。 1Equities ● Consumer Brands & RetailFebruary 2019Key survey takeaways on Indonesia’s consumers 71% expect at least a 10% increase in household income over the next 12 months. 56% say their household income has increased by 10% or more in the last 12 months. In spite of their optimism, they are conservative about their spending: most say ‘saving’ istheir priority and ‘upgrading’ is not. 44% spend between 26% and 50% of their income on food. People tend to spend more on selected products like milk, ice cream, and personal care inJakarta than in other places. Not many people are worried about job security or personal debt. In the medium term most are eager to start a new business and/or go on holidaysomewhere in Indonesia. 68% say they want to cut expenses to meet their medium-term goals. Those aged 18-34 value top personal care brands less than do the people older than them.Why read this report Indonesia’s GDP is largely consumption driven, which means itmatters a lot what the country’s shoppers do. So, in a proprietarysurvey, we asked more than 1,000 of them 50 questions (andanother 500 smokers a separate 11 questions) about theirpreferences We found widespread optimism about the future, but that doesn’tmean they are turning into big spenders. Where they expect moreincome, they plan to save and invest more; and upgrading thequality of what they buy isn’t a priority All this has implications for the country’s consumer sector companies.We draw on our survey to reach some conclusions about what itmeans for key stocks: ICBP, UNVR, HMSP, GGRM, LPPFSelviana Aripin*, CFAAnalystThe Hongkong and ShanghaiBanking Corporation Limited,Singapore Branchselviana.aripin@hsbc.sg+65 6658 0610*Employed by a non-US affiliate of HSBCSecurities (USA) Inc. and not registered/qualified pursuant to FINRA regulationsEquities ● Consumer Brands & RetailFebruary 20192Key data behind Indonesia’s consumers Source: HSBCSource:HSBC KeydatabehindIndonesia’sconsumers Mostrespondentsarenot worriedaboutjobsecurity. Neitheraretheyworriedabout personaldebtlevel Inspiteoftheoptimism,thespending patternremainsconservative,withmost respondentsindicating‘saving’as atop priority.Upgradingisnot apriorityformost consumers 44% ofrespondentsspend between26%and50%of theirincomeonfood ofrespondentsindicatethatthey expectatleast a10%increasein householdincomeoverthenext 12months Inthepersonalcarespace, consumersaged18-34are generallylessfavourably disposedtothetopbrandstoday thanthoseaged35orabove 68% ofrespondentshave a preferenceforcutting downexpensestomeet medium-termgoals 71% ofrespondentsindicatethattheir householdincomehasincreased by10%ormoreinthelast 12months 56% Consumptionfrequencyofselect products(milk,icecream,and personalcare)isgenerally higherinJakartathan elsewhere Mostrespondents’medium-termplansincludestarting anew businessandgoingonholidayin adomesticlocation ID3Equities ● Consumer Brands & RetailFebruary 2019 Key HSBC stock callsIndofood CBPICBP IJ Current price: IDR10,425Target price:IDR8,300Up/downside:-20.4% We are cautious on ICBP for the following reasons: (1) Noodles are a well-penetrated product category inIndonesia; (2) the current share price embeds for a long time unsustainable expectations regardingoperating margins for instant noodles. Our survey shows that ICBP’s smaller brands (Sarimi, Supermie and Popmie) are less favoured. Given thatabout 40% of ICBP’s market is attached to brands that are less-favoured, we are sceptical that ICBP’srecently achieved 3-4% volume growth will be sustainable. Our DCF-based target price of IDR8,300 translates into 22.2x 2019e PE and 13.0x 2019e EV/EBITDA.Key upside risks: (1) Sustainable volume growth for the noodles segment at 3-4% and (2) a depressedlevel of input costs over a prolonged period.Reduce UnileverIndonesiaUNVR IJ Current price: IDR49,250Target price:IDR38,000Up/downside:-22.8%% We are cautious on UNVR due to (1) concerns over rising competitive environment, particularly in the Homeand Personal Care segment, (2) elevated accounts receivables outstanding days, which signal that futurevolume is at risk, and (3) concerns that advertising & promotion efficiency programmes may hamper top-linegrowth. Our survey suggests tough competition in skin care and hair care. Our DCF-based target price of IDR38,000 translates into 36.9x 2019e PE and 25.4x 2019e EV/EBITDA.Key upside risk: Improving consumer purchasing power and easing competition could drive faster-than- expected revenue growth.ReduceGudang GaramGGRM IJ Current price: IDR82,575Target price:IDR60,500Up/downside:-26.7% We see the following headwinds: (1) the size of the capital expenditure outlay of the airport in Kediri; (2) alack of customer purchasing power, especially given increases in administered prices of electricity andpetrol. GGRM’s products do not generally rate as well as HMSP’s brands on a Net Promoter Score basis. Our DCF-based target price of IDR60,500 translates into 13.6x 2019e PE and 8.8x 2019e EV/EBITDA.Key upside risk: Improvement in volume, penetration and pricing ability of the company’s products.ReduceMatahari DeptStoreLPPF IJ Current price: IDR6,700Target price:IDR16,200Up/downside:+141.8% We like LPPF for the following reasons: (1) its position as the dominant retailer in Indonesia and its cashgeneration ability; (2) the strength of its private label brands, which should keep margins sustainable goingahead; (3) we expect the company to grow faster in regions outside Jakarta due to the lower level ofinternet penetration. Our survey suggests that among the bricks-and-mortar stores, Matahari Department Store remainsfavoured. Our DCF-based target price of IDR16,200 translates into 22.8x 2018e PE and 16.0x 2018e EV/EBITDA.Key downside risk: Sharp deceleration in Indonesia’s economic growth and consumer spending.BuyNote: Priced at close of 13 February 2019 Source: HSBC estimates 。。。。。。