1、Indonesia ConsumerNot much in the shopping basketAsia Pacific Equity Research01 March 2019We assume coverage on five Indonesian consumer stocks with a cautious view. We believe that most of the expected improvement in fundamentals this year is already in the price, leaving possible downside risks fr

2、om post- election hard reforms like fuel prices/excise in 2H19. We return to bottom- up stock picking and see only select pockets of opportunities in the sector, particularly quality names with undemanding valuations. Our only OW is HMSP. We are UW on ICBP & GGRM and Neutral on UNVR & INDF.Expect el

3、ection year to aid consumer companies top-line growth. Consumer companies top-line growth has decelerated to 0.8x nominal GDP the last four years vs 1x historically, as tougher macroeconomic conditions including electricity subsidy removals and commodity prices 2016 on growth. Election years typical

4、ly see a consumption pick-up and we anticipate accelerating top-line growth in the next two years driven by better macro, higher commodity prices and better government spending. forecast five companies under coverage posting 8.6% revenue CAGR in 2018-20E vs 7.3% from 2014-18. However, cigarette comp

5、anies sales could decelerate this year due to zero excise hikes, which could result in a slower ASPincrease.HMSP is our only OW: After a rally (10-30% the stocks that we cover vs +10%), think of this sector improvement is priced in. We downgrade ICBP to UW despite liking its business model and innov

6、ative launches, as expect noodle margins to trend downwards as competition in product lines remains intense. We prefer INDF, but outperformance could be limited by ICBP. cautious on GGRM weak evidence of translating strong top-line growth to profits. Our OW in the sector is HMSP, driven by improving

7、 market share and strong pricing power. We are Neutral UNVR despite improving topline growth as valuation looksdemanding.Risks to thesis. Hard reforms in 2H19, including a price hike and cigarette excise could deter consumer sentiment in our view. Sudden depreciation of IDR could impact margins, as

8、costs are dollar-linked. Lastly, unfavorable election results could be a wildcard.IndonesiaIndonesia Automotive & consumer Benny Kurniawan, CFA AC(62-21) 5291 8024 HYPERLINK mailto:benny.kurniawan benny.kurniawan PT J.P. Morgan Sekuritas IndonesiaJeanette Yutan(63-2) 878-1188 HYPERLINK mailto:jeanet

9、te.g.yutan jeanette.g.yutanJ.P. Morgan Securities Philippines, Inc.Ajay Mirchandani(65) 6882-2419 HYPERLINK mailto:ajay.mirchandani ajay.mirchandaniJ.P. Morgan Securities Singapore Private LimitedUtkarsh Mehrotra(65) 6882-1625 HYPERLINK mailto:utkarsh.mehrotra utkarsh.mehrotraJ.P. Morgan Securities

10、Singapore Private LimitedEquity Ratings and Price TargetsCompanyTickerMkt Cap ($ mn)Price CCYPrice Ra Curting PrevCur Price End Datearget PrevEnd DatePT Gudang Garam TbkGGRM IJ11,712.52IDR85,400UWn/c78,000Dec-1961,000Jun-19PT Hanjaya Mandala Sampoerna TbkHMSP IJ31,506.38IDR3,800OWN4,900Dec-193,600Ju

11、n-19Unilever Indonesia TbkUNVR IJ26,472.69IDR48,675Nn/c46,500Dec-1943,000Jun-19IndofoodINDF IJ4,427.81IDR7,075NOW8,000Dec-198,800Jun-19Indofood CBPICBP IJ8,499.64IDR10,225UWOW9,050Dec-1910,200Jun-19Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 28 Feb 19.Se

12、e page 60 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the obj

13、ectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK / Table of Contents HYPERLINK l _bookmark0 KeyCharts3 HYPERLINK l _bookmark1 Cautious on consumer space - improvement largelyinprice5 HYPERLINK l _bookmark2 Supportiv

14、e demographics key for consumptionstructuralgrowth5 HYPERLINK l _bookmark3 What are consumers spending theirmoneyon?8 HYPERLINK l _bookmark4 Noodles limited volume growth as penetration is already high; pricing and HYPERLINK l _bookmark4 innovationiskey HYPERLINK l _bookmark5 Dairy Strong growth sto

15、ry countered byimmensecompetition13 HYPERLINK l _bookmark6 Cigarettes one of the fewgrowthmarkets14 HYPERLINK l _bookmark7 Excise tax - volume growthsmainopponent15 HYPERLINK l _bookmark8 Indonesia: Kretek (clove) cigarettes dominatesthemarket17 HYPERLINK l _bookmark9 Market Structure turningoligopo

