ACE Hardware (ACES IJ; Buy; TP IDR925) Results Review: Ending FY13 With a Bang

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ACE Hardware (ACES IJ; Buy; TP IDR925) Results Review: Ending FY13 With a Bang

ACES’ FY13 revenue of IDR3.8trn (+20.9% y-o-y) and net profit of IDR503bn (+17.3% y-o-y) made up 100%/114% of our estimates respectively. The stronger net profit was driven by an exchange rate gain in 4Q13 – a quarter that also got a boost from higher year-end sales and more manageable opex. We adjust our risk-free rate to 8% from 8.8% in our DCF model, resulting in a higher IDR925 TP (vs IDR800). Upgrade to BUY.

¨       Saving the best for last. ACE Hardware (ACE) reported a decent 4Q13 performance, with IDR1.1trn revenue (+10.6% q-o-q) and a net profit of IDR189.6bn (+44% q-o-q), partly due to a better sales season and a gain on foreign exchange. The company’s 6-month inventory buffer stock enabled it to sell goods with adjusted prices due to a weaker IDR, while incurring costs much earlier when the IDR was still strong. As a result, its 4Q13 EBIT margin improved to 17.4% from 15.1% in 3Q13, while pretax margin expanded to 22.1% from 3Q13’s 16.4%. the 4Q13 net margin widened to 17.1% from 13.1% in 3Q13.

¨       Performance on track. ACE is lowering its target expansion to 10 stores this year from 19 stores in 2013. We expect a slowdown in store expansion to boost same-store sales growth (SSSG) as there will be a lesser degree of cannibalisation among stores. We expect FY14 SSSG to stabilise at 6%. So far, the company has booked sales of IDR682bn in 2M14, or around 14.5% of our FY14 estimates, with SSSG of 6.2%. We believe its performance remains on track, with 1Q typically being the lowest season of the year.

¨       Maintain forecasts; upgrade to BUY (from Neutral). We adjust our risk-free assumption to 8% (from 8.8%) to better reflect the current market conditions. Incorporating the new assumption into our DCF valuation, we arrive at a new TP of IDR925 (from IDR800), implying a 30x FY14 P/E.

Best regards,

RHB OSK Indonesia Research Institute