Consumer Sector Update – Overweight
Moving with the Momentum!
Consumption still Shows Positive Growth
Household Spending grew by 5.01% YoY, contributing 56.28% toward the total GDP on 1Q19 driven by a number of national and international-scale events as well as Government efforts. Retail Sales Index increased by 10.07% due to increasing sales of clothing and spare parts by 41.19%/20.67% YoY. We are confident this positive trend will continue through FY19E, with retail sales index ranging from 3.70% to 4.01% YoY, along with expected GDP growth, projected to increase by 5.10%-5.20%, and household spending, by 5.01% - 5.12%.
Relying on the Stability of Mid-to-Low Segment Purchasing Power
In reference to the April 2019 nationwide elections, we estimate mass purchasing power will grow, in line with increasing money turnover nearing the election. Campaign and political cash flow potentially stimulate domestic demand. Furthermore, we see that the Government is still focusing on populist steps through distribution and utilization of national budget funds, which are potentially increasing domestic consumption, specifically mid-to-low segment in FY19E.
Risk on the Rise of Fuel Price on 2H19E
We see the rise of fuel price will potentially happen after the 2019 Presidential election, in the midst of rising global oil price. Furthermore, fuel price rise is also one of the Government strategies in suppressing Trade Balance deficit following the election. If this proceeds on track then issuers in consumer sector need to be aware of increasing distribution and logistics costs which will affect product price stipulation and sales margin.
Overweight Outlook with Top Picks: GGRM, HOKI, ICBP and ERAA
Various populist policies, along with political year momentum, should be observed. Moreover, rise of fuel price after the election, e-commerce business growth, raw material prices and exchange rate fluctuation are also concerns. Overlooking positive catalysts and risks, we rate consumption sector in Indonesia as OVERWEIGHT, with selected stocks GGRM (BUY; TP: Rp90.000) supported by flat excise tax budget in FY19E and the growth of SKM FF cigar type that still dominate national cigarette sales, HOKI (BUY; TP: Rp1.070) along with additional production capacity, ICBP (BUY; TP: Rp11.600) supported by noodles segment growth and strategies in captivating millennial market, and ERAA (BUY; TP: Rp1.330) supported by mobile gaming growth trend and IMEI implementation acceleration on FY19E.
Disclaimer On
MNCS Institutional Research Team
