KEY HIGHLIGHTS
- Consumer spending remains the main weakness. Indonesia’s economy grew 5.29% in 2Q26, but household consumption rose only 2.67%, contributing around 1.4ppt to overall growth. Monthly indicators say the same: retail sales grew just 0.9% yoy in July and fell 0.3% mom, while consumer confidence declined to 116.8, the lowest since April 2025. Growth is being driven more by government spending and investment than by consumers.
- Consumers have income, but remain cautious. The weakness is cautious spending rather than lower purchasing power. The 2026 minimum wage rose 5.9% against August inflation of 3.19%, implying around 2.7% real wage growth — broadly in line with the 2.67% household consumption growth delivered. Consumers have seen real income growth but remain reluctant to spend ahead of it. We therefore do not expect a broad-based retail recovery on wage growth alone, with consumer confidence the key constraint.
- We stay selective rather than negative. The sector trades at a median trailing P/E of 9.6x across a wide 4.34x–15.93x range, so valuation alone is not the key question. Seven listed retailers, IDR 109Tn of combined market capitalisation. We prefer companies that can keep growing through company-specific drivers rather than relying on a broad recovery in consumer spending.
- We prefer retailers with company-specific growth. Retail performance has weakened since June, which supports the selective view. ERAA’s SSSG slowed from +7.2% in 5M26 and +4.1% in 1H26 to +2.2% through 7M26, with June and July down 11.6% and 8.6% yoy. ACES was more resilient at +2.2% SSSG in 1H26, though growth was strongest in Jakarta and weaker outside Java. We therefore prefer ACES and ERAA — store expansion and stronger non-handset businesses respectively. Key watch: June–July sales trends are the key near-term risk; monthly data should be monitored closely.
Regards, Aldiracita Research
