Ramayana Lestari Sentosa (RALS IJ): Soft Revenue Cushioned By Efficiencies – Earnings Revised November 20, 2017

Result Highlight

  • In 9M17, net revenue reported down 3.1% YoY to IDR 6.39 tn.
  • Net profit rose 1.7% YoY to IDR 368 bn.
  • Efficiencies are cushioning RALS’ bottom line.

Boost from Ramadhan is over

After receiving a significant boost from Ramadan festivities, sales are slowing down in 3Q17. Q3 sales down by 32% to IDR 953 bn, compared to 3Q16 as shown in fig. 1. We believe this is due to some Ramadhan sales carried over from 3Q16, as Eid al-Fitr in 2016 fell in July (fig.10).

For 9M17 results, total sales were slightly lower than last year’s (-0.7% YoY) to IDR 6.39 tn as clothing & accessories sales were flat (+0.98% YoY) at IDR 2.95 tn. Sales from the supermarket, on the other hand, fell by 27.66% to IDR 1.46 tn, continuing its declining trend for the past 4 years (fig.5). However, RALS managed to maintain its overall margins intact, as GPM, OPM and NPM stood at 39.2%, 8.3% and 8.3%, respectively.

Efficiency kicks in

For the last few years, RALS took several efficiency measures such as generating more sales from consignment (fig.7) and optimising its frontline productivity by enhancing area/employee ratio (fig.8). Those efforts have come to fruition during 9M17 as net profit still showing a slim growth (+1.7% YoY) in spite of declining net revenue (-3.1% YoY).

We reviewed our forecast and reduce our FY17F net revenue to IDR 5.89 tn (-4.1%) from IDR 6.14 tn as we lowered gross space growth in the forecast, which in line with the declining trend in retail sales index for apparel (fig.11). However, we mildly ameliorate operating margin in our model as efficiency measures were taken by RALS shall cushion the bottom line from sluggish sales.

No sign of black ink in supermarket

Still plagued with operating loss at IDR 49.1 mn, a minor improvement (0.03%) from 9M16 position despite there is a 27.66% drop in sales to IDR 1.46 tn. It appeared that RALS hasn’t succeeded to revive it’s flagging supermarkets, as sales figure continued to deteriorate for the last 4 years (fig.5) with no sign of improvement.

Rating and Valuation

We lowered our DCF-derived 12-month forward target price to IDR 1,140, translating into P/E 15.9x 2017F. However, we maintained our BUY rating as the price to sales ratio is below its 6 years average and we are confident that the fundamental is still intact and robust.

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