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Asia300

Indonesian consumer stocks sink as earnings disappoint

Weak performance 'brings up questions' about economy's health

JAKARTA -- Indonesia's retail and consumer stocks fell on Tuesday, after a string of lackluster second-quarter earnings reports raised fresh concerns about an economic slowdown.

Shares in Matahari Department Store, the country's largest department store operator, fell 10% to their lowest level in three and a half years. The previous day, the company had announced that same-store sales growth for the January-June period slowed to 8%, from 27% a year earlier.

Investors dumped the stock even though Matahari still managed to book a 16% year-on-year increase in net profit, to 1.33 trillion rupiah ($99.8 million).

Sales at Unilever Indonesia, the country's largest consumer goods company, fell 3% on the year in the April-June quarter, after increasing 9% in the first three months. Similarly, Indofood CBP Sukses Makmur, the country's top producer of instant noodles, reported a 3% decline in sales in the second quarter after posting an increase for the first.

Both companies saw their stocks fall on Tuesday, as did cigarette makers Hanjaya Mandala Sampoerna and Gudang Garam, and drugmaker Kalbe Farma.

The benchmark Jakarta Composite Index dipped 0.6%.

Critical quarter

In Indonesia, second-quarter earnings are watched closely by analysts as a gauge of consumer confidence, since spending tends to rise during and immediately after Ramadan. The holy month of fasting began in late May this year.

"It definitely brings up questions," said Sebastian Tobing, head of research at Trimegah Securities. "The expectation was that the economy is on a slow recovery. But what the earnings show is that it may actually be slowing down."

Indonesia's statistics bureau on Tuesday said the annual inflation rate declined to 3.88% in July, from 4.37% in June, in line with market expectations. The central bank aims to keep the rate within the 3% to 5% range.

When it comes to consumer spending, there are few positive glimmers despite a rebound in commodity prices and significant growth in government spending, as President Joko Widodo pushes his infrastructure development program. Bank Indonesia's consumer confidence index fell in June for the first time in five months.

Some economists attribute the weakness to short-term factors, such as a hike in electricity rates and late disbursement of government subsidies to farmers. But others see it as a side effect of the government's long-term policies for stabilizing the economy. David Sumual, chief economist at Bank Central Asia, said consumer confidence has eroded amid aggressive moves to crack down on tax evasion -- part of a drive to raise low tax revenue.

"The situation will continue because [the tax crackdown] is a global commitment, so the way the government socializes it will be key," Sumual said.

Helmy Kristanto, head of research at RHB Sekuritas Indonesia, said the government's efforts to control inflation may also cast uncertainty on the consumer goods sector. "The government will focus on how to put inflation under control ... but how the initiatives will play out is difficult to predict," he said.

Investors in food company Tiga Pilar Sejahtera Food were spooked recently, when police and government officials confiscated more than 1,000 tons of rice from its warehouse. The company is accused of inflating prices by falsely labeling inexpensive rice as premium brands.

Looking ahead, some analysts said investors are likely to prefer stocks of companies that are less susceptible to economic trends, given the uncertain prospects. Telecommunications stocks like XL Axiata and Telekomunikasi Indonesia were among the winners in Tuesday's trading.

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