take effect from February 2019, is expected to exert a negative impact on the pace of stock movement, especially in the consumer goods sector whose weight per 12 November 2018 to the overall LQ45 index cap was 27.2%; it may potentially decline significantly, to 13%, following the implementation. However, we do believe investors will be rational, understanding that this policy does not affect Company fundamentals.
Overweight Outlook with Top Picks: GGRM, HOKI, ICBP and SIDO
We predict that in FY18E-FY19F the consumption sector has the potential to improve with the cigarette segment and FMCG as attractive options. The trend of better purchasing power and the momentum of the political year are factors that must be considered. In addition, the development of e-commerce, prices of raw materials and exchange rate fluctuations are of particular concern. By looking at a number of positive catalysts and risks, we assess the Consumer Sector in Indonesia as OVERWEIGHT, with GGRM (BUY; TP: IDR85,500), HOKI (BUY; TP: IDR1,230), ICBP (BUY; TP: IDR9,600) and SIDO (BUY; TP: IDR1,050) as preferred shares.
