Meeting with Indonesia Shopping Center Management Association
- We met with Alphonzus Widjaja, the Secretary-General of Indonesia Shopping Center Management Association. Attached are the key takeaways:
- Mall tenants are suffering currently. Mall tenants are experiencing the burden of slowing economy. Discussion with the tenants indicate that their revenue is down by 30-40% YoY, worst hit is the fashion stores. The fashion stores also suffered due to the rising dollar. Even though traffic on the malls are maintained, but customers are trending down their purchase. Even the F&B restaurants are experiencing decline on SSSG. However, the SSSG in food court (such as Eat & Eat) increased as the mall visitors opt for cheaper meals.
- The retailers are halting or slowing down expansion. HERO and Carrefour are not expanding at all for this year. For some stores, sales per transaction declines significantly. Other retailers are slowing down their expansion. Only Matahari Department Store and Hypermart are still expanding. Foreign retailers, such as Lotte and Central are also not aggressively opening new stores like in the previous years.
- What would the mall owners do? At the current juncture, the mall retailers would not give any discount on the rental rate or service charge. However, to ease the tenants’ burden, the mall owners would ease the cash payment or installment of the tenants.
- Bargaining power tilted to the retailers at the moment? Previously, we believe that the bargaining power is more towards mall owners, due to ferocious appetite of both domestic and foreign retailers to expand. However, on the onset of slowing economy, the bargaining power is currently tilted towards retailers. Hence, during the opening of a new mall, retailers could negotiate for a lower rental rate or subsidy for its fitting-out. However, Summarecon could still have bargaining power, due to its successful track record on both Summarecon Serpong and Summarecon Kelapa Gading.
- We don’t see earnings risk on the mall operators just yet. Despite the weak revenue of retailers, heavy discounting on the rental rate is unlikely. Hence, earnings from mall should remain stable. We maintain our Buy stance on PWON
. PWON generates 43% and SMRA 30% of its revenue from recurring income (malls and hospitality). We have Buy on PWON with TP of Rp620 and Buy on SMRA with TP of Rp2,000. Due to the good track record on both of these mall operators, we think tenant is unlikely to ask discount on the rental rate.