Please
use the following link to download the report:
Ace
Hardware (ACES IJ, BUY, TP IDR925) Results Review: So Far So Good
Low
seasonality during 1Q14 has led ACES to book revenue of IDR1.07trn (-2.9%
q-o-q) and net profit IDR136.7bn (12.7% q-o-q). However, despite lower sales,
operational expense during the quarter remains constant which led to margin
compression. Going forward, the company has revised its expansion strategy from
initially 10 stores to 15 stores this year. We maintain our forecast with BUY
and unchanged TP of IDR925 derived from DCF valuation.
Low sales during 1Q14
led to margin squeeze. The revenue of IDR IDR1.07trn (-2.9%
q-o-q) and net profit IDR136.7bn (12.7% q-o-q) were in line with our forecast
as it took account of 22.7% and 25.4% of our FY14 estimates. Company’s
aggressive expansion strategy of opening 5 new stores coupled with low
seasonality during the quarter led to margin pressure. EBIT margin declined to
15.3% from 17.4% while net profit 11.3% from 13.6% for 1Q14 and 4Q13 period
respectively.
Adding more stores to
the plan. Looking
at the store opening phase in 1Q14 of which had achieved 50% of the FY14 target
of 10 new stores, management decided to revised the new stores target to 15 by
year end. The company has opened stores in 2 stores in Medan, and 1 in
Samarinda, Makassar and Surabaya respectively. Ace’s budgeted capex for the
year remains unchanged ranging IDR120bn-IDR150bn and per store cost assumption
of IDR8bn-IDR10bn.
Execution is the key.
Adding
new stores to the portfolio does not necessarily being positive catalyst for
company. In our view, the aggressive expansion might led to lower SSSG
especially during the 2H period of the year, once significant number of new
stores have been opened. New stores might lead to cannibalization and in short
term could cause a drag down in Ace’s same store growth. Thus, the management
will need to consider the location carefully to minimize the cannibalization
impact
Maintain BUY with TP
IDR925.
We maintain our forecast and BUY call on the company with TP of IDR925 from DCF
valuation, implying 29.5x FY14 PE.
Best
regards,
RHB
OSK Indonesia Research Institute
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