Era Swasembada (ERAA IJ; Buy; TP IDR1,700) Results Review: Within Expectations

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Era Swasembada (ERAA IJ; Buy; TP IDR1,700) Results Review: Within Expectations

Erajaya’s FY13 revenue of IDR12.7trn (-1.2% y-o-y) and IDR348.7bn net profit (-20.6%) made up 100%/105% of our forecasts. Its 4Q13 revenue slipped 11.6% q-o-q due to lower sales of Apple products, while net profit remained stable due to rebates. We raise our 2014/2015 forecasts on higher ASP assumptions for handsets. Upgrade to BUY, with our new IDR1,700 TP reflecting a 12.5x FY14 P/E.

¨       No surprises in 4Q13. Erajaya booked 4Q13 revenue of IDR3.2trn (-11.6% q-o-q) and IDR110.6bn in net profit (+2.2% q-o-q). During the quarter, limited supply of Apple products led to lower sales, while rebates from brand principals kept 4Q13 net profit relatively stable compared to the earlier quarter. Meanwhile, interest expense expanded by 36.3% q-o-q to IDR33.8bn, driven by higher outstanding loan to finance its working capital as well as a rise in interest rate during the quarter. Overall margins in 4Q13 remained relatively stable, with EBIT margin at 4% (3Q13: 4.3%) and net margin at 2.4% (3Q13: 2.5%).

¨       On expansion path. Erajaya plans to add 120 stores this year after adding 129 new stores last year. This year, the company will also expand its Erafone Gadget stores by opening 30-40 new stores, which will be part of its planned expansion of 120 stores. In addition, it intends to expand its brand portfolio by adding its own brand by 2Q14. The new handset, which will have a price range of IDR1m-3m, will target medium-end customers who are less brand-sensitive.

¨       Revising forecasts. There is a growing trend of handset users shifting from lower-end models costing less than IDR1m each to medium-end handsets carrying a higher price tag of IDR1m-IDR3m each. Hence, we lift our ASP assumptions for 2014/2015. This raises our revenue forecasts by 1.3%/1.3% and net profit estimates by 3.9%/3.6% for 2014/2015.

¨       Upgrade to BUY, with new IDR1,700 TP. We upgrade our call to BUY (from Neutral) and lift our TP to IDR1,700 (from IDR1,440), for a 12.5x FY14 P/E. The valuation is still at a discount to the 25x FY14 P/Es of Erajaya’s retailer peers,

Best regards,

RHB OSK Indonesia Research Institute