16、listic18 HYPERLINK l _bookmark10 Our view on theIndustry:Neutral18 HYPERLINK l _bookmark11 PT Gudang Garam Tbk20 HYPERLINK l _bookmark12 PT Hanjaya MandalaSampoernaTbk27 HYPERLINK l _bookmark13 Unilever Indonesia Tbk35 HYPERLINK l _bookmark14 Indofood43 HYPERLINK l _bookmark15 Indofood CBP51Key Char

17、tsFigure 1: HMSP has lagged JCI in the last one year15014013012011010090Jan-16Mar-16May-16Jul-16Sep-16Nov-16Jan-17Mar-17May-17Jul-17Sep-17Nov-17Jan-18Mar-18May-1880Jan-16Mar-16May-16Jul-16Sep-16Nov-16Jan-17Mar-17May-17Jul-17Sep-17Nov-17Jan-18Mar-18May-18Figure 2: due to poor performance (particularl

18、y in 1Q18 by A-Mild); but we expect volumes to recover in 1Q19 on a low base14.013.012.011.010.0Jul-18Sep-18Nov-18Jan-199.0Jul-18Sep-18Nov-18Jan-19HMSP8.01Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18Sampoerna A volume (bn sticks)Source: BloombergSource: PMI releaseF

19、igure 3: HMSP has decent ROIC even post rights issue66.9%68.3%66.9%68.3%63.0%54.2%55.7%41.3%45.4%47.3%34.5%70.0%60.0%50.0%40.0%30.0%20.0%10.0%0.0%20122013201420152016A2017A2018E2019EROICFigure 4: .and is now trading at a steep discount vs historical average45.043.041.039.037.035.033.031.029.027.0 So

20、urce: J.P. Morgan estimates, Company datayrforwardPEAverage+1sd-1sdSource: BloombergFigure 5: We are UW ICBP as we see risk to ICBPs noodle EBIT margin on rising soft commodity prices.8.07.57.06.56.05.55.04.522%21%20%19%18%17%16%15%14%Figure 6: . and other divisions are also facing tough competition

21、, resulting in losses200100- (100)(200)(300)4.0FY10A FY11A FY12A FY13A FY14A FY15A FY16A FY17A FY18e FY19e FY20eIntlwheatpriceICBP Noodle EBITmargin13%(400)20112012201320142015201620172018E 2019E 2020ESnackFoodEBIT(IDRbn)Beverage EBIT(IDRbn)Source: Bloomberg, J.P. Morgan estimatesSource: Bloomberg,

22、J.P. Morgan estimatesFigure 7: We are Neutral on INDF as we think discount to ICBP should narrow on improving CPO pricesFigure 8: . but INDF outperformance to JCI in the last three cycles relied heavily on ICBP60%50%40%30%20%10%Sep-11 Jan-12 Sep-11 Jan-12 Sep-12 Jan-13 Sep-13 Jan-14 Sep-14 Jan-15 Se

23、p-15 Jan-16 Sep-16 Jan-17 Sep-17 Jan-18 Sep-18 Jan-192010- (20)(30)(40)Jun-11 Oct-11 Jun-11 Oct-11 Jun-12 Oct-12 Jun-13 Oct-13 Jun-14 Oct-14 Jun-15 Oct-15 Jun-16 Oct-16 Jun-17 Oct-17 Jun-18Oct-18ICBP-JCIINDF - JCI(rhs)Source:BloombergINDF disc to ICBPCPO Spot (rhs, inverselycorrelated)Source: Bloomb

24、ergFigure 9: We are UW GGRM despite better industry outlook as companys profitability lags strong top-line growth2802602402202001801601401201001Q112Q111Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q134Q131Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q18Figure 10: GGRM valuation

25、 discount to HMSP is almost at its narrowest level in the last 2 yearsOct-15 Feb-16 Apr-16 Jun-16 Oct-15 Feb-16 Apr-16 Jun-16 Oct-16 Feb-17 Apr-17 Jun-17 Oct-17Dec-17Aug-18Oct-18Dec-1860%50%40%30%20%10%0%-10%Feb-19-20%Feb-19Source: Company DataSalesGPEBITSource: GGRM disctoHMSPone-year return by hol

26、ding GGRM stock(rhs)Figure 11: UNVRs outperformance in the last 8 years was largely explained by its cash conversion cycle turning negativeJPMs FY19 est. of 4 days250JPMs FY19 est. of 4 days20015010050Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 M

27、ar-17 Sep-17 Mar-18 Sep-18Dec-19- Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18Dec-19(30.0)(20.0)(10.0)- 10.020.030.040.0Figure 12: We are Neutral as cash conversion cycle is now back positive and valuation looks stretch

