(RALS IJ) 4Q17 Preview: In line with estimates Retail Company Report February 2, 218 (Downgrade) Trading Buy Target Price (12M, IDR) 1,41 Share Price (2/1/18, IDR) 1,19 Expected Return 18.5% Consensus OP (18F, IDRbn) 419.6 EPS Growth (18F, %) 29.2 P/E (18F, x) 16.1 Industry P/E (18F, x) 46.3 Benchmark P/E (18F, x) 17.4 Market Cap (IDRbn) 8,444.2 Shares Outstanding (mn) 7,96. Free Float (mn) 2,474.3 Institutional Ownership 7. Beta (Adjusted, 24M) 1. 52-Week Low (IDR) 835 52-Week High (IDR) 1,51 1M 6M 12M Absolute -.8 33. -13.5 Relative -4.7 19.7-37.3 (D-1yr=1) 14 12 1 8 6 4 2/17 PT. Mirae Asset Sekuritas Indonesia Trade 2/17 3/17 4/17 4/17 5/17 6/17 JCI 6/17 7/17 8/17 8/17 Christine Natasya +62-21-515-114 (ext.: 233) natasya@miraeasset.co.id 9/17 1/17 RALS 11/17 11/17 12/17 1/18 1/18 FY17 top line: In line with our estimates For December 217, (RALS) delivered gross revenue of IDR813.6bn, bringing the cumulative FY17 figure to IDR8.15tr. This is in line with our full-year estimate, which we had already slightly lowered following RALS supermarket closures (please see Looking forward to a happy new year for details). SSSG closed the year negative (-1.2%), in line with our forecast. Turnaround in December sales After three consecutive months (September-November) of negative YoY growth, December sales turned around (+1.5% YoY), despite the absence of any increase in government social spending for low-income households. In addition, MoM growth was particularly strong in December 217, compared with past Decembers (+74% MoM, vs. 4%-6% during 213-216). Revenue boosted by holiday effects and newly opened stores We believe RALS solid December sales were supported by end-of-year holiday effects as well as the opening of three new stores (in Jatinegara, BSD, and Bekasi) in the month. The newly opened stores contributed around 2% (about IDR16.2bn) to total sales in December, even though the store in Bekasi opened only at the end of December. RALS owns 116 stores in total across Indonesia, and each store generates roughly IDR7bn in December. Therefore, according to our calculation, the stores that opened in December generated slightly higher revenue per store compared to other stores. We believe the stores grand openings helped stimulate sales. Conservative new store opening target for 218 The company aims to open only three to four new Ramayana department stores in 218 and expects to own one mall in Depok, for which it already owns the land. We assume four new stores will open in 218 in our financial modeling, and expect RALS expansion strategy to bear fruit, considering that it now manages costs very carefully after learning its lesson in the supermarket business. In addition, the company is focused more on revamping existing stores than on opening new stores, which is more costly. To revamp one store, the company needs capex of about IDR4-5bn/ store. By comparison, opening a new store requires about IDR6bn/store. Downgrade to trading buy; retain our target price at IDR1,41 Given the stock s gains over the past one month, we downgrade our rating on RALS to trading buy, but retain our target price of IDR1,41. Our target price was derived using a blended methodology, with a target P/E multiple of 24.1x (at +1SD) and DCF with a 1-year life span. FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F Revenue (IDRbn) 7,941.7 7,786.2 8,234.6 8,128.5 8,684.1 8,981.8 Gross Profit (IDRbn) 2,47.8 1,996. 2,22.5 2,171.8 2,441.4 2,529.5 Operating Profit (IDRbn) 294.3 233.5 357.4 354.8 484.4 473.7 Net profit (IDRbn) 355.7 336.1 48.5 44.8 523. 59.1 EPS (IDR) 5.1 47.4 57.6 57. 73.7 71.7 BPS (IDR) 469 47 47 495 537 567 P/E (x) 23.7 25.1 2.7 2.9 16.1 16.6 P/B (x) 2.5 2.5 2.5 2.4 2.2 2.1 ROE 1.9% 1.1% 12.2% 11.8% 14.3% 13.% ROA 7.9% 7.4% 8.9% 8.6% 1.5% 9.6% Dividend Yield 2.52 2.27 2.27 2.66 2.64 3.41 Debt to equity (x) Net cash Net cash Net cash Net cash Net cash Net cash Note: NP refers to net profit attributable to controlling interests Source: Company data, estimates PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
