Here’s a shot from the new Terminator film, the battle rages.
The latest consumer confidence data is out. And Indonesia is still on top of the world. Consumer Confidence increased again in May to 105 from 102 in April. We are setting up for part 2 of an interesting battle between consumer and commodities as the later rallies again.
In Recent years, until last year, commodities were the winners, over the longer term as our chart comparing UNVR & INCO shows, consumer stocks are still ahead. We have seen an improvement for consumer stocks in the first quarter of 2009 as margins improved on higher prices, good volume, and lower (commodity costs).
What will happen now with higher commodity prices?
Well we do like commodities, as we have said before, we are bullish on demand, as emerging counties like Indonesia grow, and on supply which we see form Indonesia is tight. So the momentum still lies with INCO vs UNVR. Within the consumer sector there is good opportunity for stocks which have done less well to catch up.
One is KLBF, which a couple of years ago was one of investors favorite stocks. After a difficult couple of years, it looks set to become more popular again especially with its large buyback programme. One things which could help consumer stocks when commodity prices rise this time is a stronger rupiah. And this is one reason we raise KLBF earnings forecasts by 40% this year and 20% next. We also see better cost control, and lower tax. And raise our target price to Rp1,050, BUY,
So on balance while the battle still looks in favor of commodities, consumer stocks which have suffered the worst margin falls are fighting back (INDF, GGRM), and those with large $ costs like pharmaceuticals (KLBF), will be helped by a stronger rupiah.
A more fair fight this time
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