Our proprietary Verdhana Macro-Micro Index (VMMI, see previous reports here and here) as of Nov-24 showed +10% growth from combined business and consumer transactions. Consumer transactions remained ‘”a drag” on the index – growing at a record-low +2% yoy. Beside the slow wage growth over the past five years, we attribute the weakness in consumer transactions to majority of job creations in low-paying sectors.

Record low growth in consumer transactions– but priced in, in our view

The 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), pointed to continued deceleration of consumer transactions growth in November 2024, during which consume transactions grew by a mere 2% y-y (vs. 3Q24: +4% y-y), a record low pace.

In contrast, business transactions remained stable at 12% y-y (vs. 3Q24: +11% y-y), reflecting strong growth in investment loans. We believe this weakness has been well priced in, as seen by the excessive outflows from foreign investors which reached USD2.5bn in the last three months of 2024.

Triple stimulus to boost purchasing power

We highlight three drivers that should boost purchasing power in the short term: 1) fiscal stimulus; 2) the minimum wage hike of 6.5% effective 2025, which is higher than the average wage growth of ~4.9% over 2020-24; and 3) the nutritious meal program rollout (a 15-20% increase to recipients’ disposable income). We estimate that even without considering multiplier effect, these three drivers could add approximately IDR250tn (~1% of GDP) to the economy.

Prefer consumer names

We like the consumer sector given the asymmetric upside potential from the three above-mentioned tailwinds. We also recommend long positions in names with flush liquidity. Our top picks in consumer sector are Mayora Indah (MYOR IJ, Buy), Sumber Alfaria Trijaya (AMRT IJ, Buy), Indofood CBP Sukses Makmur (ICBP IJ, Buy), Midi Utama Indonesia (MIDI IJ, Buy) and Sariguna Primatirta (CLEO IJ, Buy).

Fig. 1: Verdhana Macro-Micro Index (VMMI) – declining growth in consumer transaction

Fig. 5: Tailwind 3 – +6.5% minimum wage hike

Fig. 6: Investment loan led loan growth

Fig. 7: Investment loan by sector – year-to-date growth

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)

David Tjahjadi (David.tjahjadi@verdhana.id)