Thailand
Bright spots for Indonesian consumer staples as inflation grows: DBS
AGAINST the backdrop of rising inflation, consumers in Indonesia are likely to tighten their belts by saving more and spending less, or opting for cheaper alternatives.
Consumer staples, such as food products producer Indofood CBP Sukses Makmur, could stand to gain, given the resilient demand for staple food products, wrote DBS analysts on Wednesday (Dec 7).
Companies in the retail space with a focus on mid to high-income consumers could also be an opportunity for investors, said the analysts, since these consumers’ purchasing power would be less affected by rising inflation and higher subsidised fuel prices.
The research house – having conducted a consumer survey in November – found that spending patterns are changing amid the rising inflationary environment.
Unsurprisingly, necessities are considered a “high priority” over discretionary items. This, however, varies with income levels, said DBS.
While Covid-19 restrictions have brought about certain stay-home behaviour, such as dining habits, the inflationary environment is likely to perpetuate it, analysts added.
While dining-out is expected to pick up from reopening, it is unlikely to return to pre-Covid-19 levels, said the analysts.
“We are more cautious entering 2023 as we believe the impact of higher subsidised fuel prices and rising inflation on demand would be more evident, which will result in slowdown in household consumption,” said DBS.
“From the consumer survey and study on Indonesia’s consumption basket, it seems consumers are resigned to a prolonged price uptrend and are ready to adjust their consumption and spending behaviour.”
The research house therefore recommended “buy” on Indofood CBP with a target price of 10,350 rupiah.
The non-food basket of goods and services is also likely to grow, but at a slower pace. DBS estimated the country’s non-food proportion to tick up to 51.2 per cent in 2023, from the earlier 49.9 per cent in 2022, buoyed by housing and household spending.
DBS’ top pick for the retail sector is Mitra Adiperkasa, which has a “buy” recommendation and a target price of 1,400 rupiah. Analysts said the company has an attractive valuation, noting that it is trading at about 12 times its estimated price-to-earnings (PE) ratio in 2023 – below the -2 standard deviation of its average PE valuation in 2016 to 2018.
As at 11.06 am on Thursday, Indofood CBP was trading at 10,075 rupiah, down 2.4 per cent or 250 rupiah, while Mitra Adiperkasa was trading at 1,450 rupiah, up 2.1 per cent or 30 rupiah.
Source: https://www.businesstimes.com.sg/international/bright-spots-indonesian-consumer-staples-inflation-grows-dbs