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IP MAPI: 1Q20 Results - Surprising Weak SSSG
Wednesday, July 01, 2020       09:26 WIB

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Author(s): Kevie Aditya, Elbert Setiadharma
  • 1Q20 results were below expectations; net profit fell 94% yoy on the back of -8% SSSG , 130bps GPM decline, and impact from PSAK 73.
  • While its solid brand portfolio and mid-upper target market will allow faster SSSG recovery, GPM will take a big hit as discounts intensify.
  • While the worst is likely priced in, there is lack of near-term catalyst. We maintain our Rp850 TP but downgrade our call to Hold.

1Q20 was below expectation amid weak SSSG and margin
's net profit fell by 94% yoy to Rp8bn, on the back of a very weak SSSG (-8%) due to Covid-19, as well as the impact of PSAK 73 (adoption of IFRS 16). According to the company, if we ignore the impact of PSAK 73, recorded EBIT of Rp114bn (-60% yoy) and net profit of Rp57bn (-58% yoy), below our and consensus' estimates at 8/9%. 1Q20 GPM also fell by 130bps yoy to 45.6%, which may worsen in the following quarters.
Strong brand equity may allow to recover faster than expected
As large-scale social distancing ( PSBB ) was lifted across Indonesia, almost all of 's stores have re-opened. After Jakarta malls re-opening, 30-40% of its capacity was filled (out of 50% allowed capacity). Our channel check during weekends suggest mid- up malls (i.e. Senayan City) tends to do better compared to high-end malls (i.e. Plaza Senayan, Pacific Place) as people flock to well-renowned brands with promotion, i.e. Zara and Starbucks. Equipped with those renowned brands along with strong online capability, we expect SSSG to start normalize possibly starting in 4Q20.
Cost efficiency is still going strong; GPM is our major concern
is positive that they will be able to negotiate better rental discounts despite re-openings (most rentals were waived during store closures). Covid19 has caused many smaller retailers to cease operations, hence malls' tenancy ratio is likely to drop, giving anchor retailers like better bargaining position. Nonetheless, expect GPM to bottom in 2Q20 amidst major discounts in Apr/May to attract customers to shop online. In sum, we now pencil in a 250bps GPM decline in FY20F to 45.0% (previously 150bps GPM decline).
A year to forget
While may recover faster than most mid-lower retailers, the impact of Covid-19 will still severely erode its SSSG and earnings in FY20F. We cut our FY20F SSSG estimates to -20% (from -8%) and earnings estimates by -22% to Rp624bn, now implying -42% yoy decline - still better than sector's -49% yoy decline. While the worst is likely priced in, there is lack of near-term catalyst. We maintain our SOTP -based TP of Rp850 but downgrade our call to Hold. Our TP implies 22.6/11.9x 2020/21F P/E.


Sumber : IPS

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