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Feb 22,2017 11:24:39

Indonesia market update: Here comes the rain
Ahok, floods & stocks

Bad news for Ahok in the lead-up to the Jakarta Governor race: In spite of efforts by Jakarta’s governor, Basuki “Ahok” Tjahaja Purnama, to prepare for and prevent flooding, 54 areas around the capital were paralyzed as water prevented travel (exhibit 3-4) given the water depth of up to two and a half meters in some places on the back of around 180mm rain intensity (2016: 157mm) in the past 24 hours. The weather bureau (BMKG) predicts the peak intensity of La Nina to stay until March 2017.  
2nd round Jakarta Governor campaign has started early: Dressed in a red parka (exhibit 2), Anies, Ahok’s competitor in the final round of the Jakarta Governor race, has managed to capitalize on the floods to raise his popularity ahead of the planned campaign scheduled for 6-15 April 2017.

Demonstration still took place despite flooding: The Jakarta floods did not deter an estimated 10,000 protestors (although much lower than the 100k participants previously forecast) from turning up in front of the parliament (exhibit 1), asking the government to remove Ahok from his Governor post. The rally was reportedly headed by Muslim forum FUI.    

Positively affected stocks: While all distribution channels are adversely affected by the floods, we believe there are sectors and stocks that could perform better than others under these conditions. Siloam Hospitals ($SILO) should see increased traffic as people get sick while the pharmaceutical sector is also likely to see some uptick from higher purchases of medicine to treat wide-ranging illnesses such as flu and skin diseases, benefiting Kalbe ($KLBF) and Sido Muncul ($SIDO). Additionally, during floodings, households and evacuation centers typically stock up on staple foods such as noodles, which would benefit Indofood Consumer Branded Products ($ICBP). During these times, smokers also have the propensity to smoke more, so we could see increased stick sales for Sampoerna ($HMSP). Within the commodities space, assuming continued downpours at Sumatra’s plantation estates, higher CPO prices might occur due to decreased output. This would benefit our favored plantation plays: Eagle High ($BWPT) and Tunas Baru ($TBLA).  

Adversely affected stocks: With the rains, cement, construction and coal companies could face operational delays. We also expect bread maker Nippon Indosari ($ROTI) to suffer (c.70% of sales in Greater Jakarta), as spoilage may be an issue due to the fresh nature of its products. Retailers could also be affected by the reduced traffic, particularly Ramayana ($RALS) whose low-end target customers lack cars for commuting. Traffic jams caused by flooding should spell bad news for transportation, adversely affecting both Blue Bird ($BIRD) and Express ($TAXI), as well as Garuda Indonesia ($GIAA), as flights may be delayed or cancelled.   

Feb 22,2017 11:07:45

Retail - Tailwinds Trump Headwinds

We see stronger signs of improvement in consumer demand and expect the trend to continue, supported by better commodity prices, lower interest rates, and more investment inflows. In addition, rationalised expansion over the last few years should help retailers’ margins, in our view. As such, we believe retailers in general would do well this year. We reinitiate coverage on the sector with OVERWEIGHT. In particular, we like turnaround efforts at Mitra and Ramayana. Key risks include political instability and currency volatility that could prolong the recovery process.

