Indonesia Retailers - Limited surprises as expected
2Q24 review: ERAA upbeat and ACES downbeat were the only surprises Overall results were largely in line
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Introduction of JA~DI pilot project
JA~DI, an Indonesian acronym for "Jajan di Alfamidi" (meaning “Snacking at Alfamidi”), is a pilot project of Midi Utama Indonesia (MIDI) focused on boosting sales and profitability within Alfamidi stores. Its product offerings include mixed fruit juices, ice cream, ready-to-drink beverages, and local snacks. The JA~DI stall format is similar to Lawson Indonesia's (unlisted) store-in-store (SIS) concept, but with a significantly lower capex of IDR100mn compared to Lawson Indonesia's IDR350-500mn. This difference is primarily due to simpler equipment needed and the elimination of rent payments, as JA~DI is an internal initiative within Alfamidi.
Additionally, JA~DI has a leaner opex structure, utilizing existing Alfamidi employees instead of hiring three additional staff like Lawson Indonesia. This is crucial as employee costs represent approximately 50% of MIDI’s opex. The focus on local-taste products aligns well with Indonesian preferences and allows for quicker product innovation compared to potential partnerships with Lawson Indonesia. Despite a lower daily sales target of IDR600k compared to Lawson Indonesia's IDR3mn, JA~DI's leaner cost structure is a more viable model, in our view.
Then, what to do with Lawson Indonesia?
We believe that JA~DI is a strategic move by MIDI to leverage its fresh food expertise, learn from the challenges faced by Lawson Indonesia, and accelerate the loss recovery from Lawson Indonesia’s store closures (Fig. 5). It could close several Lawson Indonesia SIS stores and replace them with JA~DI stalls and utilize the closed stores’ existing equipment. This would enable MIDI to not only recoup losses incurred by the closure but also continue to explore potential for ready-to-eat (RTE) and ready-to-drink (RTD) products in Indonesia. JA~DI's leaner operating structure offers bright prospects compared to merely further expanding Lawson Indonesia. While future collaboration between Lawson Indonesia and JA~DI remains a possibility, especially for successful Lawson Indonesia SKUs, MIDI's current focus appears to be on the JA~DI pilot project.
Maintain Buy with TP of IDR450
MIDI's strategic pivot towards the JA~DI pilot project is a testament to the company's adaptability and agility in running new initiatives, in our view. By boldly pausing the Lawson Indonesia expansion, learnings from its mistakes, and finding out more promising initiatives, MIDI is positioning to protect its earnings from continuous losses from Lawson Indonesia operation, which has been our concern for MIDI. While the JA~DI project may require time to bear fruit, its potential to drive up overall store productivity and profitability and minimize Lawson Indonesia's loss may benefit MIDI in the long run. We maintain our TP of IDR450, pegged at 21x 2025F P/E. Currently, the stock is trading at 20x 2025F P/E. Downside risk lies in a longer-than-expected break-even period for Lawson Indonesia.
Fig. 1: JA~DI store looks
Fig. 2: JA~DI menu (1)
Fig. 3: JA~DI menu (2)
Fig. 4: JA~DI menu (3)
Fig. 5: Lawson Indonesia NPAT exclude R&D income fee
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.
GENERAL DISCLOSURE/DISCLAIMER
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ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.
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| Rating Remains | Buy |
| Target price Remains | IDR 450 |
| Closing price 22 August 2024 | IDR 420 |
Indonesia Research Team
Jody Wijaya (jody.wijaya@verdhana.id)
Sandy Ham (sandy.ham@verdhana.id)
Samuel Christian (samuel.christian@verdhana.id)
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