ACES 3Q18 Backed by Massive Organic Expansions 20181107 NHKS Company Report (English)

Ace Hardware Indonesia Tbk (ACES)

  3Q18: Backed by Massive Organic Expansions

Company Report | Nov 7, 2018 Consistent Growth Figure Since 2Q17

  ACES outstripped its top-line growth higher than 20%, achieved since 2Q17. In 3Q18, ACES posted the sales and the net profit of IDR1.78 trillion (+21.6%) Buy and IDR273 billion (36.8% y-y), respectively. Of note, the hike in 3Q18 general

Dec 2019 TP (IDR) 1,635

  and administrative expenses at 6.3% y-y (vs. +32.4% y-y in 1H18) was Consensus Price (IDR) 1,603 attributable to a higher EBIT margin and the bottom line. TP to Consensus Price +2.0%

  vs. Last Price +18.5%

  The consistent growth was the potent driver for ACES’s sales of 22.2% y-y until September 2018. 4Q18 performance is likely to be boosted by Ace Boom Sale

  Shares data

  program, held at the early of 4Q18. We project that the growth is likely to

  Last Price (IDR) 1,380

  continue further by posting the FY18 growth outpacing the FY17 growth.  

  Price date as of Nov 6, 2018 52 wk range (Hi/Lo) 1,560 / 1,115 Significant Impact of New Store Launch Free float (%)

  40.0

  3Q18 performance highly correlated to massive new stores launch in 2018. To Outstanding sh.(mn) 17,150 date,

  Market Cap (IDR bn) 23,667 ACES has launched 25 new stores, the number outpaced the FY18 target

  of 15 stores. SSSG outside Java Island hovered around 15%-16%, backed by its Market Cap (USD mn) 1,598 business expansions and the rally in commodity prices. Furthermore, Avg. Trd Vol - 3M (mn)

  15.0 new stores

  Avg. Trd Val - 3M (bn)

  20.3 bolstered 3Q18 growth of 21.6% y-y posted by the home improvement

  Foreign Ownership 26.8% segment. It also cushioned the sluggish growth of 19.0% y-y, the lowest since 2Q17, posted by the lifestyle segment.

Trade, Services & Investment Home Improvement Retail Target Price of IDR1,635

  Bloomberg ACES IJ

  We use an estimate of forward P/E of 24.3x (2SD higher than the last 4-year

  average). The target price implies a 2018E P/E of 28.0x. Now, ACES is traded at Reuters a 2018E P/E of 23.6x.

  Share Price Performance

Ace Hardware Indonesia Tbk | Summary (IDR bn) 2017 2018E 2019F 2020F

  Net Sales 5,939 7,190 8,411 9,495

  Net Sales growth 20.3% 21.1% 17.0% 12.9%

  EBITDA 1,044 1,362 1,541 1,728 Net Profit 778 1,002 1,153 1,287 EPS (IDR)

  45

  58

  67

  75 EPS growth 9.4% 28.9% 15.0% 11.6%    YTD

  1M

  3M

  12M

  BVPS (IDR) 205 241 279 322

  Abs. Ret. 19.5% 4.2% 0.0% 13.6%

  EBITDA margin 17.6% 18.9% 18.3% 18.2%

  Rel. Ret. 26.3% 1.3% 2.7% 15.8%

  NPM 13.1% 13.9% 13.7% 13.6% ROE 23.7% 26.2% 25.8% 24.9% ROA 32.4% 87.2% 88.5% 89.5% ROIC 22.4% 24.7% 24.4% 23.7% P/E 25.5x 23.6x 20.5x 18.4x P/BV 5.6x 5.7x 4.9x 4.3x EV/EBITDA 18.1x 16.8x 14.7x 13.1x Michael Tjahjadi

• 62 21 797 6202, ext:114

  DPS (IDR)

  23

  29

  32

  35 Dividend yield 2.0% 2.1% 2.3% 2.6% michael@nhsec.co.id

  Source: Company Data, Bloomberg, NHKS Research Please consider the rating criteria & important disclaimer

  Source: Company, NHKS Research ACES Quarterly Net Profit | 3Q16 - 3Q18

  Source: Company, NHKS Research ACES Quarterly Net Sales (IDR bn) | 3Q16 - 3Q18

Net Sales Breakdown on Third Quarter

  Margin Ratios | 3Q17 - 3Q18 Source: Company, NHKS Research

  Source: Company, NHKS Research Performance Highlights

  Store Expansion | 1Q16 - 3Q18 Source: Company, NHKS Research

  ACES Space/Store (m²) | 1Q17 - 3Q18 Source: Company, NHKS Research

  3Q18 review (IDR bn)

  3Q18

  3Q17

  4Q17

  1Q18

  2Q18

  4Q18E Actual Estimate y-y q-q surprise

  Revenue 1,463 1,716 1,574 1,811 1,779 1,723 21.6% -1.8% 3.2% 2,027          

  Gross Profit 711 801 752 869 857 836 20.6% -1.3% 2.6% 945

  Gross Margin 48.6% 46.7% 47.8% 48.0% 48.2% 48.5% -0.4% 0.2% -0.3% 46.6%

            EBIT 247 313 264 276 345 304 39.6% 24.9% 13.5% 386

  EBIT Margin 16.9% 18.2% 16.8% 15.3% 19.4% 17.6% 2.5% 4.2% 1.8% 19.0%

            EBITDA 266 336 286 298 369 326 38.5% 23.6% 13.2% 408

  EBITDA Margin 18.2% 19.6% 18.2% 16.5% 20.7% 18.9% 2.5% 4.3% 1.8% 20.1%

           