  • Demand side: Gradual improvement along with economic recovery. We believe consumer confidence is key in supporting private sector spending, and we see the positive momentum potentially being boosted further by improving commodity prices in the near term, and more investment inflows in the longer term. As such, we expect retailers’ topline to grow at high single-digit to low double-digit levels in 2017F, from mid- to high single-digit growth rates in 2016.
  • Supply side: Rationalised expansion lowers pricing pressure. We think retailers’ margins should be underpinned by rationalised expansion and improved inventory levels. Retailers’ expansion over the past two years has been generally slower than previous years’, thanks to slower property completion and the weaker market. Retailers’ inventory positions have also generally improved, with some retailers already at comfortable inventory levels. We believe these conditions have eased pricing pressure and provided some upside to margins.
  • Online shopping a promising market in the longer term, but obstacles continue to drag the full unleashing of its potential in the near term. Rising income and a young population are long term key growth drivers, in our view. On the flipside, short term obstacles such as relatively high costs of good internet access and mobile devices, drag online shopping adoption. The online shopping format is set to grow as more Indonesians come online, and purchasing power grows. We believe this trend would have a disproportionately negative impact on Matahari Department Store ($LPPF) as incremental online shoppers are likely to come from Matahari’s target market segments, in our opinion.
  • Tailwinds trump headwinds. Overall, we expect profit acceleration in 2017-2018F, stemming from gradual topline growth, GP margin recovery, operating leverage as well as financial leverage. We forecast average topline growth of 10-11% in 2017-2018F, a slight improvement from previous years, supported by higher commodity prices and rising confidence level. We expect margin recovery as rationalised expansion and economic recovery gain pace. Politics and currency stability are macro wild cards, though we remain optimistic.
  • We like turnaround efforts at Mitra and Ramayana. Ideally, an investment case should be made on a company that is heading towards the fourth quadrant in Figure 1, or at least one that is pushing its asset turnover towards the first quadrant, or improving its profitability/margin towards the third quadrant. Ramayana Lestari Sentosa ($RALS) and Mitra Adiperkasa ($MAPI) are our Top Picks with relatively faster asset turnover growth and stronger margin improvements, a combination that would ultimately increase profitability. Both companies have undertaken business and management turnarounds, which were timed well with the improvement in general economic conditions. (Stifanus Sulistyo)
Jan 16,2017 09:27:25

ACES’ Dec-16 SSSG accelerated, led by growth in ex-Java

¨ $ACES’ December SSSG accelerated to 3.9% (from 0.9% in Nov) driven by strong sales in ex-Java which jumped to 6.8% in Dec from just 0.5% in Nov; it seems higher commodities price helped.

¨ The result is encouraging, showed an sales acceleration across the board in Indonesia.

¨ FY16 top-line reached Rp4.87tn, 96% of consensus.

¨ Basically same takeaway with $RALS’ SSSG figures.

¨ ACES trades at 19.5x 2017cons PE (Stifanus Sulistyo)

Dec 14,2016 07:57:08

Ramayana: Nov’16 - ($RALS; Rp1,195; Neutral; TP:1,180)

  • Nov’16 sales grew by 0.8% YoY to Rp501.7bn, a weak achievement given low based 2015. This should give color that demand recovery is still muted so far.
  • Nov’16 SSSG booked at 1.8%, Java area booked the strongest growth for the period at 2.9% followed by Jakarta and ExJava at 1.4%/1.5% respectively.
  • Cumulative 11M16 sales of Rp7,426.8bn grew by +5.7% YoY, slightly below company’s guidance of 6.7% YoY. SSSG was 6.2%, in-line with management guidance of 6.5%-7.5% for the full year.
  • By division, Direct Purchase still book a strong growth at +11.8%yoy, while Supermarket sales show a weak performance at 0.5%yoy from 1% YoY in 10M16.
Dec 01,2016 23:16:30

Retail: Brighter days ahead

Roy Nicholas Mandey, head of Indonesia Retailers Association or APRINDO, stated that there was an uptick in spending in November, as opposed to slightly disappointing September and October numbers. He is confident that in December alone, the retail industry will generate IDR40tn in sales, contributing roughly about 20-25% of total full year sales, on the back of Christmas and New Year festivities. In comparison, Lebaran sales contribution is along the lines of 35-40% of total industry sales. He asserted that sales will mainly come from apparels, which we think is positive for the likes of Matahari Department Store ($LPPF), Ramayana ($RALS) and Mitra Adi Perkasa ($MAPI). Lastly, he believes that this year would be much better compared to 2015 supported by low inflation. (Investordaily)

Jul 27,2016 08:50:24
EARNINGS CALENDAR (Half Year 2016 - Estimated)

JULY 2016

Jul 25, 2016 :
$BBTN (Bank Tabungan Negara (Persero) Tbk PT)

Jul 26, 2016
$BDMN (Bank Danamon Indonesia Tbk PT)
$BMRI (Persero) Tbk PT Earnings Release - 4:00PM GMT+7

