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Retail Sector (NEUTRAL) Hope For the Best, Well Prepared For The Worst
May 20, 2020 11:06

Retail

Hope For the Best, Well Prepared For The Worst

 

As a result of the Covid-19 pandemic, economic activities in Indonesia are much weaker and retail sales are sharply down in a seasonally high period marked by Ramadan and Lebaran. This has driven many businesses to stop production and shops to close leading to a wave of furloughing and even lay-offs. Kudos to the government for swiftly rolling out efforts to cushion the purchasing power destruction with relief totaling IDR111.7tn, but our calculation suggests IDR59.7tn in spending power over the next 3-4 months from salaries and THR will be lost despite the government’s best efforts. Maintain Neutral as nominal share prices are low, indication of pent-up demand in middle up and strong growth for 2021 off a low base in 2020.

Rapid and Proactive Government efforts to aid the affected. A package totaling IDR233.7tn in incentives for the middle low income segment affected by Covid-19 has been rolled out covering the next 3 months. Pre-Employment cards have been handed over to 5.6mn beneficiaries totaling IDR20.0tn, with Social Aid totaling IDR6.8tn for Jakarta and the Greater Jakarta area for 1.9mn beneficiaries. This implies that from 22.5mn people affected, the aggregate net monthly income lost will moderate from IDR119.3tn to IDR59.7tn.

Around IDR59.7 tn net lost - mostly in 2Q20. Mainly coming from tourism industry  which might lose IDR37.1tn for 14.1mn workforce or 11.2% of the total Indonesian workforce has been badly hit. Another group badly affected are Gojek and Grab drivers numbering around 2.5mn. Indonesian Chambers of Commerce earmarked 5.8mn has been furloughed or laid-off due to Covid-19 induced slow-down. Since more than 50% of the Indonesian GDP is consumption, we believe there will be a large impact on 2Q20’s GDP.

Spurring more rapid e-commerce adoption. Judging by the digital retailing segment, ACES and MAPI recorded strong orders from this channel. The US is a great example where retail sales are projected to fall -17.8%, but with online retailers now making up around 21.1% of the sales as per April. China also witnessed the same acceleration, despite some moderation post lockdown easing. The same is happening in Indonesia we believe, as E-commerce is feeling some windfall as more people shop from home due to social distancing restrictions (PSBB). This might lead to anemic retailer performance going forward, especially for those that lack a digital presence, namely RALS due to its mid-low target segment.

PSBB easing will lift the economy but is not a panacea. The government has laid out tentative plans to reopen the economy, with a full reopening to come in late July or early August.The re-opening will bring about recovery in economic activity and pent-up demand might re-jolt spending by middle-up income groups, with spending from lower income groups following suit with a 1-2 quarters lag. Taking a look at Thailand, the re-opening of malls resulted in a cohort of shoppers lining up en masse, thus indicating pent-up demand in the middle-up segment and a willingness to spend.

Maintain Neutral. Despite a tempestuous 2020, we believe most of the negatives have been priced in. Positive sentiment from PSBB relaxation and the actual reopening of malls and stores will aid sentiment, even though the 2Q20 results will still be disastrous. Valuations are deeply discounted, most are near -2 STD for retailers, and 2021 will offer stellar growth off a low base. 

 

 

 

 

Target

Price

Market

Cap.

P/E (x)

P/BV (x)

ROE (%)

Company

Ticker

Rec

(Rp)

(RpBn)

2019F

2020F

2019F

2020F

2020F

Ace Hardware Indonesia

ACES IJ

SELL

1,150

19,722.5

21.8

25.3

4.8

4.1

17.4

Matahari Department Store

LPPF IJ

BUY

2,100

3,732.0

2.6

3.7

2.1

1.8

52.6

Mitra Adiperkasa

MAPI IJ

BUY

925

11,870.0

12.7

13.7

1.9

1.8

13.4

Ramayana

RALS IJ

BUY

750

4,311.3

6.6

11.0

1.0

0.9

9.1

 

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