PT ACE HARDWARE INDONESIA TBK
Aggressive Expansion Led to Slower SSSG
During 1Q19, ACES booked a total sales of Rp1.88 trillion, grew by 19.6% YoY on the back of 8.2% SSSG coupled with aggressive new store rollouts since last year (179 store in 1Q19 vs 147 stores as of 1Q18). This was slightly below our expectation, made up only 20.8% to our FY19F of Rp9.03 trillion. We made a minor adjustment to our projection to reflect 1Q19 performance and therefore, our TP was slightly down from Rp2,000/ share to Rp1,900/ share, offering 17.3% upside potential. We maintain our BUY recommendation on the stock.
Temporary Decline in GPM due to Ambitious Openings
Albeit the strong sales growth during the period, the SSSG came in slower than last year (13.8% in 1Q18), which partially due to cannibalization from new stores that were opened mostly in Java ex Jakarta area. Profitability-wise, the GPM declined by 40bps YoY to 47.4%, mostly due to sales mix as well as more promotional discount in order to support company’s aggressive expansion. Meanwhile, the EBIT margin remained stable, down by only 20bps to 14.6%, thanks to better store productivity (based on our rough calculation, ACES’ annual sales/sqm of Rp3.9 million in 1Q19, hiked by 2.3% YoY from Rp3.8 million in 1Q18) coupled with opex efficiencies in some posts i.erenovation cost (-67.5% YoY) and other GA expenses.Furthermore, NPM slumped by 60bps to 12.6% mainly due to forex loss of Rp13.12 billion (vs forex gain in 1Q18 of Rp4.2 billion) in line with weaker currency by 3-4% YoY. On the other hand, the total ACE reward card member encouragingly grew by 18.1% YoY from 1.89 million in 1Q18 to 2.24 million in 1Q19, and sales by member dominance has increased from 65.7% to 67.5% to total sales.
Organic Expansion Still On Track
During the first 3 months of 2019, the company has added in total of 3 new stores, making the total store count as of Mar19 to 179 Ace Hardware stores (+32 stores YoY from 147 stores in 1Q18), on track with initial target of 20-25 new store openings or equal to 35k sqm addition (from current total sales area of 453k sqm), including 5-7 Xpress stores and expand in 4-7 new cities. So far, the company has absorbed around 13% total capex of Rp240 billion or equal to Rp32 billion to support the store addition. Aside of the aggressive expansion this year, in order to boost sales, the company has been adding new SKUs, developing new services, offering monthly promotion as well as continuous system improvement in ruparupa.com.The company maintains its conservative guidance of 6-7% SSSG and topline growth of 15% YoY.
Minor Adjustment to FY19F SSSG, Lower TP of Rp1,900/ share
We made a minor adjustment to our projection, particularly on FY19F SSSG from 7% to 6.5% to anticipate softer SSSG – which we believe will be temporary as impact of massive new store openings. Therefore, our TP revised from Rp2,000/ share to Rp1,900, implies 27.8x and 22.5x PER and EV/EBITDA 2019F, while the stock is currently traded at 23.5x and 19.0x PER and EV/EBITDA 2019F. With upside potential of 18.4%, we maintain our BUY recommendation on the stock.
Financial Summary
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(Rp billion)
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2017A
|
2018F
|
2019F
|
2020F
|
2021F
|
Revenue
|
5,938.6
|
7,239.8
|
8,864.6
|
10,247.3
|
11,256.6
|
EBITDA
|
940.7
|
1,164.1
|
1,410.6
|
1,663.5
|
1,796.0
|
Net profit
|
777.7
|
964.6
|
1,167.5
|
1,367.2
|
1,481.1
|
EPS (Rp)
|
45.6
|
56.5
|
68.4
|
80.1
|
86.7
|
PER (x)
|
35.2
|
28.4
|
23.5
|
20.0
|
18.5
|
BVPS (Rp)
|
205.9
|
248.1
|
294.1
|
347.1
|
402.2
|
PBV (x)
|
8.5
|
7.1
|
5.5
|
4.7
|
4.0
|
EV/EBITDA (x)
|
28.1
|
23.0
|
19.0
|
15.9
|
14.1
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Dividend yield (%)
|
0.9%
|
1.3%
|
1.4%
|
1.7%
|
2.0%
|
RoE (%)
|
23.7
|
24.9
|
25.2
|
25.0
|
23.2
|
|
Source: Company data and Lotus Andalan Research
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