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Equity Detail

Thursday , 16 Aug 2018 02:23

PT ACE HARDWARE INDONESIA TBK 

Fit as a Fiddle

During 1H18, ACES booked an outstanding sales growth of 22.6% YoY from Rp 2.76 trillion in 1H17 to Rp 3.38 trillion in 1H18, on the back of strong 13.4% SSSG. This was slightly above our expectation, made up 49.8% of our FY18E Rp6.8 trillion (3-year average 1H sales contributed c.46% to annual sales). The net profit, in line with solid topline, grew by 29.8% YoY to Rp 426 billion, thanks to efficiencies in opex coupled with forex gain of Rp 8.6 billion. To reflect the better than expected result and using 2019F as our base year, we come up with new fair value of Rp 1,750/ share. With 27.7% upside potential, we maintain our BUY recommendation on the stock.

Good Vibes Only

Appealing assortments – including new products, better service and marketing efforts, coupled with persistently strong mid-up segment shopping appetite drove the solid 13.4% SSSG in 1H18. Profitability-wise, GPM remained stable at 47.9% from 47.9% in 1H17. However, despite increase in 1H18 salary cost by 28.2% YoY from Rp 463 billion (16.9% to 1H17 sales) to Rp 593 billion (17.8% to 1H18 sales),and allocation of annual employee bonus which was moved from 3Q17 to 2Q18, the companystill enjoyed higher EBIT margin by 50bps YoY to 14.0%, mostly due to better store productivity and as a result of the 5-year annual renovation that has been done last year (renovation cost declined by 30.5% YoY). On the bottomline, net profit margin significantly improved by 70bps to 12.6%, mainly derived by forex gain of Rp 8.6 billion in 1H18 (which we salute amid current weakening Rupiah) and as a result of tax penalty of Rp11.63 billion paid last year. On the more positive note, ACES’ inventory position has reached its 5-year low level of 208 days.

Conservative 2018F Guidance

Considering the continued improvement in sales performance, the company revised its guidance from previous 10% sales/net profit growth on the back of 5% SSSG to 13% growth backed by 8% SSSG, with only 45-46% GPM target. In our view, the target is still conservative,while we expect in 2H the company will experience higher sales from Boom Sale in Oct, impact of new store openings (15 stores YTD, totaling 159 stores to date), along with the usual sales upside in 2H (3-year average 2H sales contribute ~53% to annual sales). The recent updated July data showed SSSG 7M18 was still strong at 13.5%, with the outside Java area delivered the strongest SSSG among other area of 17.4%, thanks to notable improvement in commodity prices, particularly coal, which boosted the consumption.

Pilot Project: Ace Xpress

In May18, the company launched its newest project, a smaller format of Ace Hardware (around 500-600sqm/ store) called Ace Xpress, which focused on handy household needs and home living products, by carrying out the “buy and take” concept. Thus, Ace Xpress will be placed in the housing and apartment areas. By the end of 1H18, the company has opened 3 Ace Xpress stores and aiming another 2 in 2H18.

Maintain BUY withHigherFair Value Rp1,750 per share

To reflect better than expected outcome, we made another upward adjustment to our projection and using 2019F as our base year, we come up a new fair value of Rp1,750 (from previous Rp 1,500/ share). With 37.3% upside potential, we maintain our BUY recommendation on the stock.Our new TPimply forecasted 24.1x PER and 19.2x EV/EBITDA 2019F, while at yesterday’s closing price, ACES was trading at 17.5xPER and 13.6xEV/EBITDA 2019F.

 

Financial Summary

(Rp billion)

 2016A

 2017A

 2018F

 2019F

 2020F

Revenue

 4,935.9

 5,938.6

 7,250.0

 8,592.5

 10,450.5

EBITDA

 795.2

 940.7

 1,198.7

 1,513.7

 1,893.9

Net profit

 710.6

 777.7

 959.2

 1,238.8

 1,536.4

EPS (Rp)

 41.7

 45.6

 56.3

 72.7

 90.1

PER (x)

 30.6

 27.9

 22.7

 17.5

 14.1

BVPS (Rp)

 178.9

 205.9

 244.2

 294.6

 356.0

PBV (x)

 7.1

 6.2

 5.2

 4.3

 3.6

EV/EBITDA (x)

 26.5

 22.1

 17.4

 13.6

 10.7

Dividend yield (%)

1.2%

1.3%

1.4%

1.7%

2.3%

RoE (%)

 25.0

 23.7

 25.0

 27.0

 27.7