Sector Update:
Retailing
Upper Segments And Mid-Ticket Items Fare Better
Retailers targeting the upper segments appear to be performing relatively better. It seems that consumers in the upper segment still have purchasing power, but have just been delaying spending. While mid- to mid-low retailers are likely to have finished 1Q17 with unexciting SSSG figures, we note that PMI and CCI posted good improvements in March.
We maintain our view that this
year’s main upside would come from margin improvements/recovery, rather than
topline growth. Companies which can improve product mix and/or store
productivity would be the ones that can improve margins, in our view. We
maintain our OVERWEIGHT sector stance and continue to like Mitra and Ramayana.Retailing
Upper Segments And Mid-Ticket Items Fare Better
Retailers targeting the upper segments appear to be performing relatively better. It seems that consumers in the upper segment still have purchasing power, but have just been delaying spending. While mid- to mid-low retailers are likely to have finished 1Q17 with unexciting SSSG figures, we note that PMI and CCI posted good improvements in March.
¨
Upper
segment and mid-ticket items seem to fare better. Retailers targeting
the mid- to upper segments, such as Ace Hardware (Ace) and Mitra Adiperkasa
(Mitra), have been showing relatively strong SSSG compared to the mid- to
mid-low segment retailers, namely Matahari Department Store (Matahari) and
Ramayana Lestari Sentosa (Ramayana). It appears that consumers in the upper
segment still have the purchasing power but have been delaying spending.
Ace posted strong SSSG trend over the first
three months of 2017, rising to 8% in March, from 6% in February and 2% in
January – we have assumed c.2% SSSG for Ace in 2017F. Mitra registered SSSG in
the low- to mid-single digit levels. On the flipside, Matahari indicated a weak
1Q17, whilst Ramayana posted negative SSSG in February.
¨
PMI
and CCI posted good figures in March. The purchasing managers’ index (PMI) landed
at 50.8 in March, an improvement from contractions registered in the first two
months of 2017. The consumer confidence index (CCI) landed at 121.5 in March,
an uptrend since 3Q16 – the last time CCI landed above 120 was in Feb 2015.
More importantly, the CCI, which measures conditions for buying durable goods
compared to six months ago, landed at 110.3, its highest level since Dec 2014.
¨
Uptrend. The indicators above
suggest a positive trend, in line with Ace’s monthly SSSG uptrend so far this
year. For the rest of the year, it would appear that the risks are on the
upside, from a potential upgrade in Indonesia’s rating to investment grade,
increased Government spending, and a shorter wet season. On the flipside,
potential downside risks may come from a smaller number of tax amnesty
participants, that may result in further clampdown and uncertainties, in our
view.
¨ Mitra and Ramayana continue to be our sector Top Picks. We maintain our view that this year’s key upside would come from margin improvements/recovery, rather than topline growth. Companies that can improve product mix and/or store productivity would be the ones that can improve margins. As such, we like Mitra and Ramayana. We see Mitra improving its margins from better inventory control and continued improvements in store productivity, while Ramayana should see margin improvement from better store productivity and product mix
Kindly click the following link for the full report: Upper Segments And Mid-Ticket Items Fare Better
Best regards,
¨ Mitra and Ramayana continue to be our sector Top Picks. We maintain our view that this year’s key upside would come from margin improvements/recovery, rather than topline growth. Companies that can improve product mix and/or store productivity would be the ones that can improve margins. As such, we like Mitra and Ramayana. We see Mitra improving its margins from better inventory control and continued improvements in store productivity, while Ramayana should see margin improvement from better store productivity and product mix
Kindly click the following link for the full report: Upper Segments And Mid-Ticket Items Fare Better
Best regards,
Stifanus Sulistyo
Vice
President
Research Analyst – Retail
PT. RHB Securities Indonesia
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