Strong top-line growth but some saw earnings disappointment

Indonesian retailers still managed to record average top-line growth of +10.5% y-y in 4Q24, despite a tougher macroeconomic backdrop. Alfamart (AMRT IJ, Buy) and Alfamidi (MIDI IJ, Buy) benefited from their focus on necessities, while Azko (ACES IJ, Buy) and Mitra Adiperkasa (MAPI IJ, Buy), which primarily target the mid-to-upper-income segment, were relatively insulated from concerns about weaker consumer spending. A decline in revenue growth was only observed at Erajaya (ERAA IJ, Buy), as it was unable to sell the new iPhone series during the quarter. Although some companies faced their own challenges leading to earnings misses, we highlight that their strong top-line growth and market share expansion remain equally important.

Azko (ACES IJ, Buy) – ACES delivered an overall solid performance, supported by its consistently strong performance of ex-Java, which has recorded low-teens SSSG over the past two years. We remain positive on the company, given its intention to pursue a more aggressive store expansion in higher-margin regions in ex-Java this year.

Erajaya (ERAA IJ, Buy) – ERAA delivered a strong result despite the absence of the iPhone 16 launch to boost margins. We believe this was driven by the strong performance of its other brands, particularly affordable phones priced <IDR3mn (Infinix and Tecno brands). Additionally, we observed a significant improvement in NPAT, supported by a recovery in interest expenses and increased promotional support from suppliers, leading to an earnings beat.

Map Aktif (MAPA IJ, Buy) – Overall sales growth remained solid at +20% y-y, driven by an estimated mid-single-digit SSSG and store expansion. However, the lower q-q GPM in 4Q was unexpected. We suspect this was primarily due to year-end sales aimed at boosting performance and some clearance activities. As a result, the 2024 GPM ended up lower than expected at 46% (compared to the forecast of 47%). Excluding the forex loss of IDR47bn in 4Q24, earnings were in line with our estimates

Mitra Adiperkasa (MAPI IJ, Buy) – Overall a solid in-line result aided by the strong top-line performance of MAPA. Specialty stores ex-MAPA saw a flat y-y sales increase due to the unavailability of the iPhone 16 models and F&B (Starbucks) performance remained weak.

Refer to Resetting expectations and Recovery in motion for AMRT and MIDI 4Q24 result review.

What to expect in 1Q25F?

Despite the concern of weaker buying power, we think that 1Q25F revenue performance for retailers should remain solid, as the Eid holiday came ten days earlier compared to last year, creating a lower base effect for last year. We expect AMRT and MIDI SSSG to book a mid-to-high single-digit percentage increase for the 1Q25F, or around low-teens revenue growth. Our channel checks with mall operators and mid-upper retailers suggest that softer foot traffic observed in Feb still can be compensated for with the earlier Eid in March.

Our verdict on the sector

While we are less concerned about retailers’ performance in 1Q25F, our focus shifts to 2Q25F and beyond, as we anticipate a prolonged low season without major holidays to support consumer spending in 2Q–3Q25F. Some mid-to-upper-tier mall operators, along with both listed and unlisted retailers, have also started to observe a trend of mid-upper consumers curbing their spending in February, which has come as a surprise. Many attribute this cautious spending behavior to the stream of negative domestic and global headlines year-to-date, prompting consumers to adopt a more conservative approach. However, we believe that mid-upper consumer spending can rebound quickly once sentiment improves.

As a result, our stock picks in the sector favor companies that are relatively insulated from weaker consumer spending and have greater exposure to ex-Java regions. Our pecking order is: AMRT, MIDI, MAPA, ERAA, ACES, and MAPI. Valuation remains fairly attractive, with the average P/E for discretionary retail at around ~11x (Fig. 1), assuming flat y-y earnings growth for 2025F.

AMRT remains our top pick, given its focus on selling necessities. The decline in GPM in 4Q24 was a disappointment to investors; however, the issue is not structural, in our view. The company is working to adjust its promotional strategies and margin terms, aiming to strike a better balance between margins and sales growth.

MIDI has the highest ex-Java revenue exposure among Indonesian retailers, with over 50% of its 2024 revenue coming from ex-Java. Additionally, the potential earnings boost from the recovery of Lawson’s losses should serve as a positive catalyst for growth.

MAPA is still poised to deliver the highest sales growth within our coverage, driven by aggressive store expansion. We also expect its overseas operations to turn profitable this year, which could contribute to overall margin improvement.

ERAA is well positioned for a strong recovery, in our view, as it begins selling the high-traffic, high-margin iPhone 16 series in early April, with the potential boost from the iPhone 17 launch later in 4Q25F. Beyond this, its other business segments are also showing promising progress.

ACES’s more aggressive store expansion, particularly in ex-Java regions, could drive stronger sales growth and margin expansion. However, the financial impact of this more aggressive expansion strategy is likely to be reflected only in the medium term.

MAPI will benefit from the iPhone 16 sales tailwind and strong performance from MAPA. That said, we still see limited growth potential in MAPI’s business segments outside MAPA.

Fig. 1: Retailers’ 4Q24 result recap

Fig. 2: 1Q23-4Q24 Retailers sales growth % y-y

Fig. 3: 1Q23-4Q24 Retailers EBIT growth % y-y

Fig. 4: 1Q23-4Q24 retailers NPAT growth % 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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Jody Wijaya (jody.wijaya@verdhana.id)

Sandy Ham (sandy.ham@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)