Sumber Alfaria Trijaya (AMRT IJ) (Buy) - Resilience in the face of adversity

Resilience in the face of adversity

Maintain Buy with a lower TP of IDR3,600

Less concern about potential higher minimum wage increase

Concerns have arisen about AMRT's profitability margins following market speculation of potential changes to the minimum wage formula calculation. The proposed revision aims to increase overall purchasing power, which has been perceived as weak. While the official 2025 minimum wage increase has yet to be announced, assuming an 8% increase as suggested by labor unions, we believe the impact on AMRT's overall margin would be limited. Instead, we view that a 6-8% minimum wage increase could drive consumer spending, which may then benefit AMRT.

Historically, during 2017-2019, when average minimum wage increases were around 8-9%, AMRT's EBIT margin remained relatively stable (Fig. 1). The company's SSSG growth did not necessarily need to keep pace with wage increases (Fig. 2), and salaries as a percentage of sales remained relatively stable (Fig. 3). This can be attributed to the fact that formal workers in Indonesia constitute only 40% of the total workforce of 140mn people.

We also attribute the increase in salaries as a percentage of sales to the company's aggressive store expansion (Fig. 4). This strategy make sense as securing prime locations and penetrating new markets were prioritized to ensure long-term growth.

Opex pressure this year as an investment for the future

Although 9M24 EBIT margin appears flat y-y, we see this as a short-term sacrifice to drive long-term profitability. The increase in opex, including depreciation, utilities, supplies, and maintenance costs, is due to investments in chillers (99% completed), cash deposit machines (55% completed, 100% by next year), and three new distribution centers (DCs) to support logistics. Once these DCs reach optimal utilization and with margin-enhancing initiatives being implemented, we expect a positive impact on AMRT's margins.

Maintain Buy with a lower TP of IDR3,600 (+22% potential upside)

We lower 2024-26F earnings by 5-6%. This results in a lower TP of IDR3,600 (from IDR3,830), pegging an unchanged 2025F P/E target of 33.4x (+1SD of its five-year average P/E). We maintain our Buy rating and affirm our view that AMRT should remain the best proxy for the Indonesia FMCG-retail sector, as the company can capture the consumption growth story while delivering a growing and steady margin. Currently, the stock trades at a 2025F P/E of 27.4x.

Year-end 31 Dec	FY23		FY24F		FY25F		FY26F
Currency (IDR)	Actual	Old	New	Old	New	Old	New
Revenue (bn)	106,945	119,072	118,589	131,032	128,887	143,638	140,701
Reported net profit (bn)	3,404	3,986	3,767	4,762	4,474	5,596	5,332
Normalised net profit (bn)	3,404	3,986	3,767	4,762	4,474	5,596	5,332
FD normalised EPS	81.97	96.00	90.71	114.68	107.75	134.78	128.41
FD norm. EPS growth (%)	19.2	17.1	10.7	19.5	18.8	17.5	19.2
FD normalised P/E (x)	36.0	–	32.5	–	27.4	–	23.0
EV/EBITDA (x)	1.3	–	1.2	–	1.0	–	0.9
Price/book (x)	8.5	–	7.2	–	6.1	–	5.1
Dividend yield (%)	0.7	–	0.8	–	0.9	–	1.1
ROE (%)	26.5	25.1	23.9	25.2	24.1	24.8	24.2
Net debt/equity (%)	net cash	net cash	net cash	net cash	net cash	net cash	net cash

