- Receding inflation and improving CCI point to strengthening consumer demand in 2H23 despite global macro headwinds
- Favour Indonesia for its resilient GDP growth, steady domestic consumption, and we are optimistic on Thailand too on the back of a tourism recovery
- 2Q23 earnings could be mixed but easing price pressures could support a better performance in the quarters ahead
- Picks: THBEV SP, DFI SP, INDF IJ, LPPF IJ, CPALL TB, BJC TB, URC PM and CNPF PM
Mixed 1H23 for our top picks, with Indonesia outperforming. Indonesian names outperformed the JKT index. Whereas our picks with Thailand and China exposure underperformed and delivered negative returns due to political uncertainties and disappointing China recovery trajectory respectively.
Upcoming 2Q results preview – a mixed bag. Majority may meet expectations, while 19%/38% would be potential beats/misses. On the positive side, drivers include stronger margins and turnarounds (ICBP, SPA) while robust domestic demand in Indonesia bodes well for DELFI and MAPI. On potential misses, we expect weak demand from low-middle income consumers in Indonesia (KINO, LPPF), high material costs (CPF, TU) and excess inventory (TU, MONDE) to weigh on earnings.
Rays of positivity in 2H23. Key themes we look out for (i) momentum of improving consumer sentiment on the back of easing inflation; (ii) return of Chinese tourists; (iii) improvement in margins as input cost inflation moderates, although El Nino effects could be a risk; (iv) consumer spending uplift in the lead up to Indonesia election in early 2024. The recent collapse of the Black Sea grain deal bears watching regarding wheat and corn price hikes, although companies seem better prepared this time compared to the onset of the Russia-Ukraine conflict.
Top picks – prefer dominant players for stability; specific catalysts – election, recovery: Our Thailand picks – CPALL TB, BJC TB and THBEV SP – would benefit from easing inflation, potential margin expansion, and improving sentiment. INDF IJ is our pick in Indonesia as an alternative to ICBP. In the Philippines, we like URC PM and CNPF PM for their market leadership and strong balance sheets. Post 2Q results, we advocate LPPF IJ for a play on upcoming election and DFI SP on its turnaround story.