February 2, 218 FY17 top line: In line with our expectation For December 217, (RALS) delivered gross revenue of IDR813.6bn, bringing the cumulative FY17 figure to IDR8.15tr. This is in line with our fullyear estimate, which we had already slightly lowered following RALS supermarket closures (please see Looking forward to a happy new year for details). RALS SSSG closed the year negative (-1.2%), in line with our forecast. By region, RALS Jakarta s SSSG closed at -1.2%, the rest of Java at -.3%, and ex-java at -1.5%. For 218, the company is targeting blended SSSG of 1.5%-3%, with fashion SSSG expected to come in between 5%-8% and supermarket SSSG to remain negative (around -1% to -15%). Figure 1. RALS YTD monthly SSSG and monthly sales Figure 2. Monthly YTD SSSG by region (IDRbn) Sales (L) YTD monthly SSSG (R) 2,5 3 27.5 25 2, 2 1,5 14.4 15 1, 7.2 6.2 1 813.6 5 5-1.2 22 17 12 7 2-3 Greater Jakarta Rest of Java Ex Java 16.6 14.6 12.8 -.3-1.5-1.7 1/16 3/16 5/16 7/16 9/16 11/16 1/17 3/17 5/17 7/17 9/17 11/17-5 -8 2/17 3/17 4/17 5/17 6/17 7/17 8/17 9/17 1/17 11/17 12/17 A turnaround in December After three consecutive months (September-November) of negative YoY growth, December sales turned around (+1.5% YoY). We view this as a good headstart for the company s turnaround, although a significant increase in government social spending for low-income households will only take place in 218. In addition, on a MoM basis, growth in December 217 was higher than past Decemers. From 213 to 216, December MoM growth hovered around 4%-6%, but it picked up to 74% in December 217 (see Table 2). We believe RALS fashion sales have helped the company achieve a growth turnaround following its supermarket store closures. Indeed, revenue mix saw some changes in 217, with the contribution of fashion direct purchases increasing to 36.3% from 35.6% in 216, and supermarket direct purchases dropping to 19% from 21.9% in 216 (Figure 8). 2
February 2, 218 Table 1. RALS monthly gross revenue and forecast (IDRbn) Gross revenue 214 215 216 217 January 55.4 518.7 548.4 57 February 428.9 463.3 453.4 421 March 566.6 51.2 482.3 492 April 516.8 489.5 512.4 576 May 641.4 62.8 681.8 731 June 767.6 853.2 1,686.6 2,196 July 1,955.9 1,775.1 1,26.3 563.6 August 454.9 418.3 414.5 426.3 September 396.4 433.1 449.6 427.4 October 452.4 466.6 489.8 468.8 November 495. 497.7 51.7 467.2 December 714.8 755.7 81.6 813.6 Total gross revenue 7,941.1 7,784.2 8,228.4 8,152.8 Figure 3. Sales mix by region Figure 4. YoY sales growth picked up in Dec. 17 Ex Java Rest of Java Greater Jakarta (IDRbn) Sales (L) Sales YoY growth (R) 1 1, 3 1.5 8 4.9 4. 39.7 39.5 38.9 37.2 37.5 37.7 37.8 38. 38.3 39. 8 6 6 4 24.9 25.5 25.8 25.9 26.7 27.9 27.7 27.6 27.5 27.4 27.3 26.9 4-3 2 34.2 34.5 34.5 34.6 34.4 34.9 34.7 34.7 34.7 34.6 34.4 34.1 2-6 1/17 3/17 5/17 7/17 9/17 11/17 9/17 1/17 11/17 12/17-9 Table 2. RALS MoM revenue growth (IDRbn) Gross revenue 213 214 215 216 217 January February -1% -22% -11% -17% -26% March 28% 32% 1% 6% 17% April -8% -9% -4% 6% 17% May 18% 24% 23% 33% 27% June 31% 2% 42% 147% 2% July 89% 155% 18% -28% -74% August -18% -77% -76% -66% -24% September -64% -13% 4% 8% % October 15% 14% 8% 9% 1% November 1% 9% 7% 2% % December 53% 44% 52% 6% 74% 3
February 2, 218 Revenue boosted by holiday effects and newly opened stores We believe RALS solid December sales were supported by end-of-year holiday effects as well as the opening of three new stores (in Jatinegara, BSD, and Bekasi) in the month. The newly opened stores contributed around 2% (about IDR16.2bn) to total sales in December, even though the store in Bekasi opened only at the end of December. One of the new stores is actually an entire mall in City Plaza, Jatinegara that the company owns. The mall has a Ramayana department store and a Robinson supermarket in it. The City Plaza mall also rents space to JCO, Starbucks, and Ace Express (ACES/Buy/TP IDR1,45), which is a smaller format (1,5sqm) than ACES stores usual size (4,sqm), and also many other tenants. According to the management, all of the tenants leasing space in