Source: Company data, Verdhana estimates

Key data on Sumber Alfaria Trijaya

Income statement (IDRbn)
Year-end 31 Dec	FY22	FY23	FY24F	FY25F	FY26F
Revenue	96,925	106,945	118,589	128,887	140,701
Cost of goods sold	-76,902	-83,879	-92,638	-100,482	-109,395
Gross profit	20,022	23,066	25,951	28,405	31,306
SG&A	-17,225	-19,780	-22,176	-23,869	-25,650
Employee share expense	0	0	0	0	0
Operating profit	2,798	3,286	3,776	4,536	5,656
EBITDA	84,112	92,893	102,597	112,363	123,024
Depreciation	-14	-14	-14	-15	-16
Amortisation	-81,301	-89,594	-98,807	-107,812	-117,353
EBIT	2,798	3,286	3,776	4,536	5,656
Net interest expense	-145	-87	-27	-64	-36
Associates & JCEs	0	0	0	0	0
Other income	965	1,134	1,111	1,297	1,258
Earnings before tax	3,617	4,333	4,860	5,768	6,878
Income tax	-710	-848	-952	-1,130	-1,347
Net profit after tax	2,907	3,484	3,908	4,638	5,531
Minority interests	-52	-80	-142	-164	-199
Other items	0	0	0	0	0
Preferred dividends	0	0	0	0	0
Normalised NPAT	2,855	3,404	3,767	4,474	5,332
Extraordinary items	0	0	0	0	0
Reported NPAT	2,855	3,404	3,767	4,474	5,332
Dividends	-578	-857	-1,021	-1,130	-1,342
Transfer to reserves	2,278	2,547	2,745	3,344	3,990
Valuations and ratios
Reported P/E (x)	42.9	36.0	32.5	27.4	23.0
Normalised P/E (x)	42.9	36.0	32.5	27.4	23.0
FD normalised P/E (x)	42.9	36.0	32.5	27.4	23.0
Dividend yield (%)	0.5	0.7	0.8	0.9	1.1
Price/cashflow (x)	17.3	18.0	16.1	13.8	12.9
Price/book (x)	10.9	8.5	7.2	6.1	5.1
EV/EBITDA (x)	1.4	1.3	1.2	1.0	0.9
EV/EBIT (x)	43.5	36.9	31.8	25.9	20.3
Gross margin (%)	20.7	21.6	21.9	22.0	22.3
EBITDA margin (%)	86.8	86.9	86.5	87.2	87.4
EBIT margin (%)	2.9	3.1	3.2	3.5	4.0
Net margin (%)	2.9	3.2	3.2	3.5	3.8
Effective tax rate (%)	19.6	19.6	19.6	19.6	19.6
Dividend payout (%)	20.2	25.2	27.1	25.3	25.2
ROE (%)	27.9	26.5	23.9	24.1	24.2
ROA (pretax %)	11.0	11.5	12.1	13.7	16.0
Growth (%)
Revenue	14.2	10.3	10.9	8.7	9.2
EBITDA	22.3	10.4	10.4	9.5	9.5
Normalised EPS	48.3	19.2	10.7	18.8	19.2
Normalised FDEPS	48.3	19.2	10.7	18.8	19.2
Source: Company data, Verdhana estimates

Cashflow statement (IDRbn)
Year-end 31 Dec	FY22	FY23	FY24F	FY25F	FY26F
EBITDA	84,112	92,893	102,597	112,363	123,024
Change in working capital	4,752	-1,291	-290	117	-295
Other operating cashflow	-81,802	-84,785	-94,713	-103,619	-113,220
Cashflow from operations	7,062	6,817	7,594	8,862	9,510
Capital expenditure	-2,160	-2,529	-2,085	-1,908	-2,256
Free cashflow	4,902	4,288	5,509	6,953	7,253
Reduction in investments	0	0	0	0	0
Net acquisitions	0	0	0	0	0
Dec in other LT assets	0	0	0	0	0
Inc in other LT liabilities	0	0	0	0	0
Adjustments	-2,540	-2,196	-2,911	-2,741	-2,960
CF after investing acts	2,362	2,092	2,598	4,213	4,293
Cash dividends	-792	-1,020	-1,216	-1,346	-1,599
Equity issue	0	0	0	0	0
Debt issue	-283	-1,510	-63	0	0
Convertible debt issue	0	0	0	0	0
Others	-738	694	0	0	0
CF from financial acts	-1,814	-1,836	-1,279	-1,346	-1,599
Net cashflow	549	256	1,319	2,867	2,694
Beginning cash	3,270	3,819	4,075	5,393	8,260
Ending cash	3,819	4,075	5,393	8,260	10,955
Ending net debt	-2,253	-2,372	-3,632	-6,436	-9,065
Balance sheet (IDRbn)
As at 31 Dec	FY22	FY23	FY24F	FY25F	FY26F
Cash & equivalents	3,819	4,075	5,393	8,260	10,955
Marketable securities	0	0	0	0	0
Accounts receivable	2,490	2,812	3,004	3,244	4,097
Inventories	0	0	0	0	0
Other current assets	9,356	10,440	11,259	12,183	13,233
Total current assets	15,664	17,326	19,656	23,687	28,285
LT investments	784	767	767	767	767
Fixed assets	7,204	8,053	8,446	8,581	9,035
Goodwill	0	0	0	0	0
Other intangible assets	0	0	0	0	0
Other LT assets	7,094	8,101	8,769	9,117	9,541
Total assets	30,746	34,246	37,638	42,152	47,628
Short-term debt	1,879	1,639	1,698	1,761	1,827
Accounts payable	13,504	14,151	11,386	12,350	13,445
Other current liabilities	2,006	1,473	4,960	5,277	5,790
Total current liabilities	17,389	17,263	18,044	19,388	21,062
Long-term debt	833	64	64	64	64
Convertible debt	0	0	0	0	0
Other LT liabilities	1,053	1,215	1,275	1,317	1,384
Total liabilities	19,276	18,541	19,382	20,768	22,510
Minority interest	249	1,232	1,232	1,232	1,232
Preferred stock	0	0	0	0	0
Common stock	2,895	2,895	2,895	2,895	2,895
Retained earnings	8,754	11,159	13,710	16,838	20,572
Proposed dividends	0	0	0	0	0
Other equity and reserves	-428	419	419	419	419
Total shareholders' equity	11,222	14,473	17,024	20,153	23,886
Total equity & liabilities	30,746	34,246	37,638	42,152	47,628
Liquidity (x)
Current ratio	0.90	1.00	1.09	1.22	1.34
Interest cover	19.3	37.6	142.3	70.6	158.8
Leverage
Net debt/EBITDA (x)	net cash	net cash	net cash	net cash	net cash
Net debt/equity (%)	net cash	net cash	net cash	net cash	net cash
Per share
Reported EPS (IDR)	68.76	81.97	90.71	107.75	128.41
Norm EPS (IDR)	68.76	81.97	90.71	107.75	128.41
FD norm EPS (IDR)	68.76	81.97	90.71	107.75	128.41
BVPS (IDR)	270.24	348.55	409.97	485.32	575.23
DPS (IDR)	13.91	20.63	24.59	27.21	32.32
Activity (days)
Days receivable	8.5	9.0	9.0	8.8	9.5
Days inventory	42.4	0.0	0.0	0.0	0.0
Days payable	62.8	60.2	50.4	43.1	43.0
Cash cycle	-11.8	-51.1	-41.5	-34.3	-33.5
Source: Company data, Verdhana estimates

