Persistent softness in consumer segment

In line with insights from our Anchor Report on purchasing power, our in-house transaction tracker, Verdhana Macro-Micro Index (VMMI), highlights continued weakness in consumer transactions. We attribute this to slow wage growth failing to keep pace with the cost of living. Business transactions, however, remained robust, sustaining overall VMMI growth.

Sustained softness in consumer

Verdhana Macro-Micro Index (VMMI), which encompasses consumer and business transactions with an annualized value of USD4tn (~3x of Indonesia’s GDP, see here for full introduction of the index), shows a continued deceleration of consumer transactions growth. In 3Q24, consumer transactions grew 4% y-y (vs. +5% y-y in 2Q24), the slowest pace in a decade.

In contrast, business transactions grew 11% y-y (vs. +12% y-y in 3Q24), in-line with the higher growth of overall investment loans.

2H24 wallet size analysis: decent job creation, low wage growth

The latest survey conducted by the Indonesia Bureau of Statistics points to 2.8% y-y wage growth (vs. the pre-COVID pace of 8.5%). Consequently, real wage growth (nominal wage minus cost of living) contracted by 3.7%. This underscores the need for targeted policies to align wage growth with living costs, while ensuring that job creation remains stable.

Stimulus short-term, job creation long-term

Given the continued weakness of the consumer segment, we deem that stimulus is necessary to support purchasing power short-term, primarily for middle-low-income earners (news). Long term, we think, job creation should be utmost priority to ensure continued consumption growth. For stock picks, we prefer a bottom-up assessment and picking up winners from each sector.

Our top Buy picks in large-caps are Bank Central Asia (BBCA IJ), Sumber Alfaria Trijaya (AMRT IJ), Mayora Indah (MYOR IJ), Indofood CBP Sukses Makmur (ICBP IJ), Medikaloka Hermina (HEAL IJ), Trimegah Bangun Persada (NCKL IJ), while among the small-to-mid caps, we favor Sariguna Primatirta (CLEO IJ), Adi Sarana Armada (ASSA IJ), and Midi Utama Indonesia (MIDI IJ).

Fig. 1: Verdhana Macro-Micro Index – a persistent weakness in consumer transactions

Fig. 2: Increasing NPL in consumer loans

Fig. 3: Investment loans led overall loan growth

Fig. 4: Survey of wage pointed to sluggish growth of 2.8%, real wage growth (less cost of living) contracted by -3.7%

Fig. 5: Long-term focus on job creation, accommodation and F&B (proxy of tourism) as one of the key sectors

Fig. 6: Accomodation and F&B added 4.3mn to employment in the past 6 years, pace of 7% y-y

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Jupriadi Tan (jupriadi.tan@verdhana.id)

Gerald Hugo (gerald.hugo@verdhana.id)