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Matahari Department Store (LPPF IJ.IDR. 1,010 BUY TP:IDR.1,500) - 23 Oktober 2020
October 23, 2020 09:45 WIB

Matahari Department Store (LPPF IJ)

9M20 Improving, yet Still Anemic

 

The 9M20 earnings reached –IDR616.6bn (-152% yoy) below our initial figure and the consensus due to -57.7% SSSG in 1H20, a byproduct of lower than normal traffic and the second strict PSBB starting on 14 September 2020. October’s SSSG reportedly witnessed a single-digit gain from the previous month. The management is now focusing on transforming its strategy in-store, online, and focusing on efficiency and effectiveness. Implementation includes some EBITDA accretive store closures and rationalizing its underperforming consignment brands. This will not translate into positive performance until 2021, however. In light of the result, we trim our bottom line estimates by a further -12.9% in 2021F as we lower our sales estimate by –4.7%. The result is a IDR100 lower 2021 TP, now standing at IDR1,500.  

3Q20 marks an improvement with SSSG standing at -40.9% vs -83.7% in 2Q20, reflecting the PSBB easing period, which was tightened again in mid- September. The SSSG sequential improvement led to a mere IDR1.1tn of sales in 3Q20 (-42.8% yoy, 52.7% qoq) and IDR3.3tn in 9M20 (-57.5% yoy). Store re-openings mean opex also picked up by 14.4% QoQ, but still -19.9% yoy. There was an inventory provision in 3Q20 totaling IDR65.1bn, and excluding this the overall GPM was 60.9% in 9M20 vs the reported figure of 58.9%. EBIT remains negative at IDR478.9bn and the bottom line was –IDR616.6bn in 1H20, far below our estimate and the consensus. 

4Q20 to improve, but still challenging. As the management noted a sequential improvement in Oct20’s SSSG vs Sep20, we believe the trend should continue throughout 4Q20, before the massive vaccination of the Indonesian population reportedly to start in Nov/Dec20. Costs will track the same path of QoQ growth as LPPF will revert the salary cut in-line with expected sales recovery. The aim is for a more agile, more profitable LPPF via: 1) better store layouts to start rollout in Q2 2021, 2) Re-launching of Matahari Rewards in Nov20, 3) revamping in merchandising, 4) rationalizing unprofitable stores as well as partnering with brands that fit the new strategy, and 5) integration with the soon-to-be rebooted Matahari.com for its online to offline initiative. Zero based budgeting is also on the cards, and also repayment of short-term debt is also to gradually return to normalcy of a zero balance at year-end.    

Maintain BUY with a lower TP of IDR1,500. We maintain our BUY call although the aforementioned earnings cut reduces our TP by IDR100 to IDR1,500. The key risks to our call are: 1) a prolonged Covid-19 pandemic in Indonesia, 2) deterioration in macro conditions, 3) a more rapid shift to digital, and 4) execution risk in the new strategy direction. 



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Unilever Indonesia (UNVR IJ.IDR. 7,850 BUY.TP: IDR. 9,100) - 23 Oktober 2020
October 23, 2020 09:35 WIB

Unilever Indonesia (UNVR IJ)

Steady performance

 

UNVR reported 3Q20 earnings growth of 1.4% yoy, leading to 9M20 net profits of IDR5.46tn, -0.9% yoy. The 9M20 top line growth was soft at only +0.3% mainly supported by HPC while FNR remains under pressure given weak demand from UFS. Thanks to strong gross margins and a lower tax rate, UNVR maintained its net profits in 9M20. The 9M20 net profits are slightly below our full year forecast (70%) but in line with consensus estimates (72%).  

9M20 domestic revenues grew 1.7% yoy – excluding UFS (1H20: 2.4%yoy). UNVR reported 2Q20 top line growth of 0.6% qoq and -2% yoy, leading to 9M20 revenues growth of 0.3% yoy. Domestic revenues grew +0.8% yoy in 9M20, while exports declined by 9.2% yoy in the same period. By division, the Home and Personal Care (HPC) division reported solid top line growth in 9M20 of 2%yoy while Food and Refreshments (FNR) booked -3.5% yoy growth. Domestic sales were mainly driven by the increasing sales of health and cleaning products given growing health awareness during the pandemic. Unilever Food Solution (UFS) that taps hotels and restaurants remains week despite signs of recovery in some areas. Excluding UFS, domestic sales showed stronger growth of 1.7% in 9M20 (1H20: 2.4%yoy). 

