Ramayana Lestari (RALS IJ) Encouraging December sales figure
Event
Ramayana Lestari Sentosa (RALS) released its Dec-18 sales figures, which is largely in line with our estimates. Key takeaways are as follows.
Our Take
Monthly SSSG reached 6.4% in Dec-18, lead by outer Java region. RALS Dec-18 SSSG reached 6.4%, down by 0.9ppt vs the previous month SSSG: 7.3%. Outer Java SSSG was the strongest in Dec-18 (8.2%), followed by Java ex Jkt/Greater Jakarta at 7.9%/2.5%. This brings RALS FY18 SSSG to 2.9%, with the Java ex Jkt/Outer Java/Greater Jkt region posted 4.8%/2.7%/1.6% respectively.
Robust Dec-18 sales; FY18 sales in line with expectation. RALS posted IDR869.1bn sales in Dec-18, up by 6.8% on YoY basis and 69.5% on MoM basis. Strong MoM growth is expected due to seasonality effect. This translates into FY18 sales of IDR8.5tn, +4.8% YoY, accounting for 103.7% of our expectation. RALS FY18F department store sales was up by +10.3% YoY, while supermarket was down by -12.9% YoY.
4Q18 earnings outlook: no major surprise expected. RALS gross margin expanded by 2.4ppts to 28.1% in FY18, vs 25.7% in FY17. This implies 14.6% gross profit growth in FY18 to IDR2.4tn, 2% higher than our estimates. On the back of this set of results, we believe 4Q18 earnings will fall within our expectation.
2019 should be exciting, but share upside is limited. Going into 2019, we foresee that RALS will maintain its double-digit earnings growth at 10.3% YoY after a decent improvement on its structural profitability. However, we believe that the share upside is now limited after the shares went up by 8.2% over the last one month. We maintain our target price at IDR1,550, implying 16.3x 2019F P/E and 2.3% upside, and thus we downgrade our recommendation to HOLD-OPF from BUY. Key downside risks include lower commodity price trend and lower-than-expected SSSG, while the upside risk include higher purchasing power and soften competition with e-commerce retailers.
