Ramayana Lestari No Positive Surprises Yet

9M15 net sales met 72%/73% of our/consensus of FY15F sales targets
Upgrade to NEUTRAL as we believe it is nearing its IDR 640 TP (2% upside). Excluding other operating income and applying a normal effective corporate tax rate, Ramayana’s 9M15 core profit was 97%/94% of our/consensus FY15F net income numbers. The supermarket division has not turned around yet and recorded a negative operating margin in 9M15.

In line results.
9M15 net sales were 72%/73% of our/consensus FY15F sales targets. Excluding IDR32bn other operating income and applying the historical effective corporate tax rate of c.15% (instead of the low 10.6% in 9M15 numbers), Ramayana Lestari Sentosa’s (Ramayana) 9M15 core profit stood at 97%/94% of our/consensus FY15F net income numbers, which is in line with its historical seasonality (9M14 net income constituted 96% of its FY14 net income).

Supermarket is still in red
The supermarket division has not turned around yet and recorded a -5.4% operating margin in 9M15 (compared to -1.4% in FY14).

9M15 SSSG improved slighty
The -4.1%. (-4.8% 8M15) was helped by strong sales in Jakarta in Aug, which was mainly contributed by the implementation of educational cashless susbidy system, Jakarta Smart Cards (KJP).

We expect lower sales from KJP going forward
To assist with educational needs in Jakarta, the Jakarta city administration issues KJP to students with economically disadvantaged backgrounds. However, the system has been misused with purchases being made for other than educational needs. Thus, the city administration would place more restrictions on the use of KJP.

Upgrade our call to NEUTRAL from Sell (with the same IDR640 TP) as we believe the share price has reflected the fair value of Ramayana. Our TP implies 15.3x/13.5x FY16F/FY17F PE and is based on DCF valuation with WACC of 13.8%, beta of 1.1, and terminal growth of 5%.

Company Profile
PT Ramayana Lestari Sentosa Tbk (RALS) operates the second largest department store network in Indonesia. It targets the medium-range to low-end market segments. Its extensive network of 116 outlets is spread all over Indonesia. The department store business contributes c.70% and the supermarket business contributes 30% of its total gross sales.