Jul 27, 2016
$AALI (Astra Agro Lestari Tbk PT)
$HMSP (Hanjaya Mandala Sampoerna Tbk PT)
$LPPF (Matahari Department Store Tbk PT)
$MPPA (Matahari Putra Prima Tbk PT)
$PTBA (Bukit Asam (Persero) Tbk PT)

Jul 28, 2016
$ASII (Astra International Tbk PT)
$BEST (Bekasi Fajar Industrial Estate Tbk PT)
$BJBR (PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk)
$DOID (Bloomberg)
$NCO (Vale Indonesia Tbk PT)
$JPFA (Bloomberg)
$PSAB (Bloomberg)
$SSMS (Bloomberg)
$SMGR (Semen Indonesia (Persero) Tbk PT)
$UNTR (United Tractors Tbk PT)
$UNVR (Unilever Indonesia Tbk PT)

Jul 29, 2016
$ASRI (Alam Sutera Realty Tbk PT)
$ADHI (Bloomberg)
$BSDE (Bumi Serpong Damai Tbk PT)
$BNGA (Bloomberg)
$BNLI (Bloomberg)
$BNII (Bloomberg)
$BKSL (Bloomberg)
$BHIT (Bloomberg)
$BISI (Bloomberg)
$CPIN (Bloomberg)
$CTRA (Ciputra Development Tbk PT)
$CTRP (Bloomberg)
$ELSA (Bloomberg)
$GIAA (Bloomberg)
$GJTL (Bloomberg)
$GGRM (Gudang Garam Tbk PT)
$NKP (Bloomberg)
$INTP (Indocement Tunggal Prakarsa Tbk PT)
$INDF (Indofood Sukses Makmur Tbk PT)
$ICBP (Indofood CBP Sukses Makmur Tbk PT)
$INDY (Bloomberg)
$KARW (Bloomberg)
$KAEF (Bloomberg)
$KIJA (Bloomberg)
$KLBF (Kalbe Farma Tbk PT)
$KRAS (Bloomberg)
$LPKR (Lippo Karawaci Tbk PT)
$LSIP (Perusahaan Perkebunan London Sumatra Indonesia Tbk PT)
$MAPI (Bloomberg)
$PWON (Bloomberg)
$PNBN, $PNLF, $PNIN (Bloomberg)
$PTPP (Bloomberg)
$RALS (Bloomberg)
$SMRA (Bloomberg)
$TBLA (Bloomberg)
$TLKM (Telekomunikasi Indonesia (Persero) Tbk PT)
$TOTL (Bloomberg)
$WSKT (Bloomberg)

Aug 1, 2016
$HRUM (Harum Energy Tbk PT)
$SSIA (Surya Semesta Internusa Tbk PT)

Aug 10, 2016
$ITMG (Indo Tambangraya Megah Tbk PT)

Aug 12, 2016
$EXCL (XL Axiata Tbk PT)

Aug 29, 2016
$ADRO (Adaro Energy Tbk PT)
$ANTM (Aneka Tambang (Persero) Tbk PT)
$BBRI (Bank Rakyat Indonesia (Persero) Tbk PT)
$ISAT (Indosat Tbk PT)
$PGAS (Perusahaan Gas Negara (Persero) Tbk PT)


Sep 13, 2016
$SMCB (Holcim Indonesia)

