Indonesian Retailers, 3Q15 Results Preview

Considering the weak purchasing power of Indonesian consumers, we believe retailers like Matahari Department Store and Matahari Putra Prima which have low leverage (net cash position), minimum imports, and targeting the resilient middle income will post decent results in 3Q15 compared to its peers. We also expect weak performance from ACE Hardware (due to its high imports) and Ramayana (due to weak purchasing power of low-income segment).

Matahari Putra Prima (MPPA IJ, Buy, TP: IDR4,100)
Management guided for stable margin in 3Q15. Based on our channel checks, MPPA’s competitors are having margin pressure and operating cashflow issues.

Matahari Department Store (LPPF IJ, BUY, TP: IDR18,900)
Management guided for the lower end of 7%-9% SSSG for FY15F as informed during the 1H15 conference call. Being conservative, we factored in 7% SSSG for FY15F right after the 1H15 conference call.

Catur Sentosa Adiprana (CSAP IJ, BUY, TP: IDR525)
The management has indicated that the low-end ceramic tiles is still weak despite early sign of rebound in late Aug, dragging down overall performance in 3Q15. Consumer goods and Mitra10 business segments performed well in 3Q15 and CSAP is looking to divest the chemical unit.

ACE Hardware (ACES IJ, NEUTRAL, TP: IDR640)
Despite the 1.6% SSSG in Sep alone (9M15 SSSG is still negative 1.3%), we remain wary on the very high 226 inventory days (the highest compared to its retail peers) in 2Q15 and declining margins for the lifestyle and toys products, which constitute c.45% of ACES’ total sales.

Erajaya Swasembada (ERAA IJ, NEUTRAL, TP: IDR570)
We acknowledge ERAA’s superb capability in mobile handset sales. However, we are cautious on the declining gross margin of mobile handsets and the eventual implementation of 4G regulation in Jan 2017.

Ramayana Lestari Sentosa (RALS IJ, SELL, TP: 640)
SSSG was still at negative 4.1% in 9M15 and, based on our channel check, SPAR supermarket is suited for middle income rather low income segment.