• OVERWEIGHT on consumer staples, NEUTRAL on retailers. We met with asset managers during our Indonesia market outlook roadshow. Almost all clients agreed with our view on sticking with defensive stocks (consumer staples) during 1H amidst multiple uncertainties. In 2H, investors can switch to more cyclical counters (retailers) in 2H23, when the economy picks up further. Macroeconomic pressures may decrease in 2H – lower inflation, IDR appreciation, the full impact of the minimal wage adjustment and some pre election tailwinds – which will boost consumer purchasing power.

• Mayora Indah’s (MYOR) recent share price correction provides BUY opportunities. Almost all the consumer staples stocks under our coverage have recorded positive share price growth YTD except MYOR. However, MYOR is still a Top Pick, as it should reap the benefits of the gradual recovery in shopper traffic in Indonesia and overseas (particularly in China). This year, we expect its net profit to grow by c.35-40% YoY, ie the highest among peers – albeit lower than the consensus estimate of c.45-50% YoY. This should stem from margin growth, declining commodity prices and the full impact of its hefty price increases in 2022 (c.15% in 9M22). The stock is trading at just -1SD from its 5-year P/E mean.

• Value emerging in Indofood CBP (ICBP) and Nippon Indosari (ROTI).The recent appreciation of the IDR should be positive for ICBP. We estimate that every 1% appreciation of the IDR should lift earnings by c.4%. The stock’s defensive qualities – its main business is in instant noodles – also offer some buffer against economic uncertainties. Meanwhile, ROTI should enjoy strong earnings growth due to widening margins. It should benefit from children returning to school and employees going back to the office. ROTI is trading at 19x 2023F P/E, or -1SD from the 5-year P/E mean – but we also flag its thin liquidity as a concern.
   
• Mitra Adiperkasa (MAPI) – BUY on dips. MAPI underwent a share price correction recently, as investors may have switched to more defensive stocks. However, the company’s fundamentals remain solid. Despite the low season in 3Q22, MAPI managed to book stable revenue QoQ, with the growth being the highest among the retailers under our coverage. It should also book stronger numbers in 4Q22, as the fourth quarter is generally its strongest of the year. The stock is trading at c.10-11x 2023F P/E, near -2SD from the 5-year P/E mean.
   
• There could be a potential windfall from the upcoming election. Retail sales growth tends to be positive about 5-7 months before an election. However, this growth in 2023 may be softer than what was recorded in the period prior to the previous two elections, due to inflationary pressures and a possible reduction in cash handouts to the grassroots – these direct outreach methods may not be the only ones, as politicians may also use online means to connect with voters. All in all, though, the pre-election period still benefits consumer companies. In 2013 and 2018 (the years before the 2014 and 2019 general elections), ICBP, MYOR and Matahari Department Store booked solid revenue growth – the former two, in particular, charted revenue growth in 2018 that outpaced their topline CAGRs for 2014-2017 by about 2%.

Source: RHB Securities Research - 20 Jan 2023