RHB Indonesia - Ramayana Lestari: Playing Offense - (Ramayana Lestari, GDP, Mega Manunggal Property, Elnusa) Unknown Selasa, 07 Februari 2017




Good morning,

Ramayana Lestari - Playing Offense

With a new key manager, Ramayana plans to play more offense in the coming years, which we believe would translate to an overall improvement in its performance. Aggressive strategies include a better assortment of products, improved marketing campaigns, more efficient store designs and better organisational structure. Ramayana started to implement these strategies in 2016 and it has yielded encouraging results. We are upbeat on its new strategies and thus reinitiate coverage with a BUY recommendation and DCF-derived TP of IDR1,825 (25% upside), implying 2017F/2018F P/Es of 25/21x (c.1SD above 5-year average).

¨ Structural change: New coach, new strategies. In 2016, Ramayana Lestari Sentosa (Ramayana), a mass fashion retailer founded by Paulus Tumewu 39 years ago, appointed Jane Tumewu – the founder’s daughter – as its new general merchandise and marketing manager. Under Ms Tumewu, Ramayana has adopted more aggressive strategies through ha better product line up and marketing campaign. The strategies have so far paid off as seen in2016’s SSSG performance, which showed a good improvement.
¨ On its product line up, Ramayana has introduced fresh products with brands that collaborate with trending artists and Walt Disney Co (Disney) (DIS US, NR). On marketing, it leverages on social media and the various artists it collaborates with. Looking ahead, we expect more from its new strategies, supported by the huge lower-end segment and gradual pick-up in the economy.
¨ Accelerating performance driven by rising store productivity. We forecast accelerating financial performance in 2016-2018F, driven by Ramayana’s transformation efforts and a gradual pick-up in the economy. Our model suggests profit and revenue CAGR of 19% and 8% respectively in 2016-2018F. We are projecting rising store productivity as a result of Ramayana’ new strategies, which would subsequently be followed by operational leverage.
¨ Conservatively managed company, strong financial position. Ramayana is conservatively managed. It is in a net cash position with accounts payable surpassing inventory value in the past. When economic growth picks up speed, we believe it can expand more aggressively in the coming years.
¨ Supermarkets improving. Management is taking the right steps to improve its supermarkets’ performance. While we like the effort, we also understand that it would not be a smooth linear upward projection when fixing a business. Encouragingly, the supermarkets displayed performance improvement in 2016 and if that continues, it could stem the segment’s losses in the near future.
¨ Reinitiate with BUY, one of our sector Top Picks. We reinitiate coverage on Ramayana with a BUY and DCF-derived TP of IDR1,825, which implies 2017F/2018F P/Es of25/21x – close to 1SD above its 5-year average of 23x, justified by its faster earnings growth outlook. For our discount rate, we used WACC of 12.5% and terminal growth of 3%.With increasing productivity, Ramayana’s key catalyst would be its monthly SSSG performance. Potential downside risks include major purchasing power erosion and competition. (Stifanus Sulistyo)

Link to report: Ramayana Lestari : Playing Offense
Link to Daily report: Indonesia Morning Cuppa - 070217

Economics Update:

Economic Growth Moderated Further In 4Q16
Indonesia’s 4Q16 GDP expanded 4.9% YoY, moderating from 5% in the previous quarter. Going forward, we revise down our 2017 forecast for the archipelago’s economic growth. It is to pickup slightly to 5.2% (from +5.3 previously) and +5% in 2016. GDP growth would continue be supported by:
1. A large domestic economy as a key driver of growth;
2. Higher State Budget for infrastructure projects;
3. Resilient household consumption;
4. A more stable to modest pick-up in primary commodity prices.
¨ Economic growth moderated in 4Q16. It inched down to 4.9% YoY in 4Q16 (3Q16: +5%). This was attributed to a slowdown in domestic demand on the back of a larger contraction in government consumption as a result of 2H16budget cuts.
¨ Investments have picked up, though, as the various stimulus initiatives have started to make an impact on the economy.
¨ A rebound in net export was recorded during the quarter. Growth in real exports of goods & services rebounded to 4.2% in 4Q16(3Q16: -5.7%).
In the same vein, growth in real imports of goods & services picked up to 2.8% YoY in 4Q16 (3Q16: -3.7). A sharper growth in exports vis-à-vis imports resulted in a positive net exports contribution during the quarter under review.
¨ Led by a manufacturing output slowdown. On the supply side, the moderation in GDP growth was led by a slowdown in manufacturing output. Note that manufacturing is the biggest sector in the economy. (Rizki Fajar)
Visit Notes:

Mega Manunggal Property (MMLP IJ, BUY, TP: IDR950), Company Visit Notes
We visited Mega Manunggal for company update and future strategies. Management is guiding for 20% top line and EBITDA growth in FY17 mostly driven by new revenue contribution from Lazada Indonesia phase 1 as well as incremental rental rates from existing tenants. The company targets Net Leaseable Area (NLA) to reach 500K sqm in 2019 that will be concentrated in Bekasi area. For FY17, management is targeting marketing sales to reach 220K sqm (NLA) that will be contributed from new projects such as Lazada Phase 2, Ark Logistics, AE Warehouse, and etc.

During FY16, marketing sales reached 270,243 sqm (NLA) excluding Lazada Phase 1 (hand over in Feb’17). Management guided FY16 revenue up by about 7% YoY to around IDR174bn (in-line) while EBITDA is expected to decline, by our estimation to IDR119bn (-3% YoY), due to higher operating cost as a result of construction of the new projects that has yet to generate revenue.

Currently the company is trading at FY17F P/E of 17x and we believe it is justified given upside risks such as:
1. Timely project execution with sufficient funding
2. Potential growth as the company is halfway on achieving its 500,000 sqm target
3. Strategic location in Bekasi area that is surrounded by industrial estate along with government’s plan to open additional toll road access to Cibitung from Tanjung Priok. (Yualdo Tirtakencana Yudoprawiro)

Elnusa (ELSA IJ, NR), Company Visit Notes
We’ve visited PT Elnusa (ELSA IJ, not rated) for business update and industry outlook going forward, company is guiding single digit top and bottom line growth in FY2017 and bullish outlook in FY2018, driven by better performance from oil field services (Higher maintenance capex from Mahakam block post Pertamina takeover, which contribute to 50% of oil field segment revenue) seismic services (co acquired a Marine seismic vessel in 2016, working now) and transportation segment (higher quota from Pertamina).
Management guided FY2016 full year revenue to be flat, net profit to decline by 15-17% YoY, due mainly to forex loss of IDR22bn versus gain of IDR68bn in FY2015. However operating profit will record 15% YoY growth on the back of its cost management.
We believe there are upside risks to the stock at this juncture, on the back of:
1. Potential employment of its idled drilling rig in FY2017, which will drive double digit profit growth.
2. Net cash position and the company’s willingness in non-organic expansion.
3. Rerating potential, undemanding valuation of 10x guided FY16F PER and the stock being the closest proxy of Brent crude oil price movement thus far due to its relatively resilience earnings and sufficient liquidity. (Norman Choong, CFA)
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Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia


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