the mall helps attract shoppers for its Ramayana stores. RALS owns 116 stores in total across Indonesia, meaning that each store generates roughly IDR7bn in December. Therefore, according to our calculation, the stores opened in December generated slightly higher revenue per store compared to the other stores throughout Indonesia. Although this is partly due to the stores grand openings, which stimulated sales, we believe RALS improved store layouts and fashion product assortments, combined with increased purchasing intention, also supported the sales pickup in December. Therefore, we expect RALS store openings to be efficient going forward. Figure 5. Ramayana Prime at City Plaza Mall Jatinegara Figure 6. Ramayana Prime at City Plaza Mall Jatinegara Source: Source: Conservative new stores opening target for 218 The company aims to open only three to four new Ramayana department stores in 218 and expects to own one mall in Depok, for which it already owns the land. We assume four new stores will open in 218 in our financial modeling, and expect RALS expansion strategy to bear fruit, considering that it now manages costs very carefully after learning its lesson in the supermarket business. In addition, the company is focused more on revamping existing stores than on opening new stores, which is more costly. To revamp one store, the company needs capex of about IDR4-5bn, while opening one new store requires about IDR6bn. We expect RALS capex as percentage to net revenue to stay flat at 2% going forward. Backed by transformations in its business strategy and store layout, management expects 218 blended store sales to grow by 6.1% YoY. We forecast 218 sales growth of 6.9% YoY. 4
February 2, 218 Figure 7. Capital expenditure (IDRbn) Capex (L) Capex as % to sales (R) 8 4 3 6 2 4 1 2 211 212 213 214 215 216 217 F 218 F Focus on consignment expected to boost margins Going forward, RALS will increase the consignment business, which generates higher margins. Notably, payroll amounts to just 2% of the consignment business s sales, vs. 1% for direct purchase. While there are many consignment brands that perform well, the company stated that its biggest consignment lessee currently is Sports Station. Sports Station, in Ramayana department store, sells mostly branded sports shoes at heavily discounted prices, given that it sells last call products. We believe RALS strategy to increase the company s consignment products has been successful; the consignment contribution to total revenue increased to 41.2% in 217 (Figure 9). Figure 8. RALS revenue proportion by department Figure 9. Consignment vs. direct purchase revenue proportion 1 Supermarket CV Supermarket DP Toys, stationery CV Toys, stationery DP Fashion CV Fashion DP 1 Consignment Direct Purchase 8 25.7 23.9 24.8 23.4 21.9 19 8 32.9 34.3 35.3 38.5 38.2 41.2 6 4 3.6 32.1 34 37.4 37.1 4.1 6 4 67.1 65.7 64.7 61.5 61.8 58.8 2 33.9 35 34.1 34 35.6 36.3 2 212 213 214 215 216 217 212 213 214 215 216 217 Downgrade to trading buy; retain our target price at IDR1,41 Given the stock s gains over the past one month, we downgrade our rating on RALS to trading buy, but retain our target price of IDR1,41. Our target price was derived using a blended methodology, with a target P/E multiple of 24.1x (at +1SD) and DCF with a 1-year life span. 5
February 2, 218 Table 3. Supermarket profit and loss statement IDRbn Item 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Supermarket DP 456.1 647.7 523.5 528.1 446. 631.4 378.5 Supermarket CV 2.1 3.4 2.6 2.6 2.8 3.6 2.1 DP COGS -383.9-571.5-451.7-462.5-39.1-565. -312.9 Gross profit 74.4 79.6 74.4 68.2 58.7 7. 67.7 Selling expense -14.2-28. -23.3-11.6-16. -16.5-2.7 G&A expense -64.3-84.2-62.1-77.4-64.3-77.3-51.7 Other income.3 -.7-2.6.5 3.6-2.8.3 Other expense....... Operating profit -3.8-33.3-13.6-2.3-18. -26.7-4.5 Finance income..1.1..4.5 6.9 Supermarket pretax profit/loss -3.8-33.2-13.5-2.2-17.6-26.1 2.4 Source: Company data, Table 4. Fashion profit and loss statement IDRbn Item 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Fashion DP 51.5 1,16.3 663.6 612. 