The Jakarta Post
In the past 10 days, floods have hit various districts in Jakarta, covering 17.7 percent of the total area, up from 17.4 percent in 2013.
More than 10,000 houses have been flooded with 64,000 people being displaced from their homes. In East Jakarta, one of the worst hit areas, the flooding has been up to a depth of 5 meters in places. Twelve people have reportedly died thus far in flood-related incidents.
In this write-up, we attempt to assess the floods' impact on the various sectors under our coverage and corporate earnings as follows:
While all distribution channels are adversely impacted by floods, we believe there are sectors and stocks that will perform better than others from the situation. In general, this should provide positive sentiments for apartments at the expense of landed housing. Thus, we expect Lippo Karawaci, to see uplift, helped by its hospital business which should see increased traffic as people get sick.
We expect the pharmaceutical sector to also see some uptick from increased purchases of medicines to treat wide-ranging illnesses such as flu and skin diseases. Within our coverage, this would benefit both Kalbe and Tempo.
Additionally, during flooding normally households and evacuation centers will stock up on staple foods such as noodles to the advantage of Indofood Consumer Branded Products.
During rains, smokers also have the propensity to smoke more, resulting in increased sales for Gudang Garam.
Within the commodity sector, we expect flooded plantation estates in Sumatra to result in decreased output, resulting in higher crude palm oil (CPO) prices ahead ' our top pick in this sector remains Astra Agro.
In the automotive sector, Astra's subsidiary, Otoparts, could be a name to watch (car spare parts), while Ace Hardware should also see increased repair-related products sales ahead.
With rains, cement, construction and coal plays could face operational delays. We also expect an adverse impact on bread maker Nippon Indosari (69 percent of its sales are in the Greater Jakarta area), and due to the fresh nature of its products, spoilage rates will rise.
Rains should also adversely affect retailers due to spoilage and reduced traffic, particularly Ramayana since its low-end target market consumers are normally deterred from leaving their homes as they do not possess cars for commuting.
Finally, traffic jams caused by flooding should spell bad news for transportation, adversely impacting Express and airlines like Garuda Indonesia, as flights are delayed or canceled.
The writer is senior associate director/head of equities and research at PT Bahana Securities.
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