Jun 08,2016 09:22:57
Ramayana Lestari Sentosa ($RALS): Darling again
Growth underpinned by huge transformation and Jokowi initiatives: Our recent meeting with Jane Tumewu, daughter of the founder and new Head of Merchandise, reveals the company’s six pillars of transformation (exhibit 5), which we expect to underpin a strong operating turnaround, allowing RALS to regain its prior stock-market favored status. The rationale behind this strategy is the reconnection with RALS’s low-end customers (exhibit 6), which currently have more to spend on Jokowi’s initiatives and improving macroeconomic prospects (exhibits 55-56). Note that Indonesia’s average monthly minimum wage is only IDR1.9m (USD139) while benefits from Jokowi’s grass-roots support could add monthly disposable income of IDR336k (USD25) per low-end household, based on our estimate (exhibit 10). Testimony to this positive impact on RALS is its higher SSSG and sales trends (exhibits 33-38). This report marks a transfer of analyst coverage.
Improved sales mix and higher margins on strong A&P campaign: To reconnect with its young and low-end target market, RALS has launched a new fashion campaign (exhibits 20-29) called #KerenHakSegalaBangsa (“everyone’s right to be cool”) on various social-media platforms, as the majority of Indonesians (exhibit 7) are below 30 years of age and are familiar with the digital world. This effective marketing strategy collaborates with young local celebrities to create private brands to raise public awareness and sales of RALS’ higher-margin outright business (exhibit 44). The campaign embraces the social media such as YouTube, FB, Twitter, IG, a strategic partnership with Go-Jek under Go-Mart and RALS’ newly revamped website:
Renovations and expansions to fuel growth: On the supermarket front, our meeting with the COO of SPAR Indonesia, Mark Cox, confirms that its expansion plan is on target, with enhanced performance seen in April 2016 (exhibit 43). We expect this supermarket turnaround to continue in the following months, helped by the bulk EDLP (everyday low prices) program. For the department stores, management has identified 10-12 outlets to be renovated this year, costing around IDR120bn. For both the supermarkets and department stores, management is taking initiatives to improve product mix, inventory management (ordering 3 times a week rather than once), and employee KPI coverage extensions (e.g., sales, merchandisers and marketing teams). On the fashion side, RALS bring in new products every two weeks.
Re-rating to persist on attractive valuation: As we are seeing a turnaround in RALS’s operation, with May 2016 outright SSSG of around 12% (exhibits 31-33) from -2.7% in 2015 (exhibit 44), we expect 2016 overall gross margin to expand to 36.8% (exhibit 64) from 36.1% in 2015. This operating improvement coupled with RALS’ current still cheap valuation of 15.7x 2016F PE, reflecting a 44% discount to the sector (exhibit 56), we expect market outperformance (exhibit 4) to persist and raise our 12-month TP to IDR1,080 (from IDR850), reflecting a 2016F PER of 20.7x (from 16.3x at our previous TP), representing c. a 20% sector discount. With 32% upside potential, RALS is a BUY. Risks to our call include weaker GDP growth and increased competition.

May 02,2016 13:12:28
Ramayana Lestari (RALS), Inconsistent Sales Strategy

Despite 1Q16’s margin expansion, we believe Ramayana’s margins would be lower in the coming quarters as it plans to restart its trader wholesale programmes for its supermarket division. We are concerned with the programmes as they are usually loss-making activities to prop up sales. Among its peers, Ramayana was the only department store chain operator that recorded an operating loss for its department store division in 1Q16. Maintain NEUTRAL and DCF-based TP of IDR700 (0% upside).


Apr 02,2016 11:48:24
FY15 result above expectation

Maintain BUY due potential turnaround from revamp
RALS FY15 net earnings were better than our expectation (108% above our estimate). We maintain BUY rating with TP of IDR850, which is based on 18x PER FY17F or -0.5SD below 36M historical means. We see potential turnaround in its supermarket operational performance along with the current restructuring.

FX gain supported net earnings
Net earnings were -5% YoY on the back of a decline in gross revenue 2% YoY and EBIT margin contraction of 70bps in FY15. It also recorded -3% YoY SSSG and a decline in sales area of 1% YoY. FX gain of IDR15bn from USD appreciation provided some support to the company’s bottom line. It has USD cash holdings of USD12mn and zero debt as per 2015. Compared to 4Q14, its gross revenue grew by 3% and on EBIT level, it managed to generate profits with margin of 0.7% (vs. -2.3% in the same period last year). Quarterly, revenue was down due to seasonal factors.

Stronger growth from fashion consignments
Over 2015, we see stronger performance from consignment products in the department store business with revenue growth of 7% YoY (vs. -2% YoY for outrights). We expect consignment contribution to expand going forward as part of the company effort to reduce risks from cost hikes. Department store remained the sole contributor to earnings with EBIT margin of 6.1% (vs. 6.3% for FY14). Its supermarket sales were down by 11% YoY related to current business restructuring and operated at a loss.

