Company Report | Nov 7, 2018
Ace Hardware Indonesia Tbk | Summary (IDR bn)
2017 2018E 2019F 2020F
ACES outstripped its top-line growth higher than 20%, achieved since 2Q17. In 3Q18, ACES posted the sales and the net profit of IDR1.78 trillion (+21.6%) and IDR273 billion (36.8% y-y), respectively. Of note, the hike in 3Q18 general and administrative expenses at 6.3% y-y (vs. +32.4% y-y in 1H18) was attributable to a higher EBIT margin and the bottom line.
The consistent growth was the potent driver for ACES’s sales of 22.2% y-y until September 2018. 4Q18 performance is likely to be boosted by Ace Boom Sale program, held at the early of 4Q18. We project that the growth is likely to continue further by posting the FY18 growth outpacing the FY17 growth.
Significant Impact of New Store Launch
3Q18 performance highly correlated to massive new stores launch in 2018. To date, ACES has launched 25 new stores, the number outpaced the FY18 target of 15 stores. SSSG outside Java Island hovered around 15%-16%, backed by its business expansions and the rally in commodity prices. Furthermore, new stores bolstered 3Q18 growth of 21.6% y-y posted by the home improvement segment. It also cushioned the sluggish growth of 19.0% y-y, the lowest since 2Q17, posted by the lifestyle segment.
Target Price of IDR1,635
We use an estimate of forward P/E of 24.3x (2SD higher than the last 4-year average). The target price implies a 2018E P/E of 28.0x. Now, ACES is traded at a 2018E P/E of 23.6x.
Michael Tjahjadi
Source: Company, NHKS Research
ACES Quarterly Net Profit | 3Q16 - 3Q18
Source: Company, NHKS Research
ACES Quarterly Net Sales (IDR bn) | 3Q16 - 3Q18
Margin Ratios | 3Q17 - 3Q18
Net Sales Breakdown on Third Quarter
Source: Company, NHKS Research
Performance Highlights
Store Expansion | 1Q16 - 3Q18
Source: Company, NHKS Research
ASEAN Home Improvement Retailers
A Glance at ACES
ACES is a retailer dominating home-improvement business in Indonesia. Its mostly imported products are categorized into home improvement and lifestyle segments. Targeting the middle to high income individuals, it operates 169 stores across big cities in Indonesia. In 2018, it also launches stores with new concepts, namely Ace Xpress with a more narrowed spaces compared to existing ACES’s stores.
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 the e-commerce segment through ruparupa.com owned by its parent entity.
Indonesia’s Home Improvement–Based Retailer 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.
Multiple Valuation
Forward P/E band | Last 4 yearsSource: NHKS research
Dynamic Forward P/E band | Last 4 years
Source: NHKS research
Rating and Target Price Update
Target Price RevisionDate Rating Target Price Last Price Consensus vs Last Price vs Consensus
04/04/2018 Buy 1,575 (Dec 2018) 1,360 1,440 +15.8% +9.4%
05/18/2018 Buy 1,425 (Dec 2018) 1,180 1,490 +20.8% -4.4%
08/08/2018 Buy 1,635 (Dec 2018) 1,395 1,537 +17.2% +6.4%
11/06/2018 Buy 1,635 (Dec 2019) 1,380 1,603 +18.5% +2.0%
Source: NHKS research, Bloomberg
Closing and Target Price
Source: NHKS research Analyst Coverage Rating
Source: Bloomberg
NH Korindo Sekuritas Indonesia (NHKS) stock ratings
1. Period: End of year target price
