Unaudited FY12 NPAT was weak but expected. It would have been 12-15% higher if the supermarket delivered. Margin enhancement and strong wage hike would be the catalysts. We reiterate BUY. Valuation re-rating in the department stores space could catalyze RALS as the cheapest play.
Weak FY12 NPAT is expected. RALS will report audited FY12 results in
end-March. Unaudited NPAT was revealed at Rp424bn (+12.3%yoy), 11% lower
than our previous estimates and 5% lower than consensus.
We have fine-tuned our numbers to factor these. Weak NPAT came as
supermarket booked some Rp15bn net loss versus Rp40-50bn profit
targeted. Consolidated NPAT would have been 12-15% higher if supermarket
division met the management's budget.
Record high productivity indeed. 2012 sales/sqm reached Rp8.0mn
(+4.4%yoy), a historic high. The decision to replace some supermarket
space with the fashion consignment products enhanced productivity. SSSG
recovered to 8.8% from 5.0% in 2011, albeit slightly lower than our
Margin enhancement to continue. Core department stores business
performed very well last year. Its EBIT margin could reach c.11% in
FY12, higher than MAPI. As consignment proportion rises, the gradual
operating margin improvement should continue going forward. Fashion
consignment can generate 3-6ppt higher operating margin than outright.
RALS expects fashion consignment proportion to reach up to 35% this
year, versus 30.6% in FY12. For department stores alone, consignment
proportion is 50%, far below MAPIs department stores (~80%) and LPPFs
(~70%), suggesting ample room for operating margin improvement.
Recent hire of an operational manager for the supermarket division,
rather than a top-level guy, should also be more effective in addressing
the core issues of the business.
Take a more conservative approach. 2013 strong minimum wage hike would
benefit RALS. If adjustments are smooth, RALS indicated that achieving
Rp550bn FY13F NPAT (8.8% above consensus) is possible. But we decided to
be conservative as some deferment in wage adjustments is possible as
hundreds of companies are applying for excemption from the wage hike.
We slashed FY13F EPS by 5.9%, factoring higher wages and electricity costs, now aligned with the street.
Reiterate BUY with unchanged TP at Rp1,400 still pegged to 1.0x PEG.
Current 16.2x FY13F PE makes RALS an underdog against regional average
of 26.2x or even local peers at 30.4x.
Valuation re-rating in the department stores space could catalyze RALS
as the cheapest play. On a 12-month forward, RALS 16x PE is also on par
with its mean. A discount to execution risk is understandable, but not
me @ LOTS Trading Club (LTC)
Jumat, 22 Februari 2013
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