CONSUMER SECTOR UPDATE
Immunity in Uncertainty!
PSBB Restrictions are Changing People’s Spending Habits
Most of our FMCG player shows a single digit growthof revenue and earnings with an average of 4.42%/4.60% YoY respectively in 1Q20. Moreover, as the domestic economy continues to adapt the lasting impact of Covid-19 outbreak, we see that consumer priorities have become centered on the most basic needs, sending the demand for hygiene, cleaning and staples products rising, while non-essential categories slump. On the flip side, the limited business activity prolonged will potentially impact to a massive lay off and lower employee’s wage so that hurts the consumer spending especially on lower SES (Socio Economic Status). We expect a downturn will still occur in 2Q20 to 3Q20 along with the Ministry of Finance projection of lower GDP at -3.1% in 2Q20 which potentially hurt its household spending.
FMCG and Health Care Sector are Most Benefited, While Retailer might have enjoyed a Short Term Benefit as PSBB Eases
For several sectors, the Covid-19 outbreak generated opportunities especially ones with digital technology adaptation as well as good logistics channels and product mix. We believe staple food (FMCG) and health care are some sectors that are benefited due to their variety of product mixes such as: 1) Staple products and instant noodles that are relatively easy to find (available anywhere) and affordable for stockpiles during a pandemic (INDF IJ, ICBP IJ); 2) Sanitation and hygiene products which became an essential (UNVR IJ); 3) Medicines, supplements and vitamins (KLBF IJ, SIDO IJ) wherein 1Q20 the pharmaceutical industries grew by 5.9%. Besides, retail (MAPI IJ, RALS IJ) and restaurants (PZZA IJ) might have enjoyed a short term benefit as PSBB eases. However, Nielsen believes that Indonesian intention to visit mall is increasing after PSBB but may not reach the ‘normal stage’.
Fiscal Stimulus has been Increased, but would it be Effective?
The government has again increased its planned spending on Indonesia’s battle against the Covid-19 outbreak amid plunging tax revenue and a widening state budget deficit. Several stimulus package that has been set includes: 1) Increasing the budget to cushion the impact of the outbreak to IDR695.2 trillion, or 4.2% of GDP, an increase compared to the previous 2.75% level; 2) BI conducts QE program worth IDR503.8 trillion, lowers the GWM level and purchases of SBN on the secondary market; 3) OJK has relaxed the rules on credit restructuring with more than 43 banks having restructured 262,966 debtors worth IDR56.5 trillion outstanding in April 2020. We believe it is too early to say that the stimulus carried out by the government has been effective, bearing in mind that this stimulus has just been implemented. In addition, the longer the Covid-19 pandemic lasts, the more it hits the domestic economy and the greater the stimulus needed.
Overweight Outlook with Selected Top Picks: INDF, ICBP, HMSP, SIDO
We expect that people's purchasing power should be maintained amid the pandemic outbreak although it will be lower in the short-term. We are looking at consumer player that are still able to record positive earnings through innovation, cost efficiency and attractive dividends. Therefore, we maintain OVERWEIGHT for the Consumer Sector with preferred shares such as INDF (BUY; TP:IDR8,500), ICBP (BUY; TP:IDR10,300), HMSP (BUY; TP:IDR2,500), SIDO (BUY; TP:IDR1,400).
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