/ Consumer Discretionary
/ Click here for full PDF versionAuthor(s): Lukito Supriadi ; Andrianto Saputra
RALSs sales underperformance deemed to be temporary
- 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 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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