488.2 1,46.9 47.9 Fashion CV 126.6 258.3 214.8 154. 141.4 344.6 164.6 DP COGS -38.1-696.5-39.9-389.5-313.7-852.1-251.9 Gross profit 319.9 722. 487.4 376.6 316. 899.5 32.7 Selling expense -73.4-94. -8.5-83.3-68.1-16.4-7.8 G&A expense -258. -325.4-289.2-276.3-263.9-329.8-295.7 Other income -6.3 2.6-1.8 32.2 15.6-2. 1. Other expense... -4.6-1.4. 1.4 Operating profit -17.8 35.3 16.9 44.6-1.8 461.2-43.4 Finance income 26.2 2.7 29.3 2.4 2.3 18.5 15.8 Fashion pretax profit/loss 8.5 326. 136.2 65.1 18.4 479.8-27.6 Source: Company data, Figure 1. RALS P/E range ( x ) 3 +2 Std Dev 25 +1 Std Dev 2 Avg PER 15-1 Std Dev 1-2 Std Dev 5 8/12 2/13 8/13 2/14 8/14 2/15 8/15 2/16 8/16 2/17 8/17 Source: Bloomberg, 6
February 2, 218 Profit & Loss Balance sheet Year end Dec 31 (IDRbn) 216 217 218F 219F Year end Dec 31 (IDRbn) 216 217 218F 219F Gross Revenue 8,235 8,128 8,684 8,982 Assets Net Revenue 5,857 5,67 5,995 6,158 Cash and equivalents 64 1,135 689 1,657 COGS -3,655-3,435-3,553-3,628 Receivables 52 37 42 42 Gross Profit 2,22 2,172 2,441 2,529 Inventories 834 779 86 823 Opex -1,845-1,817-1,957-2,56 Others 1,341 1,92 1,884 1,227 Operating Profit 357 355 484 474 Total current assets 2,831 3,44 3,421 3,748 Other income/(expenses) 11 1 11 11 Fixed assets - net 1,279 1,222 1,166 1,18 Profit before income tax 368 365 495 485 Advances 455 418 459 461 Income tax expenses -57-56 -72-71 Others 82 9 17 11 Minority interest Total non-current assets 1,816 1,73 1,733 1,67 Net profit 48 45 523 59 Total assets 4,647 4,774 5,153 5,418 EBITDA 544 533 675 67 Liabilities and equity ST bank loans & CM - - - - Growth & margins 216 217 218F 219F Trade payables 94 848 877 895 Net Revenue 5.9% -4.3% 6.9% 2.7% Others current liabilities 15 1 121 119 EBITDA 29.8% -1.9% 26.6% -.8% Total current liabilities 1,9 947 998 1,14 Net profit 21.6% -.9% 29.2% -2.7% Long term debt - - - - Profitability Others 31 311 347 38 Gross margin 26.7% 26.7% 28.1% 28.2% Total non-current liabilities 31 311 347 38 Operating margin 4.3% 4.4% 5.6% 5.3% Total liabilities 1,31 1,258 1,344 1,394 EBITDA margin 6.6% 6.6% 7.8% 7.5% Minority interests - - - - Cash Flow Year end Dec 31 (IDRbn) CF from operation 216 217 218F 219F Net profit 48 45 523 59 Current ratio Depreciation/amortization 17 169 174 18 Quick ratio Shareholders' equity 3,337 3,516 3,89 4,24 Year end Dec 31 216 217 218F 219F Change in working capitals -14 3 2 1 Debt to equity... 1. Others -6 2 23-14 Net debt to equity -.2 -.3 -.2 -.4 CF from operation 558 579 722 677 Interest coverage -15.6-14.7-19.4-19.8 CF from Investments Net capex -116-111 -119-122 Others -298 28-856 673 CF from investments -414 169-975 551 CF from financing activity Increase/(decrease) in debt Increase/(decrease) in equity 15 Dividend payments -192-225 -223-288 Others -193 8 29 27 CF from financing activity -37-216 -194-261 Net changes in cash -226 532-446 968 Beg cash balance 844 64 1,135 689 Non-cash adjustment -15 Ending cash 64 1,135 689 1,657 Source: Mirae Asset Sekuritas Research 2.8 2. 3.2 2.4 3.4 2.6 3.7 2.9 7
February 2, 218 APPENDIX 1 Important Disclosures & Disclaimers Disclosures As of the publication date, PT. Mirae Asset Sekuritas Indonesia, and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding. Stock Ratings Industry Ratings Buy Relative performance of 2% or greater Overweight Fundamentals are favorable or improving Trading Buy Relative performance of 1% or greater, but with volatility Neutral Fundamentals are steady without any material changes Hold Relative performance of -1% and 1% Underweight Fundamentals are unfavorable or worsening Sell Relative performance of -1% * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Sekuritas Indonesia, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst s estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. Analyst Certification Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. PT. Mirae Asset Sekuritas Indonesia ( Mirae Asset Daewoo ) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. 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