Publicly listed consumer goods companies have managed to book profits in the first quarter – some even higher than last year – as they emerge as winners during the pandemic-induced economic crisis.
Koneksi Kapital equity analyst Alfred Nainggolan said on Tuesday that the growth of consumer goods companies had been caused by an increased need for staple goods during the pandemic.
PT Unilever Indonesia, which sells soap, shampoo and other personal care products, as well as food and refreshments, reported a higher net profit in the first quarter of this year than in the same period last year. At Rp 1.86 trillion, Unilever’s January-March net profit grew 6.5 percent year-on-year (yoy). Sales grew 4.6 percent to Rp 11.15 trillion for the same period.
“In times of crisis like today, staple goods like food and hygiene products are even more essential for a lot of people, regardless of their economic condition,” Alfred told The Jakarta Post.
Indonesia’s economy grew 2.97 percent in the first three months of this year, the lowest in 19 years, as consumer spending, which accounts for more than half of the nation’s gross domestic product (GDP), grew 2.84 percent. Vehicle and retail sales led the fall as people spent more on health care.
The panic during the early days of the coronavirus outbreak drove many people to hoard food and cleaning supplies, causing empty shelves in many grocery stores in cities throughout the country.
Instant noodle producer PT Indofood CBP Sukses Makmur (ICBP) recorded a 6.67 percent yoy increase in sales to Rp 12 trillion in the first quarter of this year, thanks to a 6.54 percent yoy rise in noodle sales. As a result, its profit soared 48.26 percent yoy to Rp 1.98 trillion.
Nippon Indosari, the producer of Sari Roti bread, recorded the strongest growth in sales and profit of consumer goods companies. The company recorded a 15.3 percent yoy growth in sales to Rp 912.87 billion in the first three months of this year. Its profit jumped 20 percent yoy to Rp 77.85 billion in the same period.
Despite the solid growth in the first quarter, Alfred warned that consumer goods companies would see a slight decline in performance in the second quarter of this year because large-scale social restrictions (PSBB) had hampered economic activity.
The measures, which were intended to curtail the spread of the coronavirus, resulted in layoffs and pay cuts, which caused consumption to decline.
“The decline will not be as significant as car or house sales because people will continue buying the same short-term staple goods despite the pay cut,” he said.
Mirae Asset Sekuritas analyst Mimi Halimin said in a research note on May 15 that even though the slowdown in consumption was unavoidable during the pandemic, she believed that some sectors, such as food and beverages, as well as healthcare, would remain resilient to the uncertain conditions.
Analysts expected that a recovery of economic activity following the establishment of the country’s “new normal” would drive consumption and reduce logistic costs in the second half of the year. However, consumption would likely remain below first quarter performance.
In addition to weak consumption, Mimi said other factors would affect consumer goods companies’ performances this year, including increasing COVID-19 cases, which surpassed 49,000 in the nation on Wednesday, with 2,573 dead.
“A prolonged increase in COVID-19 cases, intensified competition, higher commodity prices and a weakening rupiah could cause us to scale down our revenue and net profit estimates for consumer goods companies,” added Mimi.
Despite the challenges, Mimi remained optimistic that consumer goods companies would be resilient to the ongoing uncertainty and that their stocks would remain good investments amid rising market volatility.
The consumer goods subindex of stocks traded on the Indonesia Stock Exchange (IDX) dropped the least of all the sectoral subindices this year, falling by 11 percent. This decline was significantly less than the 34 percent slump suffered by the hardest-hit property and real estate subindex, the 31 percent plunge in the agriculture subindex and the 21 percent fall in the agriculture subindex.