Company profileEstablished in 1989, AMRT business activities are managing a minimarket distribution network that sells basic daily needs for customers, at affordable prices, convenient shopping places, and easy to reach locations because most of AMRT's stores are located in residential areas and commercial. As of 9M22, AMRT has 20,015 stores spread across Indonesia.

Valuation MethodologyOur target price of IDR3,600 implies 2025F P/E multiple of 33.4x (+1SD of its five-year-average). The benchmark index of the stock is JCI Index.

Risks that may impede the achievement of the target priceDownside risk is slowdown in demand for fee-based transactions.

ESGAMRT carries out activities related to enviromental aspects to support sustainable business growth. As of 2021, since the implementation of plastic-reducing policy, AMRT has been able to reduce the use of shopping plastic bags by 18.8%. Other initiative done by AMRT is the reusing of wastewater. AMRT has twenty eight branches which reuse wastewater with a total volume of 5.81 Megaliters. Other waste treatment by AMRT is done by reducing the use of cashier paper receipts by 8.8%.

Fig. 5: AMRT 4Q24F estimates

Source: Company data, Verdhana estimates

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
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.

This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

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.

RESTRICTIONS ON DISTRIBUTION

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Rating Table

Rating Remains	Buy
Target price Reduced from IDR 3,830	IDR 3,600
Closing price 13 November 2024	IDR 2,950
Implied upside	+22.0%
Market Cap (USD mn)	7,767.7
ADT (USD mn)	5.6

Relative performance chart

Source: LSEG, Verdhana

M cap (USDmn)	7,767.7
Free float (%)	47.3
3-mth ADT (USDmn)	5.6

(%)	1M	3M	12M
Absolute (IDR)	-6.9	4.2	1.4
Absolute (USD)	-8.1	4.6	0.9
Rel to Jakarta Stock Exchange Composite Index	-4.3	4.7	-5.7

Research Analysts

Jody Wijaya (jody.wijaya@verdhana.id)

Sandy Ham (sandy.ham@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)

Tags: Consumer Related, AMRT, AMRT JK, AMRT IJ, Jody Wijaya, Sandy Ham, Samuel Christian

Sumber Alfaria Trijaya (AMRT IJ) (Buy) - Resilience in the face of adversity

Resilience in the face of adversity

Key data on Sumber Alfaria Trijaya

Fig. 1: 2015-2024 average minimum wage increase y-y and AMRT EBIT margin (%)

Fig. 2: 2015-2024 average minimum wage increase y-y and AMRT y-y SSSG (%)

Fig. 3: 2015-2024 average minimum wage increase y-y and AMRT salaries as % of sales (%)

Fig. 4: 2015-2024 AMRT ex-Lawson (unlisted) net stores addition

Fig. 5: AMRT 4Q24F estimates

Fig. 6: AMRT P/E band

Fig. 7: Investors' portfolio weighting in AMRT (% of portfolio)

Rating Table

Relative performance chart

Research Analysts

yudi Administrator

Kalbe Farma KLBF IJ -Buy- Transforming the brand

Mayora Indah MYOR IJ -Buy- Strong 3Q domestic and export sales momentum

Unilever Indonesia UNVR IJ -Reduce- Market share deterioration a concern

Indonesia Consumer - Regions with faster consumption growth in focus

Sumber Alfaria Trijaya AMRT IJ -Buy- A consistent FMCG outperformer

Indonesia Consumer - The rise of food service business

Sumber Alfaria Trijaya (AMRT IJ) (Buy) - Resilience in the face of adversity

Fig. 1: 2015-2024 average minimum wage increase y-y and AMRT EBIT margin (%)

Fig. 2: 2015-2024 average minimum wage increase y-y and AMRT y-y SSSG (%)

Fig. 3: 2015-2024 average minimum wage increase y-y and AMRT salaries as % of sales (%)

Fig. 4: 2015-2024 AMRT ex-Lawson (unlisted) net stores addition

Fig. 5: AMRT 4Q24F estimates

Fig. 6: AMRT P/E band

Fig. 7: Investors' portfolio weighting in AMRT (% of portfolio)

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