JAKARTA May 30 Indonesian retail stocks are all
trading at big premiums to the broader market but investors are
increasingly differentiating between those which make their
money mainly in Jakarta and favouring those which are expanding
outside of the capital.
Rising wages and rental costs in Jakarta are making doing
business there more expensive and eating into retailers'
profits. By contrast, retailers pursuing growth outside of
Jakarta and the main island of Java are booking fast-growing
Shares in PT Mitra Adiperkasa (MAP), a leading
retailer and the franchise holder for about 150 foreign brands
in Indonesia, tell the story investors are looking to avoid. It
gets 70 percent of its revenues from Jakarta.
While MAP still trades at a robust 21.4 times its estimated
2014 earnings, its shares have plunged more than 20 percent from
a six-month high of 7,000 rupiah on Feb 21 to 5,175 rupiah on
May 30. By comparison, the broader Jakarta stock market
has surged 16 percent so far this year.
Its share price slump mirrors a slump in revenue. Net income
fell 24 percent in 2013 and is down 28 percent in first quarter
this year versus the same period last year, thanks to rising
wage and rent costs, a weaker rupiah and higher borrowing costs.
Investors are more interested in the likes of retailer PT
Matahari Department Store, which targets lower-middle
income customers across the archipelago. Its shares have surged
30 percent so far this year.
Matahari plans to spend 500 billion rupiah ($43 million)
this year opening 15 new outlets, after adding nine new outlets
last year, and half of these new stores will be outside of Java.
At the end of 2013, the company had 125 stores, which helped
it post a 50 percent rise in net income in the first quarter.
"Expanding outside Java means pursuing growth and indicates
logistic capability. I like such companies," said Jeffrosenberg
Tan, a director at Sinar Mas Asset Management, which has six
trillion rupiah under management.
"Bargaining power on rental space is weakening for MAP as
there is a lot of competition entering Indonesia through
Jakarta," Tan said.
"Competition is getting tougher in Jakarta with the entrance
of brands like H&M, Uniqlo and Forever 21 that are also aiming
for MAP's target market."
The contrasting performance of MAP's and Matahari's shares
reflects the fact that consumer demand is a major driver of
Indonesian growth and that consumption in cities outside of Java
has surpassed that in Java, according to Nielsen Indonesia, a
Matahari Department Store is not alone in exploiting this
Supermarket operator Matahari Putra Prima's shares
are up 52 percent so far this year. It plans to open up to 20 of
its flagship Hypermart stores this year and up to 250 new stores
over the next five years as it enters six new cities.
Tan said demographics were driving the change and the "sweet
spot" was the rising number of lower-middle income earners, many
of them outside of Jakarta.
Years of solid economic growth have raised the number of
consumers in the middle income bracket to 70 million people and
that is expected to double to 140 million people by 2020,
according to the Boston Consulting Group.
Matahari Department Store is trading at 23.14 times its
future earnings and Matahari Putra Prima is at 32.73 times its
futures earnings, but Harry Su, head of research at Bahana
Securities, said such valuations were justified.
"Growth is becoming a scarce commodity this year so lofty
valuations could be warranted given their above-market growth
rates," he said.
Indonesian retailers are also facing increased competition
from foreign competitors, with Swedish furniture giant Ikea and
Malaysian department stores operator Parkson Retail Asia
planning to open stores in Indonesia this year.
($1 = 11,618.50 rupiah)
(Reporting By Fransiska Nangoy; Editing by Kim Coghill)