Ramayana: 1H11 - in line with expectations (Elvira) - BNP Paribas

Ramayana (RALS IJ) reported a 1H11 results that is largely in line with ours and consensus expectations.

* Sales grew by 8.7% y-y on the back of 1H same store sales (SSS) growth of 3%. This disappointing sales was somewhat compensated by higher margins. This we believe reflects that trade off between sales and margins. This year like last year, we believe Ramayana will again go for margins vis a vis sales growth.

* We deemed the results to be in line with our and consensus forecast even though 1H result only accounted for 17% of our FY earnings since Ramayana's business is highly seasonal with the peak season - the hari raya period which this year will again fall in the 3Q, could contribute around 65-75% of full year earnings.

* We are cautiously optimistic that this year's hari raya sales will be a good one considering that inflation has eased off, alleviating the the pressure to the low end segment. We expect sales in the ex-Java area to drive growth and reverse the trend in the past two months where sales there were soft. Management explained that they were late to replenish the stores with new merchandise. However, the stores are now stocked with new merchandise, ready for the most important quarter.

* So far operational performance has been dismal and the company has continued to disappoint investors, even when the environment were ripe for out performance with the economy growing nicely, inflation largely under control, consumer confidence and commodities prices at a reasonably high levels. However, we admit that valuation is looking compelling at 11x 2012. BUY, TP IDR 950. Given that the other companies in the retail sector have seen their share prices run, Ramayana is an alternative if they company can get their act together or it should be an M&A target.