Brief Indonesia: Army Offered Plums / Widodo Hammers ‘propaganda’ / Steady GDP / March KCIC Land Target / Kamil 2024 and more

In this briefing:

1. Army Offered Plums / Widodo Hammers ‘propaganda’ / Steady GDP / March KCIC Land Target / Kamil 2024
2. Mitra Adiperkasa (MAPI IJ) – Retail Therapy Is Alive and Well – On the Ground in J-Town

1. Army Offered Plums / Widodo Hammers ‘propaganda’ / Steady GDP / March KCIC Land Target / Kamil 2024

As election campaigning enters the final 10 weeks, the Widodo administration appears intent to offer up to 500 coveted civil-service posts to military personnel, which would role back a key reform of the reformasi era.  But allied parties may object.  Widodo hammered Prabowo for ‘Russian propaganda’ and hiring foreign consultants.  GDP remained steady in 4Q18 at 5.17% yoy.  KCIC targets March for completing land acquisition for its Bandung fast train.  West Java Gov Ridwan Kamil acknowledged eyeing the presidency in 2024.

Politics: Military leaders, with the apparent backing of the administration, aim to revise the landmark 2004 Military Law and place up to 500 active officers into civilian posts throughout the state bureaucracy – a throwback to Soeharto‑era policies and an unwinding of a key reformasi‑era reform.  Excessively cautious advisors to the president may perceive a need to dangle sinecures before the Army, lest it align behind the challenger, Lt Gen (ret) Prabowo Subianto.  In any event, President Joko Widodo may drop the plan: resistance is likely from the public, the press, NGOs, the civil service, the police and perhaps (most significantly) parties in his own nominating alliance (Page 2).  A week ahead of a much‑anticipated one‑on‑one presidential debate, Widodo landed blows on Prabowo, accusing the Gerindra chair of resorting to “Russian[‑style] propaganda” and employing a foreign campaign consultant (p. 5).  Prabowo reiterated complaints about foreign workers (p. 7).  West Java Governor Ridwan Kamil readily acknowledged the possibility that he will run for president in 2024.  The move is unorthodox but he might earn credit for candor.  The prospect helps the long‑term outlook (p. 7).

Justice: Two Anti-Corruption Commission (KPK) investigators suffered assault while observing a Home Affairs conference with the Papua governor and his staff (p. 8). 

Infrastructure: Optimistic projections about completing land acquisition in March emanated from PT KCIC, developer of the Jakarta‑Bandung fast train.  Meanwhile, a Jakarta‑Surabaya semi‑fast train project is still under study (p. 8).  Construction of Soekarno‑Hatta’s third runway is on track, due in June (p. 9)

Appointments: Parliamentarians are considering 11 candidates, including two incumbents, for two seats on the nine‑member Constitutional Court.  Given a record of devasting impacts from rulings from the court, the appointment process merits the utmost care.  But parties appear inclined to decide along partisan lines (p. 10).   

Health: A nationwide Dengue outbreak has killed 169 but Jakarta Province officials have not yet declared a crisis.  The severity is still below that of 2016 (p. 10).

International: Tax officials said that a new mutual legal‑assistance agreement (MLAA) with Switzerland – Indonesia’s 10^th MLAA – will help track fraud (p. 11).

Economics: GDP remained steady in the fourth quarter, bringing full‑year growth to 5.17 percent.  Household demand remained firm, while fixed‑capital formation softened slightly from the preceding quarter (p. 12).  Spending on Community Funds – a key component of Widodo’s program – reached Rp60 trillion again in 2018 (p. 13).

2. Mitra Adiperkasa (MAPI IJ) – Retail Therapy Is Alive and Well – On the Ground in J-Town

With the huge investment that has been going into e-commerce in Indonesia, especially in the consumer space, there are doomsayers out there crying out that the end is nigh for traditional offline retail as we know it.

Anyone who has actually visited popular destination Jakarta malls such as Grand Indonesia or Kota Kassablanca with their eyes open would almost certainly take a different view. 

A visit to Mitra Adiperkasa (MAPI IJ) management in Jakarta last week confirmed that middle-class retail therapy in Indonesia is alive and well and the company is well positioned to take advantage.  

Mitra Adiperkasa (MAPI IJ) finished 2019 with +8% Same Store Sales Growth (SSSG), with a particularly strong performance from its Sports Station Stores within Ramayana Lestari Sentosa (RALS IJ) stores. 

The company continues to expand its footprint in Indonesia, with plans to increase its floor area by 60,000 sqm in 2019 and a focus on MAP Active, Fashion, and Starbucks. 

MAP continues to take an omnichannel approach to sales, working with all the major online marketplaces and selling through its own Mapemall.com. Online sales only account for around 1% of total sales currently. 

Mitra Adiperkasa (MAPI IJ) remains a key proxy for middle-class consumption in Indonesia, with an increasingly broad spectrum of exposure through alliances with other retailers such as Ramayana Lestari Sentosa (RALS IJ) and Pt Matahari Department Store (LPPF IJ), as well as through its Starbucks expansion. After a few years of restructuring, the company is now harvesting on its transformation, with its specialty business now growing at a faster pace, its department stores in much better shape, and Starbucks enjoying better scale benefits. The company’s margins have improved, it has a stronger balance sheet and more efficient working capital management. According to Capital IQ, the company is trading on 19.6x FY19E PER and 16.5x FY20E PER, with forecast EPS growth of +14.0% and +18.2% for FY19E and FY20E respectively, which continues to look attractive in valuation terms.