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Friday, December 08, 2023       16:50 WIB

RALS - Primed to capitalize on FY24F social aid disbursement and Lebaran festive

Company Update / Consumer Discretionary /RALS IJ / Click here for full PDF version

Author(s): Lukito Supriadi ; Andrianto Saputra

  • Management believes that 9M23 sales weakness stems primarily from soft purchasing power of the low-end segment (ie. not structural).
  • Historically, soft purchasing power typically lasted for two to three quarters. We expect the social aid and election spending shall stimulate purchasing power for a moderate recovery ahead of FY24F Lebaran
  • We upgrade RALS to BUY rating with a TP of Rp660, as RALS shall tactically benefit from the upcoming Lebaran in Apr24.
RALSs sales underperformance deemed to be temporary

RALSs revenue has yet to recover to FY19 level from the pandemic with current 11M23s sales trailing c.-45/-5% compared to 11M19/11M22s. Severe weakness was observed in Java, while outer island sales are faring relatively better. Management views the key issue lies in the weak purchasing power of the low-end segment and believes that RALSs target market is primarily store-based customers (offline) that shop once or twice yearly, mostly during Lebaran festive. Hence, e-commerce is not a major threat to their business.

FY24F outlook on the back of FY23F low base effect

Managementviews that FY24F revenue must grow by at least 10% yoy on the back of FY23F low base. Management is still quite cautious on the extent of recovery in the low-end segment, even on the back of election spending in 1Q24F given p2p and/or online lending & online gambling issues. Historically, soft purchasing power typically last for two to three quarters (current weakness observed from 2Q23). Taking cues from the improved social aid spending (+13.5% yoy) based on FY24F national budget and potential meaningful addition to this based on our economists insight; we believe that low-end purchasing power shall recover along with election spending, ahead of FY24F Lebaran. Additionally, Oct/Nov23s indicative sales run-rate has shown c.7/13% improvement compared to Aug/Seps avg. revenue.

Upgrade to BUY with TP of Rp660 amid attractive dividend

We adjust our FY23/24F net profit forecast by -12/-5% to account for the 9M23 under performance. Given the share price pullback of 12/-13% in 3M/6M, we see a tactical opportunity for RALS on the upcoming Lebaran. RALS ample cash balance of Rp1.1tr (c.32% of market cap) coupled with limited capex spend imply a hefty dividend payout, which we estimate may reach 10% yield in FY24F. With this, we upgrade our call to BUY with slightly higher TP at Rp660, based on 11.0x FY24F P/E (-1s.d. of its 5yr pre-Covid mean) adjusting for the lower number of non-treasury shares. Risk is soft purchasing power of low-end segment.

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