28、edJul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jan-19UNVR outerperformance to JCICash conversion cycle (inverted, rhs)1yearforwardPEAvcerage+1sd-1sdSource: Company Data, J.P.MorganestimatesSource:BloombergTable 1: Our Indonesia consumer picks HMSP our only OWUpside/downside(USDbn)Upside/downside(USDbn)

29、19E20E19E20E19E19E6 monthsHMSP29.3%31.5OW27.524.916.1%10.4%3.0%41.3%6.0INDF5.3%4.8N13.211.926.1%10.8%3.0%14.0%3.6UNVR-7.0%27.3N48.544.7-13.7%8.6%1.9%100.0%6.9ICBP-13.0%8.7UW26.424.4-1.9%8.0%1.9%18.7%3.2GGRM-7.7%11.6UW17.316.612.7%4.0%2.6%18.5%5.0JPM rating PEEPSgrowthDiv YieldROEADTV (USDmn)Source:

30、J.P. Morgan estimates and BloombergImprovement driven by election- related spending and increase in government spending is largely in the priceOnly HMSP down 2% on technical factors (vs JCI 10%).Cautious on consumer space - improvement largely in priceWe believe that improvement driven by election r

31、elated spending and increase in government spending is largely in the price. The five companies under our coverage are up 11-32% since 3Q results in late Oct-18 (JCI up 11%), with only HMSP down 2% on technical factors. While we think there are select pockets of opportunities for this year, we think

32、 rerating on better top-line growth driven by election-related spending is already in the price.Elections looming, what are the downside risks?We can think of a few. Indonesia is currently a net importer of oil and the government is still subsidizing both electricity (900watts and below) and fuel (g

33、asoline, diesel and kerosene), hurting both the current and fiscal accounts. We believe there might be risks of potential hard reforms once the election is over, especially if oil prices make further gains from current levels. Several of the hard reforms that could impact our stock under coverage in

34、clude (1) removing electricity price subsidy entirely (2) raising fuel prices and (3) issuing excise tax increase mid- year, all of which are steps which could impact on consumer spending.Thus far, people and the government are still focusing on elections and we think that any expectations on the ch

35、ances of those events happening have not been formed yet. Nonetheless, for investors with a medium-term outlook or more, we believe these are risks to be aware of. We urge investors to be cautious and stay with quality names with reasonable valuations. The following table shows where we are vs conse

36、nsus for this year and next.Table 2: Where we are vs consensus on EPSJPMConsensus% diff2018E2019E2020E2018E2019E2020E2018E2019E2020EHMSP1191381521131281384.7%7.2%9.9%GGRM4,3354,8885,0824,2514,9695,5072.0%-1.8%-7.5%ICBP4023944263764094466.7%-3.6%-4.6%INDF457577639465517552-1.6%11.6%15.8%UNVR1,1941,03

37、11,1191,0479941,063n/a3.7%5.2%Source: J.P. Morgan estimates, BloombergSupportive demographics key for consumption structural growthBefore launching into stock specifics, let us start with Indonesias core demographics and selected sectors that we are going to focus on.Constructive demographics, inclu

38、ding an increase in productive age population and higher urban population every year should support Indonesias consumption story over the next decade. Indonesias productive age (defined as 15-64 years old) is up from 60% in 1990 to 67.3% in 2017, while the dependent ratio (defined as 64) fell from 4

39、0% to 33%.Figure 13: With younger consumers, consumption habit changes and companies need to adapt3.9%4.3%3.9%4.3%4.8%4.8%4.9%5.3%60.3%62.6%64.8%65.4%66.4%67.3%35.9%33.1%30.5%29.7%28.7%27.4%90%80%70%60%50%40%30%20%10%Figure 14: Theres also an increasing urban population which shops through different

40、 channels686368635753494551553237434790%80%70%60%50%40%30%20%10%0%19911996200120062011640%199119962001200620112017Urban RuralSource:CEICWe expect growth to be smaller in quantum than previousyears due to (1) higher base and (2) change in macro-economic structureSource: CEICWith an increase in produc

41、tive age, we expect consumption to remain resilient in the upcoming years, albeit growth might be smaller in quantum than previous years due to (1) higher base and (2) change in macro-economic structure (less reliant on commodity price). As a result, we expect broad consumption to grow at a slightly

42、 slower pace than nominal GDP and hence stock selection will need to revert back to fundamental bottom-up stories.Compiling historical staple companies sales shows that there is generally a good correlation with Nominal GDP. In fact, the average multiplier (Consumer sales/GDP ratio) was closer to 1

43、at 0.99x in the last 12 years. However, this was buoyed by 2x ratio in 2012 due to the after effects of the commodity boom. The ratio was actually closer to 0.8x in the last 3-4 years, and we believe will stay so in the next few years, signifying a new normal in the Indonesia consumer space.Figure 1

