Fasting Month a Boon to Retailers and, Perhaps, Their Shareholders
As Ramadan gets underway investors may be focusing on companies, particularly retailers, that tend to benefit from the frenzied spending that accompanies breaking the fast during Ramadan and the ensuing Idul Fitri holiday.
That translates into the biggest spending period and the year’s most important holiday season.
“Retailers Mitra Adiperkasa, Ramayana Lestari Sentosa and Ace Hardware should see an increase in sales,” said Ivan Chamdani, an analyst with Trimegah Securities.
“Especially Ramayana because of their target market. Mitra Adiperkasa’s increases in sales will come from its new stores. It had brought in several new brands since last year and created new excitement that should help sales.”
Retailers’ stocks have already started to pick up, outperforming the benchmark Jakarta Composite Index’s 6.8 percent advance this year. Mitra Adiperkasa has risen 46 percent, Ramayana has gained 67 percent and Ace has added 36 percent since the start of the year. Still, share prices for each company may be expensive, trading at up to 28 times this year’s estimated earnings, compared with a multiple of 14 for the JCI, Bloomberg data show.
Consumer spending accounts for about 60 percent of the nation’s economic activity and recent data suggest Indonesians are more upbeat about the outlook of the economy than they were just a few months ago, as shown by consumer confidence surveys from the central bank and Danareksa Research Institute.
The unemployment rate has declined, to 6.3 percent as of February from 6.6 percent in August 2011, and more people with jobs suggests higher spending.
“This year’s sales should be higher because formal employment had grown much higher relative to informal employment. There is confidence in the market,” said Adrian Joezer, an analyst at Mandiri Sekuritas.
He said that Ramayana should benefit with the opening of more stores this year than last and that should boost sales. “The biggest growth will be seen in Ramayana because it targets the mass [of the] population,” Joezer said. “The middle-to-lower income group, Ramayana’s targets, just spend big once a year, and that is during the fasting month or just before Idul Fitri.”
Erajaya Swasembada, a mobile-phone retailer, should also benefit with the increase in demand for new cellular phones this season, he said. Sales of new motorcycles typically pick up this time of year, but with the higher down payment plan, sales growth may not be as strong, Joezer said.
Spending on clothing also increases during the holiday period and Trimegah’s Chamdani expects Ramayana to benefit more than Mitra Adiperkasa — the local franchiser of Zara, Pull and Bear and Payless Shoes — because it caters to a much wider clientele, middle and lower-income households.
Mitra Adiperkasa also operates upscale Debenhams and Sogo department stores.
An indication of future spending came from the latest Great Jakarta Sale Festival, which ended last week. Sales reached more than Rp 10 trillion ($1.1 billion), up 22 percent from last year’s Rp 8.2 trillion.