Aspirasi Hidup Indonesia (ACES IJ, Neutral) — We estimate a robust 11%/13% y-y increase in both sales/net profit in 3Q24F. We believe ACES is well-positioned to maintain solid revenue growth, primarily driven by the expansion outside of Java (Fig. 2 and 3). While we do not expect substantial operating leverage improvement, our 13% net profit growth estimate remains solid vs. peers. With 8M24 SSSG reaching 9.9% y-y, surpassing the company's full-year guidance of 7%, we believe there is a strong possibility of an upward revision, particularly given the positive momentum in ex-Java regions and the ongoing success of merchandising and advertising and promotion strategies since 2023.

Erajaya Swasembada (ERAA IJ, Buy) — We forecast a substantial 15%/460% y-y increase in sales/net profit for 3Q24F. ERAA is likely the only retailer under our coverage that could exceed consensus estimates. Our view is primarily driven by sustained mid-teens growth in handset sales, particularly in the lower-priced segment below IDR3mn (USD200). We anticipate a lower NPM of 1.3% in 3Q vs.1.6% in 1H24, as 3Q typically lacks buying power incentives and also involves inventory clearance. We expect interest-bearing debt, mainly related to inventory purchases, to remain elevated until end-2024F as the company continues to increase inventory levels while implementing improved inventory management systems. This could also be a reason for any significant adjustment in consensus estimates despite the strong 1H24 results.

MAP Active (MAPA IJ, Buy)— We estimate +25%/-2% y-y growth in sales/net profit in 3Q24F. Revenue growth will likely continue to be driven by new store openings, while SSSG is expected to remain in the low single-digit, similar to 1H24 level. This can be primarily attributed to a combination of declining middle-class spending power (Fig. 6) and normalization of growth in the sportswear segment following the post-COVID surge. However, we believe that GPM will recover in 3Q24F vs. 2Q24 (Fig. 7), primarily due to the completion of inventory clearance in overseas operations by Jul-24 (refer to MAPA — Lowest margin for the year). We also expect opex as a % of sales to improve as the company focuses on operational efficiency and plans to close underperforming stores and reduce new store openings in certain locations.

Mitra Adiperkasa (MAPI IJ, Buy) — We forecast 15%/6% y-y increase in sales/net profit for 3Q24F. MAPI's revenue growth is expected to be similar to MAPA, as we do not anticipate a significant recovery in SSSG during 3Q24F. Starbucks ([SBUX US, Non-rated], which contributed ~10% of MAPI's revenue in 1H24), continues to face challenges due to boycotts and increased competition from local players. A decline in GPM is expected during the third quarter, which is typically a clearance period for MAPI. However, this is already factored into our assumptions. We still prefer MAPA over MAPI, as we believe its higher overall growth, larger total addressable market, and higher profitability will continue to justify a higher valuation.

May see less excitement in the short term, but a good time to build a long-term position

Our pecking order in the retailer sector is: Alfamart (AMRT IJ, Buy) > MAPA > ERAA > Alfamidi (MIDI IJ, Buy) > MAPI > ACES. AMRT remains our top pick in the sector as the company remains a prime proxy for capturing the strong Indonesia FMCG growth with the highest ADTV (Fig. 8) in the sector (refer to our report, AMRT — A consistent FMCG outperformer). We like MAPA, as we expect its overall margins to begin recovering in 3Q24F, and its valuation remains relatively low considering its strong growth potential over the next three years. ERAA's efforts to improve store productivity and inventory efficiency could lead to a significant recovery in its earnings is also worth highlighting.

Fig. 2: ACES ex-Java sales growth contribution – capturing growing ex-Java consumers

Fig. 3: ACES monthly SSSG by region – Ex-java has been the consistent outperformer

Fig. 4: Retailers Java/Ex-Java sales growth — on an average, retailers are witnessing 100+% higher sales growth in ex-Java, leading to the decision to expand to ex-Java positive

Fig. 5: Groceries sales growth by region 2Q19-2Q24 – Kalimantan, Sulawesi, and South Sumatra performed the strongest, while all provinces in Java underperformed overall Indonesia groceries’ growth

Fig. 6: Indonesia's consumers group (mn people) — continuous decline in middle income group (3.5x-17x poverty line expenditure or IDR2.1mn-10.2mn)

Fig. 7: MAPA quarterly GPM trend – a steep decline in 2Q due to inventory clearance in their overseas operation, but it has been completed by Jul-24

Fig. 8: Retailers — FMCG three-month average daily trading value (ADTV) in USDmn/day — AMRT is the highest among all retail players— FMCG

Fig. 9: Retailers’ NPAT seasonality – 3Q tends to be a weaker quarter for retailers, followed by 4Q as the strongest quarter due to year-end holidays

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