44、5: Consumer companies sales vs Nominal GDP30%25%20%15%10%5%Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-180%Dec-06 May-07 Oct-07 Mar-08 Aug-08 Ja

45、n-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18Figure 16: Relationship averages 1x but recently dipped to 0.8x2.502.001.501.000.50Jun-07 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun

46、-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18Consumercompaniessales(4Qmay/y)IndonesiaNominalGDPSource: CEIC, Company dataSource: CEIC, Company dataConsumer companies sales y/y/Nominal GDP y/yConsumer stocks performance in the three cyclesIf we divide Figure 16 into 3 distinct periods (2006 to 2010, 2011 to

47、 2014 and 2015 onwards), consumer stocks (represented by the Jakarta consumer sub index JAKCONS) show interesting characteristics, summarized in this table:Table 3: Summary of JAKCONS 3 period EPS and outperformanceEPS CAGROutperformanceReratingEBITDA margin trajectory1Q06 to 4Q1020.4%92.552.1%from

48、13% to 17%1Q11 to 4Q146.3%54.753.9%from 17% to 15%1Q15 onwards1.5%(2.3)3.7%flat at 15%Source: BloombergConsumer stocks outperformed massively in the first period (2006-2010), which was supported by the massive 20% EPS CAGR. Consumer stocksin general rerated 52% and EBITDA margin improvedsignificantl

49、y.The second period was somewhat perplexing. Consumer outperformed 55% relative to JCI despite modest earnings CAGR and falling EBITDA margin. Much of the outperformance in the period was driven by a single stock, We also suspect foreign inflows (USD6.6bn during this period) to drive rerating in con

50、sumerstocksThe last period, which is 2015 to the present, has seen flattish EPS. This time, investors were noticeably calmer and Indonesia consumer stocks underperformed the broader index by 2% during theperiod.We believe that this performance in line with the index will continue in 2019 and hence w

51、e suggest caution in buying the consumer space, which has seen a decent rally in Nov18-Jan19. We do not see enough catalysts in the space, with the only significant catalyst in the form of increase in government spending already priced in, in our view.What are consumers spending their money on?Accor

52、ding to a survey done by Deloitte in 2017 ( HYPERLINK /content/dam/Deloitte/sg/Documents/consumer-business/sea-cip-deloitte-consumer-insights-embracing-bricks-and-clicks-in-indonesia.pdf link), 38% of a households monthly income is spent on F&B items, with the remaining 62% spent on non-food items i

53、ncluding tobacco, welfare and leisure, electronic products etc. The survey showed that there is a disproportionately lower amount of money spent on basic necessities for households with monthly income greater than IDR10mn (21%).Note that as households earn more, welfare and leisure becomes increasin

54、gly important. Households with the highest income bracket (IDR7.5mn) spend 16-18% on welfare and savings vs 8% on average and 4% for households with the lowest income bracket. This shows that the wealthier Indonesians are, “experience” becomes moreimportant.Figure 17: What are Indonesians spending t

55、heir money on (Deloitte, 2017)Source: Deloitte Consumer Insights 2017 HYPERLINK /content/dam/Deloitte/sg/Documents/consumer-business/sea-cip-deloitte-consumer-insights-embracing-bricks-and-clicks-in-indonesia.pdf (link)What do consumers spend more on as they upgrade income brackets?The next chart su

56、mmarizes the trends as monthly household income bracket goes up. The general trend is quite concerning for beverage and cigarettes, but it is quite flattish for packaged foods. We focus our discussion on these three segments as it is where most of listed Indonesian consumer companies operate.We are

57、generally not really concerned with the drop in tobacco % share of expenditure as there is an upwards spike for households earning IDR2-3mn, which is the bulk of Indonesian households. What might be concerning is the longer term trend as Indonesians move up the income ladder. As the chart shows, amo

58、unt spent on beverage, packaged foods and tobacco decreases as household income goes up.However, these items are generally smaller ticket items and consumers dont really increase these “fixed costs” as they upgrade their lifestyle (i.e. people dont smoke more or brush their teeth more often as incom

59、e rises). Instead, savings and experience (travel) gains importance as household income increases.Figure 18: General trends across income buckets what do Indonesians value as they climb the wealth ladder?Source: Deloitte Consumer Insights 2017 HYPERLINK /content/dam/Deloitte/sg/Documents/consumer-bu

60、siness/sea-cip-deloitte-consumer-insights-embracing-bricks-and-clicks-in-indonesia.pdf (link)Lastly,Deloittessurveyshowsthemaindriversforconsumersbeforebuyingseveral consumer staple items. We note that for F&B, taste remains the most important driver followed by price. However, health follows third