Pressures Continue to Linger
Key Takeaways :
▪️Despite the regained volume since the end of last year, consumers continue to maintain overall spending, leading to downtrading behavior. This is reinforced by the GDP deflator, which recorded a negative growth of -0.8% YoY in 1Q24.
▪️Our rationale for why consumer staples remain unfavorable aligns with the current monetary policies. We found a positive correlation between the growth pace of narrow money M1 and the aggregate revenue of consumer companies in our universe.
▪️With the depreciation of USD/IDR and a "higher for longer" stance, BI is likely to maintain the BI Rate at 6.25% in the medium term. We expect narrow money M1 growth to remain limited (at single digits), which could burden demand for staple products. This is underpinned by rising consumer appetite for savings or 3-month time deposits given attractive rate levels.
▪️We maintain a NEUTRAL recommendation for the consumer sector. While volume has rebounded, it remains vulnerable due to weak purchasing power. We favor stocks with strong pricing power such as SIDO and ICBP. Upside risks include: 1) improved purchasing power; 2) a decline in staple food prices; 3) significant growth in narrow money M1.
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