Alfaria Source (AMRT) Boosts Revenue from Lawson, Buy or Sell?

STOCK MARKET – JAKARTA. PT Sumber Alfaria Trijaya Tbk (AMRT) continues to aggressively add new sources of income. The expansion of store openings amid the potential increase in public consumption will be a boost for this Alfamart store operator.

Mirae Asset Securities analyst Rut Yesika Simak said, the wide store network provides accessibility and convenience, making it not easily approached by new competitors in this daily needs retail industry.

AMRT through Alfamart and Indomaret stores represent a strong duopoly in the Indonesian market with each operating about 18,735 and 22,080 stores, as of September 2023.

Also, AMRT is not only trying to maintain the Alfamart market share but also continues to grow, especially in the middle-class category through its entity PT Midi Utama Indonesia Tbk (MIDI). MIDI is now focusing on expanding the Lawson store network which shows an extraordinary store growth of about 571 as of September 2023 compared to 192 stores in 2022.

Rut explained, this trend is important for AMRT's future growth, not only in terms of the number of stores but also because of the higher margins offered by the relatively larger Lawson format compared to other stores. Moreover, Lawson is enriched with a variety of ready-to-eat (RTE) and ready-to-drink (RTD) products.

“We hope that AMRT will not only maintain its market share but also expand its reach, especially in the middle-class store category through Lawson,” Rut Yesika revealed in a research on December 12, 2023.

Mirae Asset Securities still sees rapid growth in the Alfamart group, which has grown by 9.1% YoY to 21,828 stores until September 2023. The average addition of these stores has grown compared to the Compound Annual Growth Rate (CAGR) of 7.6% during the 2018-2022 period.

Meanwhile, Rut estimates an addition of about 1,600 stores in 2024, with the largest growth expected from the MIDI group segment. The launch of concept stores like Alfamidi and Lawson, coupled with the establishment of stores in the personal care industry such as Dan+Dan, will be of interest.

Growth at Alfamidi far outpaces the Alfamart group with an increase of 23.1% YoY to 2,781 stores due to the addition of 379 Lawson group stores during January – September 2023.

Rut believes, the expansion of Lawson stores will continue because it is driven by the rapidly increasing demand for RTE and RTD products along with the increasing mobility of the community recovering post-pandemic.

Alfamart also offers various promotional programs to support its expansion, including cashback and franchise fee discount programs, conversion programs, and rental businesses.

“Performance development programs and other services will continue to be further developed in the coming years to instill greater confidence in franchisees collaborating with AMRT,” added Rut.

Samuel Securities Indonesia (SSI) analyst Ashalia Fitri added, this year's general election will have a positive impact on the performance of Fast Moving Consumer Goods (FMCG) issuers like AMRT. Because, election-related spending is likely to be spent on daily necessities.

In addition to election spending, Ashalia continued, another factor that can drive AMRT's performance is the Direct Cash Assistance (BLT) that will be given by the government to the community. A number of social assistance have the potential to increase the community's purchasing power, which will have a positive impact on the demand for AMRT products.

“This year with the election we see will have a positive impact for FMCG companies like AMRT,” Ashalia told Kontan.co.id, Monday (22/1).

Ashalia gives a Buy recommendation for AMRT with a target price of Rp 3,250 per share. Meanwhile, Rut Yesika maintains a Trading Buy recommendation for AMRT with an unchanged target price at Rp 3,200 per share.

Rut explained, the AMRT recommendation is based on the continuous store expansion, improvement in economic conditions, strong free cash flow, changes in product mix and innovation with new store formats, and operating efficiency.

However, it should be noted that slower new store growth than expected and slower domestic consumption growth can be a risk for AMRT.