ACES Consistently Improves Performance 20180521 NHKS Company Report (English)

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NH Korindo Sekuritas Indonesia

and IDR210 billion in the 1Q18 net sales and net profit, respectively. In fact,

on the annual basis,

it succeeded to post the growth higher than 20% in

the last 4 quarters

. The surge in sales was spurred by

the growth in all

segments

. Of note, the contribution of the lifestyle–products segment to

the overall sales hiked into 41.2%.

Compared to the 1Q17 margin performance, its 1Q18 gross margin was

well

-

maintained at the level of 47.8%, yet

its EBIT margin and net profit

margin surged

. On the other hand, its 1Q18 cash amounted to IDR1 trillion,

the all–time high.

program will last for May; indeed,

its business expansion of 17 new stores

launched in 2017 will start to significantly impact on spurring sales

performance in 2018.

Target Price of IDR1,425

We use an estimate of forward P/E of 24.4x (1SD higher than the last 4

-

year

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A Glance at ACES

ACES is a retailer dominating home

-

improvement business in Indonesia. Its products

whose 80% are imported products are categorized into home improvement and lifestyle

segments. Targeting the middle to high income individuals, it operates 151 stores across

big cities in Indonesia.

To expand its markets, ACES aggressively promotes marketing strategy of sale programs

throughout years such as “Ace Boom Sale”,

Siap Sedia pada Hari Raya

”, “Clearance Sales

Akhir Tahun

”, and “Ace Reward” membership. Another to whole

-

year sale off, ACES in

2016 penetrated e

-

commerce segment through ruparupa.com owned by its parent

entity.

Indonesia’s Home Improvement–Based Retails in ASEAN

The home

-

improvement retail business inextricably correlates to certain countries’

industrial property backdrop. Indonesia homes to numerous new property projects; thus,

it provides lucrative opportunities for retailers such as ACES to expand its business,

particularly out of Java Island. Of note, the digital era popularizing Do It Yourself trend

provides another opportune moment for ACES.

Its peers in ASEAN also post the growth in sales amid the downtrend suffered by the

overall retail sectors; still most of home improvement retailers are capable of posting

two–digit gross margin, operating margin and EBITDA margin.

ASEAN Home Improvement Retailers

Company

Market Cap

(USD mn)

Total Asset

(USD mn)

Sales

Growth

Gross

Margin

Operating

Margin

EBITDA

Margin

ROE

P/E

Dividend

Yield

ACES

1,425

326 20.31%

48%

16.2%

17.8%

24.0%

24.1x

1.4%

Thailand

Home Product Center

5,869

1,564

5.05%

31.4%

10.0%

15.0%

26.5%

37.3x

2.2%

Siam Global House

2,059

865 10.46%

20.6%

10.3%

13.8%

12.6%

39.1x

1.1%

Philippines

(3)

Source: Company, NHKS research

Net Sales Breakdown on First Quarter

Operational Performance

Quarterly Net Sales (IDR bn) | 1Q15

-

1Q18

Quarterly Net Profit (IDR bn) | 1Q15

-

1Q18

Source: Company, NHKS research

Stores Expansion| 1Q16

-

1Q18

Source: Company, NHKS research

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Multiple Valuation

Forward P/E band | Last 4 years

Dynamic Forward P/E band | Last 4 years

Rating and target price

Date

Rating

Target Price

Last Price

Consensus

vs Last Price

vs Consensus

04/04/2018

Buy

1,575

1,360

1,440

+15.8%

+9.4%

05/18/2018

Buy

1,425

1,180

1,490

+20.8%

-

4.4%

Closing and Target Price

Source: NHKS research

Analyst Coverage Rating

Source: Bloomberg

Source: NHKS research

NH Korindo Sekuritas Indonesia (NHKS) stock ratings

1. Period: End of year target price

2. Rating system based on a stock’s absolute return from the date of publication