Retailers are in their strongest financial position in years, in our view; but who can yield more capital to shareholders?

Indonesia's listed retailers are arguably in their healthiest financial position in more than a decade, in our view. The sector's combined interest-bearing debt-to-equity ratio has steadily declined over the past ten years (Fig. 1), while companies such as Alfamart (AMRT IJ, Buy), Alfamidi (MIDI IJ, Buy), and MAP Active (MAPA IJ, Buy) have delivered solid free cash flow (FCF) growth over the last five years compared with the preceding five-year period (Fig. 2).

We believe this reflects years of disciplined execution. Strong product relevance, consistent store expansion, operational excellence, and the maturing of store networks have enabled these retailers to deleverage while simultaneously harvesting the cash flow generated from their long-term investments. As a result, many companies are now in a position to distribute higher dividends than their historical averages.

Against a backdrop of sector valuations approaching historical lows (Fig. 4), we assess the extent to which retailers can further increase shareholder returns (Fig. 3). We believe evaluating the sustainability of free cash flow generation and the remaining capacity for capital distribution will help investors identify companies with the greatest long-term potential to reward shareholders.

Ample payout headroom remains across the sector

Excluding Erajaya (ERAA IJ, Buy), Indonesian retailers have historically generated negative annual FCF in no more than two years over the past decade, implying that the sector has produced positive FCF in more than 80% of the period despite continued investments. This highlights the resilience of retailers' cash generation even during expansion phases.

Over the past five years, however, only Azko (ACES IJ, Buy) has distributed virtually all of its free cash flow through dividends, supported by a relatively less aggressive capex rollout. In contrast, most retailers still retain more than 60% of their annual FCF after dividends and buybacks (Fig. 5), providing meaningful headroom for future capital returns.

That said, retaining excess cash remains justified for several players. MAP Active, for instance, recently completed the acquisition of Sports Direct Malaysia (SDM, unlisted), which we estimate will increase overseas revenue contribution by around 10%. This comes alongside its ongoing store expansion across Indonesia and ASEAN. Likewise, MR.DIY Indonesia (MDIY IJ, Buy) continues to pursue the sector's fastest store rollout, requiring substantial reinvestment to support future growth.

Nevertheless, we are beginning to see a gradual shift toward greater shareholder returns. Both Alfamart and Alfamidi have increased their payout ratios above their respective historical averages, while Alfamart completed its first-ever share buyback since its 2009 IPO late last year. Supported by sustained earnings growth and cash flow generated from a maturing store base, both companies have continued to expand aggressively while consistently growing free cash flow. We therefore believe Alfamart and Alfamidi are well positioned to further enhance shareholder returns in the years ahead.

2Q26 review: Solid results across the board

Overall, Indonesian retailers delivered broadly in-line 2Q26 results, with Azko (ACES) being the only notable earnings miss (excluding forex gains). Revenue softened q-q, as expected, due to the Lebaran timing difference that created a high base in the previous quarter. Nevertheless, 1H26 revenue growth remained healthy, supported by continued store expansion and resilient same-store sales growth (SSSG). Profitability also stayed relatively robust, suggesting that low- to mid-single-digit SSSG remains sufficient to offset ongoing cost inflation.

Our top picks

Our current pecking order is AMRT > MIDI > MAPA > MDIY > ERAA > MAPI > ACES.

Looking ahead, we believe investor focus will shift to 3Q26F, where consumer spending catalysts appear limited. Historically, household consumption in Indonesia peaks during the Eid and year-end holiday seasons, making the third quarter seasonally softer. Within our coverage, we expect Alfamart and Alfamidi to remain relatively resilient, supported by their staples-heavy product mix, defensive demand profile, and continued benefit from food inflation (see our report, Revisiting the Walmart playbook ). Meanwhile, although 3Q is typically a seasonally weaker quarter for MAP Active, we see potential upside from the recent acquisition of Sports Direct Malaysia, which could provide a positive earnings surprise.

Fig. 1: Combined retailers’ debt-equity ratio (x) – Retailers have deleveraged to decade-low balance sheets

Fig. 2: Free cash flow step up: 21-25 vs 16-20 (IDRbn) – Highest growth observed in MIDI (+109%), MAPA (+68%), and AMRT (+27%)

 

Fig. 3: 2026F-2028F dividend yield: base (latest payout ratio) vs bull (100% payout ratio) uplift – Significant dividend upside remains under higher payout scenarios

Fig. 4: Retailers P/E standard deviation to five-year average – some of the stocks trading at historical low valuations

Fig. 5: Payout headroom (FCF – dividend and buyback) 21-25 – Capital return capacity remains substantial across the sector

 

Fig. 6: Retailers FY25 dividend payout ratio vs past decade average dividend payout ratio

Fig. 7: Retailers 1H26 y-y SSSG and revenue growth – decent SSSG boosted with stores expansion

Fig. 8: Retailers result summary

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Jody Wijaya (jody.wijaya@verdhana.id)

Sandy Ham (sandy.ham@verdhana.id)

Nayla Yasmin (nayla.yasmin@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)