Net Profit 199 252 210 219 273 243 36.8% 24.7% 12.2% 306

  Net Margin 13.6% 14.7% 13.3% 12.1% 15.3% 14.1% 1.7% 3.2% 1.2% 15.1% Source: Bloomberg, NHKS research

Earnings revision (IDR bn) 2018E 2019F 2020F

  Revenue -Revised 7,190 8,411 9,495

• Previous 7,025 7,798 8,414

  2.4% 7.9% 12.8%

• Change Gross Profit -Revised 3,423 3,994 4,508
• Previous 3,350 3,714 4,016

  2.2% 7.5% 12.2%

• Change

  47.6% 47.5% 47.5%

  Gross Margin -Revised

• Previous 47.7% 47.6% 47.7% EBIT -Revised 1,271 1,446 1,618
• Previous 1,191 1,304 1,366

  6.7% 10.9% 18.5%

• Change EBIT Margin -Revised 17.7% 17.2% 17.0%

  17.0% 16.7% 16.2%

• Previous EBITDA -Revised 1,362 1,541 1,728
• Previous 1,280 1,399 1,468

  6.4% 10.2% 17.7%

• Change EBITDA Margin -Revised 18.9% 18.3% 18.2%
• Previous 18.2% 17.9% 17.4%
• Revised

  Net Profit 1,002 1,153 1,287

• Previous 942 1,053 1,096
• Change 6.4% 9.5% 17.4%

  13.9% 13.7% 13.6%

  Net Margin -Revised

• Previous 13.4% 13.5% 13.0%

  Source: NHKS research

  ACES at A Glance

A Glance at ACES

  ACES is a retailer dominating home-improvement business in Indonesia. Its mostly imported products are categorized into home improvement and lifestyle segments. Targeting the middle to high income individuals, it operates 169 stores across big cities in Indonesia. In 2018, it also launches stores with new concepts, namely Ace Xpress with a more narrowed spaces compared to existing ACES’s stores.

  To expand its markets, ACES aggressively promotes marketing strategy of sale programs throughout years such as “Ace Boom Sale”, Siap Sedia pada Hari Raya”, “Clearance Sales Akhir Tahun”, and “Ace Reward” membership. Another to whole-year sale off, ACES in 2016 penetrated the e-commerce segment through ruparupa.com owned by its parent entity.

Indonesia’s Home Improvement–Based Retailer in ASEAN

  The home-improvement retail business inextricably correlates to certain countries’ industrial property backdrop. Indonesia homes to numerous new property projects; thus, it provides lucrative opportunities for retailers such as ACES to expand its business, particularly out of Java Island. Of note, the digital era popularizing Do It Yourself trend provides another opportune moment for ACES.

  Its peers in ASEAN also post the growth in sales amid the downtrend suffered by the overall retail sectors; still most of home improvement retailers are capable of posting two–digit gross margin, operating margin and EBITDA margin.

ASEAN Home Improvement Retailers Market Revenue Net Profit Net Profit Asset Net ROE P/E Company Cap LTM LTM Growth P/BV (USD mn) Margin LTM LTM (USD mn) (USD mn) (USD mn) LTM Indonesia

  LPPF 922 399 737 136 -0.86% 18.5% 85.6% 7.2x 5.5x RALS 556 360 411 41 36.52% 9.9% 15.7% 13.8x 2.1x MAPI 908 841 1,326 46 91.23% 3.5% 14.0% 23.2x 2.6x ACES 1,598 326 495 68 24.68% 13.8% 26.6% 24.8x 6.2x

                                   

Thailand

  Home Product Center Pcl 5,875 1,564 2,038 169 16.50% 8.3% 30.86% 36.2x 10.6x Siam Global House 2,395 865 713 57 12.30% 7.9% 13.86% 42.9x 5.7x

                                   

Philippines

  Wilcon Depot Inc 881 321 352 27 56.23% 7.8% 17.88% 30.8x 3.9x

  Source: Bloomberg

  Multiple Valuation Forward P/E band | Last 4 years Dynamic Forward P/E band | Last 4 years Source: NHKS research Source: NHKS research Rating and Target Price Update

Target Price Revision Date Rating Target Price Last Price Consensus vs Last Price vs Consensus

  04/04/2018 Buy 1,575 (Dec 2018) 1,360 1,440 +15.8% +9.4% 05/18/2018 Buy 1,425 (Dec 2018) 1,180 1,490 +20.8% -4.4% 08/08/2018 Buy 1,635 (Dec 2018) 1,395 1,537 +17.2% +6.4% 11/06/2018 Buy 1,635 (Dec 2019) 1,380 1,603 +18.5% +2.0%

  Source: NHKS research, Bloomberg

Analyst Coverage Rating Closing and Target Price

  Source: Bloomberg Source: NHKS research

NH Korindo Sekuritas Indonesia (NHKS) stock ratings

  1. Period: End of year target price

  2. Rating system based on a stock’s absolute return from the date of publication 

  Buy : Greater than +15%  Hold : -15% to +15% 

  Sell : Less than -15% Summary of Financials

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