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Ace Hardware Indonesia (ACES IJ. IDR 1,485 SELL. TP:IDR 1,150) - 30 Juni 2020
June 30, 2020 10:39

Ace Hardware Indonesia (ACES IJ)

Slightly Above 1Q20 Results

ACES’ 1Q20 earnings of IDR245.7bn (+4.1% yoy and -18.9% QoQ) are 27.7% of our FY2020 estimate and 27.5% of the consensus, i.e. above. SSSG was still positive in 1Q20 at 2.5%, but it turned negative clipping -7.6% in 5M20 due to Covid-19. Recovery has started to be seen by virtue of PSBB relaxation in major Indonesian cities, and our mall observations indicate positive recovery momentum. We maintain our SELL call mainly on the premium valuation, now trading at +1STD,a premium given that performance has been dragged down by Covid-19, but to a lesser extent than its peers.

Respectable sales.Reaching IDR1.96tn (+4.5% yoy and –9.3% qoq) in 1Q20 making up 25.1% of our estimate and 25.0% of the consensus, i.e. in-line. The growth came from a combo of +2.5% SSSG and the opening of4 new stores in 1Q20 but affected by the Covid-19 induced slowdown from the third week of March onwards, otherwise the SSSG would track the same 6% growth trajectory, comparatively higher than its peers. PSAK 73 adjustment meant a reclassification of rental into rights of use asset depreciation in 1Q20 reaching IDR81.4bn and interest in leases at IDR20.6bn. In the balance sheet, IDR1.07tn of rights of use assets were booked against rent liabilities of IDR886.6bn.

1Q20 earnings slightly higher-than-expected on FX gains.Although our figures and the consensus have baked in weaker performance due toCovid-19,the 1Q20 result was only affected for the last 2 weeks only. Nevertheless,earnings of IDR245.7bn (+4.1% yoy and -18.9% QoQ) are still slightly ahead of our estimate at 27.7% and 27.5% of the consensus which includes FX gains of IDR9.1bn in 1Q20 reversing from FX losses of IDR13.1bn.On a normalized basis earnings would reach IDR234.6bn or-6.3% yoy, still in-line with our estimate and the consensus. The core profit decline reflects a surge of 24.0% yoy in salary expenses, reaching IDR280.6bn as of 1Q20 as ACES expands, while on a per average headcount basis an increment of 6.1% is normal.

Post PSBB easing, performance has been positive. Our call with the management last week revealed a -10-20% less than normal sales performance post PSBB. This is better-than-expected performance, especially compared to the -20-30% range at the height of PSBB. Our mall visit also confirms traffic flowing back to ACES stores, which corroborates with what the management stated and our arguments of middle up segment resilience along with some pent-up demand within the segment.

Maintain SELL. Mainly on a valuation basis as the company is now trading at 28.7x 2020 earnings, hovering near +1STD, while its peers are trading at sub -1.5STD. Performance will be less affected than its peers, yet ultimately dragged down by Covid-19 on a yoy basis.

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