Expect growth recovery to continue
We expect the sales growth recovery to continue throughout 2016F along with improvement in consumer affordability from lower inflation rate and wage increases. RALS SSSG has remained positive on the first two months (+2% YoY as per Feb16 YTD). Greater Jakarta area was the main growth contributor with SSSG of 6% YoY, followed by Outer Islands 0.4% YoY. Java ex-Jakarta’s SSSG was at weaker -0.5%.

Apr 02,2016 11:36:59
Ramayana Lestari Sentosa ($RALS): Turning around

- Strong 4Q15 results on consignments, KJP cards and downtraders: Despite weakness in the commodity sector in 4Q15 affecting low-end consumer purchasing power, RALS booked solid 4Q15 IDR1.7tn gross sales, +3.5% y-y but -34.5% q-q on seasonality, accounting for 104.7% of our estimate. This resulted in 4Q15 net sales of IDR1.3tn (+2.6% y-y, -27.2% q-q), 6% above our quarterly forecast and brought 2015 net sales to IDR5.5tn (-5.6% y-y), in line with estimates, helped by: (1) Kartu Jakarta Pintar (KJP) disbursements in Sep-15 and Dec-15 for low-end consumers to be spent in modern retail formats (exhibit 11); (2) Increased consignment contribution (4Q15: 35.3%; 4Q14: 34.5%), attracting shoppers to downtrade during RALS’s low shopping season.

- Positive earnings surprise on higher-margin consignments: The rise in consignment sales (+6% y-y) with 1-3% higher margins than direct purchases allowed RALS to book a positive 4Q15 EBIT of IDR11bn, versus negative EBIT margins (exhibit 6, 10) in 4Qs in the previous 4 years, as RALS’ shoppers mostly do not shop at Christmas. On costs, 4Q15 opex only reached IDR415bn (-2.6% y-y), helped by labor productivity enhancements. Coupled with RALS’s cash-rich position providing interest income, 4Q15 earnings reached IDR32bn (+105.6% y-y), translating to IDR336bn in 2015 net profit (-5.5% y-y), above our (108%) and consensus (106%) estimates.

Outlook: Stonger helped by Jokowi’s cards
At this stage of the market cycle, we are more bullish on companies with low-end mass-market exposure due to Jokowi’s support for people at the grass root levels. In this regard, RALS does benefit from Jokowi’s biannual disbursement of KJP and KIP cards (exhibit 11), particularly as the 2016 budget increases by 12-19% y-y with the next card disbursement to be in May-June. Additionally, in 1Q16, RALS has been pursuing more control over wholesale trading among store managers, paving the way for 1-2% y-y higher GPM. On this front, RALS plans to continue to increase its consignment proportions and attract mid-low milennials by promoting clothing lines (both for DP and consignment) brought by famous on-the-ground artists, which could increase traffic with fewer marketing costs. Thus, we are looking for 6.4% y-y 2016 gross sales growth, backed by 3.0% SSSG and 3 store openings (2 RALS and 1 SPAR). As such, we raise our 2016-17F earnings by 12-17% (exhibit 5), helped by higher contributions from consignments and increased labor productivity. Our still low 2016 SSSG assumption stems from our concerns about temporary downtrading patterns and the closer gap between the holiday season and Lebaran this year.

Recommendation: Upgrading to BUY and raising TP to IDR850
On valuation, RALS is attractive on 13.6x 2016F PE, a 50% discount to regional peers (exhibit 7). Hence, we raise RALS to BUY with higher 12M TP of IDR850 (from IDR640), based on 16.3x 2016F PE, still a 10% discount to its average 5-year 3M MVA and a 40% sector discount. Hence, we expect continued ytd market ourperformance (exhibit 4), particularly as mass-market exposed consumer stocks experience upward valuation re-rating ahead, helped by lower fuel prices and contained inflation. Risks: More intense local competition and lower than expected tax collection to delay infrastructure-related projects.