Retail Sector - Still Shopping!

Underpinned by the festive season at the end of last month, retailers recorded strong performance in July 2014, with the average gross sales growth of the three retailers under our coverage reaching 20.4% y-y. SSG also impressed - the average year-to-date SSG reached 11.9% in July. Looking ahead, we believe the outlook for the sector remains sound, given: 1) buoyant consumer confidence – a positive sign for future demand, 2) the fact that all the retailers under our coverage have strong footholds in their respective segments, and 3) expectations of stable margins in the coming years. On the flip side, risk factors worth watching are a possible further slowdown in the economy and continued rupiah depreciation. We roll over our valuation to 2015, arriving at a new Target Price of Rp1,040 for ACES, Rp6,250 for MAPI, and Rp1,140 for RALS. Upgrade to OVERWEIGHT. 

Reaping the rewards from the festive season
The retailers under our coverage maintained strong topline growth of 20.4% y-y on average up to July 2014 (21.8% for ACES, 23.6% for MAPI, and 15.7% for RALS). The numbers for July itself were very strong from all the retailers under our coverage, backed by the festive season (Ramadan and Idul Fitri). Idul Fitri is always a boon for RALS and the company’s sales rocketed 161.7% to Rp1,956 bn in July from Rp747 bn in June. Likewise, ACES and MAPI also booked very strong m-m sales growth in July - reaching 20.7% and 25.1% respectively - or higher than the average seasonality in the last 3 years. Going forward, we remain optimistic that the retailers can maintain their sound performance in the remaining months of the year. We forecast full year topline growth of 14.2% on average. 

Expansion to stabilize going forward 
After undertaking significant expansion in the past few years, the retailers under our coverage have adopted a more conservative stance on their expansion strategies for 2014. Even so, ACES has added another 30,600 sqm of floor space ytd (87.4% of our full year target) while MAPI has added 24,274 sqm (40.5% of our full year estimate). RALS, by comparison, hasn’t undertaken any store expansion so far in 2014. Going forward, we expect the pace of expansion to normalize: in 2015, we expect ACES to add 30,000 sqm of floor space, MAPI 60,000 sqm and RALS 52,000 sqm. Despite the slower expected pace of expansion, we still believe that the top line growth will remain solid, however, since all the retailers under our coverage are leaders in their respective segments.

Valuation: Rolled over to 2015
We roll over our DCF valuation for all the retailers under our coverage to 2015, arriving at a new Target Price of Rp1,040 for ACES, Rp6,250 for MAPI, and Rp1,140 for RALS. Next year we expect: 1) ACES to retain its position as market leader with sound margins; 2) more favorable conditions for MAPI after a year of consolidation - with better growth on the cards, and 3) RALS to maintain stable profitability growth given its strong position in the lower-income segment.

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