Ramayana Lestari (RALS IJ, NEUTRAL, TP IDR1,350) Results Review: No Excitement

Please use the following link to download the report:

http://rhbosk.ap.bdvision.ipreo.com/NSightWeb_v2.00/Files/GetFile.aspx?FileVersionID=17944&ieHack=.&_nsz=154%3B154%3B10b01c08-9557-4fa6-80e8-afdd3b4b3d9d%3Ben-US%3BSE%20Asia%20Standard%20Time

Ramayana Lestari (RALS IJ, NEUTRAL, TP IDR1,350) Results Review: No Excitement

Ramayana booked IDR1.18trn (-8.9% q-o-q) in net revenue and IDR 40.6bn (-11.7% q-o-q) in net profit for 1Q14. We consider this in line, reflecting 17.4%/8.9% of our FY14 net revenue/net profit estimates. We remain cautious going forward, as its growth plan is limited and an overlap in the mid-year peak season could be a challenge. We maintain our forecast and NEUTRAL call with an unchanged IDR1,350 TP.

       Within expectations. Ramayana Lestari (Ramayana) performed as expected during 1Q14, with a net revenue of IDR1.18trn and net profit of IDR40.6bn. EBIT margin improved during the quarter to 2.7% from -0.2% in the previous quarter as a result of better operational expenses management. As a result, core net margin also improved to 4.3% from 3.5% in the earlier quarter. However, historically speaking, 1Q performance only takes into account 17-18% of a financial year’s performance. The majority of Ramayana’s sales are contributed by 2Q and 3Q, ie during the Lebaran and back-to-school periods.

       Remaining cautious. Ramayana is planning to add 5-6 stores in  Pamulang, Malang, Solo, Depok and Tajur this year.  The expansion will add to the 118 existing stores that the company has been operating as at end-FY13. We believe Ramayana may face challenges from an overlap between Lebaran (and its subsequent sales) and the back to school period in the mid-year peak season. This is because consumers are likely to spend less on the latter to maximise their savings for the latter instead. Notably, back-to-school sales are equivalent to 1.5x of the company’s monthly average. By comparison, Lebaran sales are equivalent to 3.5x of Ramayana’s monthly average.

Maintain NEUTRAL and IDR1,350 TP.  While this year’s election might present a short-term catalyst, we believe that Ramayana’s growth outlook may remain challenging going forward. We maintain our forecast and NEUTRAL call on the stock with an unchanged IDR1,350 TP, which reflects 21x FY14F P/E.  

Best regards,

RHB OSK Indonesia Research Institute

Disclaimer: This message is intended only for the use of the individual or entity to whom it is addressed and may contain information that is confidential and privileged.  If you, the reader of this message, are not the intended recipient, you should not disseminate, distribute or copy this communication.  If you have received this communication by mistake, please notify us immediately by return email and delete the original message.  This message is transmitted on the condition that the recipient accepts the inherent risks in electronic data transmission and agrees to release RHB group and PT RHB OSK Securities from any claim which the recipient may have as a result of any unauthorized duplication, reading or interference with the contents herein. The contents herein are made in the personal capacity of the above-named author and nothing herein shall be construed as professional advice or opinion rendered by RHB group and PT RHB OSK Securities or on its behalf.