9M20 net profits down 0.9% yoy. UNVR reported a higher 3Q20 gross margin of 53.2%. This helped UNVR to book an improved 1H20 gross margin of 52% (9M19: 50.8%). At the operating level, FNR reported a lower operating margin of 13.1% (9M19: 16.1%) given soft demand from UFS. Meanwhile, HPC reported a stable operating margin of 33% - as the company continued to benefit from stable demand for health-related products /daily necessities. Opex spending started to increase in 3Q20 (+11% yoy), leading to higher 9M20 opex/revenues of 30.1% (9M19: 27.5% and 1H20: 29.6%). By the end of September 2020, UNVR reported higher A&P/revenues and Service Fees/revenues of 10.3% and 7.5%, respectively. This reined in the 9M20 operating profits which reached IDR7.1tn, down 5.6% yoy. Supported by a lower tax rate, UNVR reported 9M20 net profits of IDR5.49tn, down 0.9% yoy. The 9M20 net profit is slightly below our FY20F estimate (70.1%) and inline to achieve consensus estimates (72%). In recent years, the 9M20 net profits were 72% to 75% of the FY figure. 

Maintain BUY. In 3Q20, UNVR made various production innovation efforts to tap the growing demand for health products. The company also adapted to the weaker customer purchasing power during the pandemic by offering lower recommended selling prices such as IDR5,000/unit. At the current share price, UNVR is trading at FY21 PE of 36x, slightly below its -2SD avg 3-y PE of 36.6x.  



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Bank Tabungan Negara (BBTN IJ.IDR. 1,260 BUY TP: IDR. 1,800) - 23 Oktober 2020
October 23, 2020 09:13 WIB

Bank Tabungan Negara(BBTN IJ)

Higher profits thanks to lower credit costs

 

We maintain our BUY call on BBTN with an unchanged GGM-derived TP of IDR1,800 (implying 0.9x 2021F PBV) given 9M20’s net profits of IDR1.1tn. The 9M20 net profits are above our forecast due to lower credit costs of 83bps. Looking ahead, the NIM should only expand by 20bps to 3.3% this year in our view as BBTN aims to maintain ample liquidity. On the loans quality front, we maintain our gross NPLs ratio estimate at 4.3% with a 122.3% LLC ratio by December 2020F. 

9M20 highlights. The net profits of IDR1.1tn are above our forecast due to lower credit costs of 83bps. Loans growth was -0.8% yoy yet with 4.2% yoy growth in subsidized mortgages. The NIM dropped to 3.1% given the shift in the loans mix towards the lower loan yield segment, i.e. subsidized mortgages. Meanwhile, the gross NPLs ratio stood at 4.6% with an ample 111.4% LLC ratio as of September 2020. 

Manageable restructured loans portfolio. The restructured loans stood at IDR52.8tn as of September 2020 (~20.7% of its loans portfolio). This figure is dominated by non-subsidized mortgages (33.4% of the total restructured loans). BBTN also emphasised that around 8% of its restructured loans (~IDR4.2tn) might bedowngradedto theNPL category once the relaxation period is over in 1Q21. Such anamount,we believe,is fairly manageable given the ample buffer in its LLC ratio. Going forward, we expect the formation of additional restructured loans to gradually decline. Hence, we maintain our 4.3% gross NPLs ratio and 122.3% LLC ratio assumption by December 2020F. 

Expect a 3.3% NIM this year. BBTN’s management claims that liquidity should not be an issue in the current challenging environment. We see that IDR5tn of government placements in BBTN current accounts should help support the bank’s funding structure going forward. Additionally, with itsLDR below 100% and in view of thecurrently low policy rate environment, BBTN has more room to refinance some of its wholesale funding at lower rates in 4Q20. BBTN’s management estimates that the new cost of new wholesale funding will be lower by 100bps at max.  As such, the NIM will expand by 20bps to 3.3% based on our model.  

BUY: unchanged TP of IDR1,800. Maintain BUY with an unchanged GGM-derived TP of IDR1,800 assuming a 12.1% CoE, an 11.4% ROAE and 3% long-term growth. Our TP implies 0.9x 2021F PBV, -0.75SD of its 10 years mean. 


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