Ramayana Lestari, 2014 Growth To Get Election Boost

RALS’ 4Q13 sales are set to improve as October SSSG rose ~14% m-o-m
The company’s plans to add 5-6 stores annually should get a boost from the potential income increment among low-end consumers during next year’s election. The biggest risk to RALS’ 2014 sales is the close timing of the Lebaran and back-to-school sales season. Maintain BUY, with a IDR1,650 TP, implying a 21x FY14F P/E.

SSSG to pick up in 4Q13
RALS’ October same-store sales growth (SSSG) accelerated to 14% m-o-m, while the November numbers should confirm whether the impact of inflation has waned, which, if proven so, will lead to more sustainable growth for the rest of the year. RALS saw a 5.2% y-o-y decline in 1H13 sales due to higher inflation and rising fuel prices. The minimum wage hike in early 2013 was not able to boost consumer purchasing power.

Huge potential for new market expansion
RALS targets to operate 119 stores by end-2013 and plans to open 5-6 new outlets next year in Pamulang, Malang, Solo, Depok and Tajur. In 2013, several stores in Sumatera performed poorly as the economies of their local areas are dependent on commodities. However, we expect sales growth to pick up once commodity prices recover.

Close timing of Lebaran and back-to-school season may hurt sales
We see risk of 2014 sales growth slowing as the timing of two peak sales seasons – the back-to-school and Lebaran festive seasons – will be closer to one another since the Lebaran moves forward by two weeks every year. This may cause some consumers to spend less on back-to-school sales in order to save cash to be spent during the Lebaran sales. Notably, the back-to-school sales are equivalent to 1.5x average monthly sales for RALS, while Lebaran sales are equivalent to 3.5x its average monthly sales.

Valuation
RALS is trading at a 14.0x FY14F P/E, lower than its average peers’ 17.4x FY14F P/E. We maintain our BUY call, with our unchanged IDR1,650 TP implying a 21x FY14F P/E. The announcement of a new strategic partner in RALS’ supermarket operation may be a share price catalyst.