Daily Indonesia: Sumber Alfaria Trijaya (AMRT IJ) – Flying off the Shelves – On the Ground in J-Town and more

In this briefing:

1. Sumber Alfaria Trijaya (AMRT IJ) – Flying off the Shelves – On the Ground in J-Town
2. Uzbekistan Initiation: Value Hidden in Plain Sight

1. Sumber Alfaria Trijaya (AMRT IJ) – Flying off the Shelves – On the Ground in J-Town

Leading Indonesian mini-mart operator Sumber Alfaria Trijaya Tbk P (AMRT IJ) (Alfamart) has undergone quite a dramatic transformation over the past 12 months, with a dramatic slowdown in its new store buildout paving the way for a significant pick up in SSSG and a reduction in debt. 

The company plans to start to step up its store openings selectively over the next year, with 500 new stores planned and fewer closures. Last year it only opened net 200 new stores having opened 1200 stores the previous year.

The market segment continues to see consolidation, with supermarkets and hypermarts suffering and mini-markets continuing to gain ground as the “pantry of the middle-class”.

The company continues to grow its fee-income business, which is highly profitable, with increasing collaboration with utilities, finance companies, and e-commerce players to name but a few. 

After a difficult 2017, Sumber Alfaria Trijaya Tbk P (AMRT IJ) looks to be well and truly back on a growth trajectory, with a rationalisation of its stores, a slow down in its expansion, reduced gearing, and a focus on operational efficiencies. The Mini-market continues to win out in the retail space and is increasingly being used as a distribution network for e-commerce companies. The growth in fee-service from bill payment and other services will be positive for the bottom line. The stock is by no means cheap on a PE basis but provides quite unique exposure to what is still a high-growth area of the economy. According to Capital IQ consensus estimates, the company trades on 51x FY19E PER and 44x FY20E PER, with forecast EPS growth of +30% and +16% for FY19E and FY20E respectively. 

2. Uzbekistan Initiation: Value Hidden in Plain Sight

Uzbekistan’s economy is a frontier market stand out and has a large number of attractive characteristics:

• Uzbekistan’s stock market trades at a substantial discount to other frontier markets, though the extremely illiquid nature of the market makes it hard to trade.  However, there still is foreign interest in the market.
• The IMF projects that the economy will grow by 5% during 2018 and 2019, and eventually reach 6% by 2022, though this is still below its historical high. 
• Market reforms were spearheaded in December 2016 when the newly elected president, Shavkat Mirziyoyev decided to transition towards a market- oriented economy led by private sector growth, as the public sector was unable to create enough jobs.  This represents a significant shift given that Uzbekistan had been a closed, centrally planned economy until 2016.
• Tourist arrivals grew by 91.6% during H1 2018, and this is poised to improve greater in the future due to the impact of the visa liberalization measures.
• Twin deficits have remained under control and Uzbekistan is one of few current account surplus frontier markets.
• Uzbekistan is also very attractive compared to other markets in the frontier space given that its minimum wage is only US$24/month, compared to around $70-75/month in Kyrgyzstan and Kazakhstan.

The market reforms that the country recently implemented will be a major catalyst for future economic growth and makes investment in this market appealing.  Apart from strong growth, the market is also appealing due to its high foreign exchange reserves ( nearly 2 years of import cover), consistent CA surplus, and stable currency.  My latest frontier and emerging market recap highlights the appeals of markets such as Bangladesh, Vietnam, and Egypt, while expressing concerns for markets such as Sri Lanka and Pakistan.  Uzbekistan is a suitable addition given its stable macro/political picture, and the main negative factor of this market is the highly inaccessible nature of the equity market.  The ADTV is less than $100,000, which is a far cry from other frontier markets like Romania, Sri Lanka and Kenya.