Continues to be the best FMCG-story stock play in Indonesia

AMRT has consistently outperformed its FMCG peers in terms of sales growth over the past decade (Fig. 2). We believe this can be primarily attributed to its ability to curate top-selling FMCG products and capitalize on the robust consumption growth in regions outside of Java (refer to Fig. 3 and our earlier note Regions with faster consumption growth in focus). While the growth trajectory is intact, we believe there remains potential for further improvement in operating leverage for AMRT (Fig. 4).

AMRT has actively focused on enhancing efficiency through initiatives such as: 1) optimizing employee allocation, 2) expanding chiller infrastructure to capture the higher-margin and foot-traffic-generating segments such as beverages and ready-to-eat products, and 3) improving cash collection systems. These efforts may temporarily increase operating expenses, but we anticipate long-term benefits, especially given AMRT's relatively low net profit margin (NPM) compared with its regional peers (Fig. 5).

Some excitement likely in 3Q24F

Although overall 1H24 same-store sales growth (SSSG) was in line with our expectation at 4.7% y-y, we anticipate stronger performance in 3Q24F. We estimate Alfamart's SSSG could potentially reach mid-to-high single-digit growth, driven by encouraging trends observed in Alfamidi's (MIDI IJ, Buy) Jul-Aug SSSG, particularly in ex-Java regions. While Alfamart may not fully match Alfamidi's SSSG due to lower ex-Java revenue contribution (Fig. 7), it aligns with the broader strength in mini market FMCG sales (Fig. 6).

While we expect gross profit margin (GPM) to be stable, opex as a percentage of sales will likely remain elevated due to ongoing efficiency initiatives. However, we believe Alfamart is well-positioned to deliver strong results in 3Q24F (Fig. 1). Note that historically, 4Q has contributed approximately 40% of AMRT’s annual profit, primarily driven by year-end rebates from suppliers.

Maintain Buy rating and TP of IDR3,830, implying ~17% upside

Our TP of IDR3,830 is based on a 2025F P/E of 33.4x, +1SD above its five-year average. AMRT's ability to select and curate the best FMCG products remains a key advantage, making it a prime proxy for capturing the FMCG market in Indonesia. The stock has also attracted significant foreign inflows YTD (Fig. 8 and 9). A potential downside risk is a slowdown in demand for fee-based transactions. Currently, the stock trades at 28.6x 2025F P/E.

Fig. 2: 2013-2023 – AMRT and FMCGs sales CAGR

Fig. 3: AMRT – ex-Java sales contribution

Fig. 4: AMRT – EBIT margin and NPM trajectory

Fig. 5: MIDI and AMRT – 2023 NPM compared with peers

Fig. 6: Indonesia minimarket monthly sales index

Fig. 7: Alfamart and Alfamidi – ex-Java revenue contribution

Fig. 8: Retailers’ YTD-2024 foreign inflows (IDRbn)

Fig. 9: AMRT – 2020-to-date foreign flow trend

Fig. 10: AMRT – P/E band

Fig. 11: Investors’ portfolio weighting in AMRT

Fig. 12: Global retailers peers table

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)