Indonesian Retailers:What’s gone wrong and what they can do to fix it

Underperforming: Business has not being going to plan for Matahari DepartmentStore (LPPF) and Ramayana (RALS). Matahari’s stock price has fallen 30.2% y-t-dand Ramayana’s 15.5%, while the Jakarta Stock Exchange Composite Index (JCI)has gained 8.9% over the same period. However, we think the sell-off is overdone.In this report we look at what’s gone wrong and what solutions are available.

    Problems:(1) Weaker consumption growth is a concern, especially afterdisappointing sales figures during the important Lebaran holiday period ledmanagements of both companies to cut guidance for 2017;(2) the impending rise inonline competition as internet giants like Alibaba move into Indonesia; and(3) fastfashion competition (see Fighting fast fashion, 20March 2017).

    Solutions:(1) Reinvigorating the infrastructure programme should act as a catalystfor economic growth, boosting consumer spending;(2) we think the pace of growth ine-commerce in Indonesia will be relatively slow, unlike in China, due to poor logistics,undeveloped payment systems, and lifestyle factors; an omni-channel approachshould also help retailers;(3) more engagement with customers through membershipprogrammes; and(4) opening new stores to support sales.

    Valuations and risks. We maintain our Buy rating on LPPF but lower our TP toIDR17,250from IDR19,000. Despite cutting our earnings forecast, we remainconfident about the long-term prospects. We maintain our Hold rating on RALS butcut earnings and lower our TP to IDR1,010from IDR1,300. We remain concernedabout the supermarket division. Risks: Weaker macro growth, delayed spending oninfrastructure, and faster online penetration rate.