Presidential candidates to improve Indonesia transport

Both Prabowo Subianto and Joko Widodo of the Indonesian presidential election have pledged to spend big on transport links including roads, railways and ports – Benefiting retailers who struggle to reach customers within remote regions of the island nation. Whilst consumer companies within the fourth most populous country of the world, trailed builders as the benchmark stock index elevated by 18% this year, the Indonesia Food and Beverage Producers Association claim sales could be as much as 50% higher, if only access to rural areas were improved.

Aberdeen Asset Management, which oversees approximately $541billion, view consumer companies in Indonesia as a way of indirectly playing the infrastructure. This is as they claim any pro-infrastructure policy would make the economy more competitive, benefiting consumers.

London based research firm, Kantar Worldpanel forecasts Indonesia to gain 80 million new consumers over the upcoming 15 years. This is as Indonesia’s economy is forecasted to grow by 5.7% each year through 2016.

Jakarta’s governor, Joko Widodo currently has a lead of 2 to 6 percentage points, according to first counts following the 9^th July. However, Prabowo Subianto claimed quick counts made by companies he used for guidance, revealed he is in the lead. Official results are to be announced on 22^nd July. 

The competing politicians may differ upon government debt and spending views, however they both agree on the need for better infrastructure. Widodo wishes to build 2,000km of new roads and 10 seaports, as Prabowo pledged to spend approximately $121billion in five years to develop 3,000km of roads, as well as 4,000km of railways, plus airports and seaports.

Projections of a Joko Widodo victory aided in sending the Jakarta Composite Index into a bull market during March.

Infrastructure developers as well as construction firms commenced advances since Widodo was announced as presidential contender for Indonesia’s Democratic Party of Struggle (PDI-P). The Jakarta Infrastructure, Utility and Transportation Index jumped approximately 10% since his nomination on 14^th March, as the Construction, Property and Real Estate gauge added 1.4%. The Consumer Goods Index rose by 0.3%.

Further gains in consumer stocks will be limited due to the very high values of shares, following advancement for five straight years, according to a fund manager at AAA Asset Management based in Jakarta, overseeing approximately $470million. The consumer gauge is valued at 24.3 times projected earnings over the next year, a 35% premium over the infrastructure index.

According to Bloomberg data, Unilever Indonesia trades at 37 times forecasted profits, making it the world’s most expensive producer of consumer staples with a market capitalization of at least $10billion. The consumer stocks have surprising strong growth ahead. It currently seems the share price would only track earnings growth.

According to Ashmore Asset Management Indonesia, the long-term potential of consumer companies justifies their cost. Earnings of the consumer index will probably increase over 15% each year over the next two years, as recorded by analyst estimates compiled by Bloomberg.

Ashmore are viewing consumer stocks as a long-term investment, overseeing approximately $423million of Indonesian assets. Infrastructure companies may benefit from projects over the upcoming two or three years, which consumer stocks may follow.

Kantar claim household consumption of staple products across 77,548 villages spread throughout the archipelago can be as much as 60% lower in comparison to towns and cities.

Currently, neglected infrastructure has excessed logistics costs to approximately 27% of gross domestic product, the highest of South East Asia, according to an 8^th July report by Indo Premier Securities, citing data from the World Bank and Indonesia Port Corporation. It costs approximately $650 to send a container from Jakarta to Batam island, nearly three times the price of shipment to Singapore, which is only approximately 20km further North.

Both presidential election candidates, plus even the current president, have made claims that they wish to build infrastructure. Indofood Sukses Makmur said infrastructure improvements would automatically boost the economy, accelerate rural development and lower distribution costs. Not only would more consumers be attracted, fuel costs would also be cut when making a 25km trip to refresh supplies every week.