Ramayana Lestari Still a Weak Performance

In the current economic slowdown, Indonesia’s low-income segment has been the hardest hit – which was reflected in Ramayana’s 6M15 results. Its 6M15 earnings were weak after taking into consideration the seasonal factors related to Lebaran. The stock is still a SELL, with a IDR640 TP (9% downside). A positive re-rating catalyst would be economic recovery and the resulting trickle-down effect to the low-income segment.

6M15 earnings were way below our and consensus FY15 forecasts due to seasonal factors
Ramayana Lestari’s (Ramayana) 6M15 net income of IDR91bn made up 34%/32% of our/consensus earnings estimates respectively. Even including the two weeks of sales during the Lebaran festivities in July – which were not included in the 6M15 results – we believe Ramayana’s earnings during this year’s Lebaran were still way below consensus estimates (Figure 2), due to the very weak purchasing power of the low-income segment.

Supermarket division’s operating margin was -5.4% in 6M15
Ramayana opened eight SPAR supermarkets in 6M15, and aims to open seven more this year. So far, however, its supermarket division has not turned around – it recorded a -5.4% operating margin in 6M15.

6M15 SSSG still negative
The company’s 6M15 same-store sales growth (SSSG) was -1.2%. We believe that after the Lebaran festivities, SSSG would decline again – since even Matahari Department Store (LPPF IJ, BUY, TP: IDR18,900), which booked SSSG of 12.2% in 6M15 and focuses on the resilient middle income segment, has guided for lower SSSG post Lebaran.

Asset turnover ratio hits a bottom
Its 6M15 asset turnover was at 1.06x, the lowest in the company’s history since 2009. One reason for this was the increasing cash on its balance sheet of IDR1.7trn, which we have yet to see being dished out to shareholders as a special dividend.

Maintain SELL
We maintain our SELL call with unchanged TP of IDR640. Key risks to our forecasts include: i) losing market share outside of Java; ii) regulatory changes; and iii) faster-than-expected rise in inflation due to further fuel price increases. A rebound in the economy and the subsequent positive effects trickling down to the low-income segment would be a positive re-rating catalyst.

6M15 net income was way below our and consensus FY15 forecasts due to seasonal factors. Ramayana’s 6M15 net income of IDR91bn comprised 34%/32% of our/consensus earnings estimates respectively. Including the two weeks of sales during the Lebaran festivities in July, which were not included in the 6M15 results, we believe that Ramayana’s earnings during this year’s Lebaran are still way below consensus estimates. In FY13 and FY14, Lebaran festivities were in 3Q.

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.