Fitch: No Impact on Alfamart Despite Weak Indonesian Consumer Confidence
OREANDA-NEWS. Fitch Ratings says that the weaker consumer confidence in Indonesia will have no impact on the rating of convenience store operator PT Sumber Alfaria Trijaya Tbk (Alfamart, AA-(idn)/Stable). Fitch believes that its solid business profile and healthy revenue growth will continue to support Alfamart's credit profile in the next 12-18 months.
Bank Indonesia's Consumer Confidence Index in September 2015 fell to 97.5, the lowest in more than five years, from 112.6 in the preceding month. The index is based on a survey of households in various regions in Indonesia and a score below 100 indicates consumer pessimism. The low figure is primarily driven by weaker consumer perception of current and future economic conditions.
Alfamart's revenue growth has remained resilient despite weaker consumer confidence in the past. The last time the consumer confidence index was below 100 was in March 2009 and it was below this throughout the entire 2008 too. Nonetheless, Alfamart still posted solid revenue growth of above 25% over the two-year period as the company added more than 500 stores per year.
Fitch believes that Alfamart will continue to record healthy growth in 2015 and 2016. The growth will be supported by new store openings across Indonesia, with the company taking advantage of the low penetration of modern retail formats such as convenience stores and supermarkets. We expect Alfamart to add around 1,200 stores in 2015 and 2016 (2014: more than 1,300 stores added).
Fitch expects convenience stores to continue to lead the penetration of modern retail formats in the sprawling archipelago, because they can reach areas with relatively low traffic, such as within residential complexes and cities outside the highly populated Java island. We believe that Alfamart will benefit from the growth of modern retail due to its leading market position - the company controls approximately 50% of the convenience stores in Indonesia. We expect that as Alfamart increases its scale through store expansion, its credit metrics will remain appropriate for its rating, with FFO-adjusted net leverage below 3.5x (2014: 2.9x) and FFO-fixed charge coverage above 2.5x (2014: 3.0x).