• Still O/W; Top Picks: MAP Aktif Adiperkasa (MAPA), Sumber Alfaria Trijaya (AMRT). We met with Indonesia Shopping Centre Association (APPBI) chairman Alphonzus Widjaja, who said retailers may only book low single-digit YoY growth in 2024 owing to the sticky inflationary situation, minimum wage hike, and geopolitical tensions. Challenges will accelerate post Lebaran. He expects entertainment and F&B businesses to see strong growth this year, while other segments chart bumpy growth. Occupancy reached 80% in 2023, and is expected at 90% in 2024, while rental rates are anticipated to rise <10%.

• Expansion pace to slow down. Alphonzus expects retailers to implement fewer expansion initiatives in 2024 – Matahari Department Store is targeting four new stores, while H&M, Ramayana Lestari, and Matahari Putra Prima (MPPA IJ, NR) are not planning to open any new stores. Department store and hypermarket players are still facing difficulties due to waning interest for such concepts, particularly in major cities. However, Alphonzus sees strong expansion for entertainment businesses (ie cinemas and playgrounds), given the more favourable tax scheme. He said the outlook for gadget and sports apparel retailers remains solid. This should benefit Nusantara Sejahtera Raya (CNMA IJ, NR), MAPA, and Erajaya Swasembada.

• Positive sentiment until Lebaran, partly supported by election impact; challenges to persist. Alphonzus said the election had a positive spill-over effect on spending, especially for retailers in small cities with several categories (entertainment, fashion). On election days, retailers saw a c.50% increase in traffic and 200-300% jump in sales vs weekdays, owing to election day promotions. He remains hopeful for a more lucrative Lebaran in 2024. Nevertheless, Alphonzus said challenges will persist post Lebaran due to a lack of festive events, and a mild impact from the Nov 2024 regional elections.

• Mitigating risks. Some existing regulations (ie import quota, safeguard duty) are still negatively impacting fashion retailers. There may be another regulation on technical specialities for imported products in several categories coming into effect in Mar 2024. This would have an adverse impact on retailers with high import portions. However, our channel checks indicate that the implementation could be delayed – this would be positive for Mitra Adiperkasa, MAPA, and ERAA. Some retailers are still feeling the impact of boycotts, especially foreign F&B brands in stand-alone formats and those located in small cities.

• Other updates. There are no new foreign retailers coming into Indonesia at the moment. Uniqlo is still doing well, but is slowing down its expansion and has commenced local production. Alphonzus also noted that local brands have not been conducting significant expansions. He expects the recovery in home improvement and lifestyle products, such as for ACE Hardware, to continue. Meanwhile, Miniso has revamped its stores to compete with KKV stores, while Mr. DIY Indonesia plans to open Mr Toy outlets this year.

Source: RHB Securities Research - 20 Feb 2024