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Aspirasi Hidup Indonesia (ACES IJ) (Buy) - A follow up to “Finding a second wind"

Aspirasi Hidup Indonesia (ACES IJ) (Buy) - A follow up to “Finding a second wind"

Consumer Durables JW SH SC 449 18th Nov, 2024

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A follow up to “Finding a second wind”

Potentially higher future growth from ex-Java expansion; Upgrade to Buy with TP of IDR1,110

In our recent report, “Finding a second wind”, we highlighted ACES' ability to overcome significant challenges after nearly 30 years of operation. We also noted the promising progress of their rebranding strategy.

Higher growth from potentially more stores opening starting next year

ACES is exploring the potential to expand its store network beyond the current 20 stores projected for 2024F (Fig. 3). This expansion is primarily focused on ex-Java regions, which could account for up to 70% of the new store openings. By lowering the population/city area criterion from 500k to 200k, ACES has identified a larger customer base in A-C income classes willing to spend in Ace stores. ACES’s number of penetrated cities increased from 51 in 2021 to 69 as of 9M24. With a 100% success rate in meeting the company’s sales/profit targets in these cities over the past 1-2 years, ACES is pursuing a more aggressive store expansion strategy, targeting approximately 100 new promising areas. Refer to our report on potential growth beyond the Java region.

This is a lucrative opportunity, as ACES can typically charge ASP 4-12% higher than stores in Jakarta to offset the increased distribution costs associated with ex-Java operations. Lower rent rates, labor costs, and competition, coupled with higher sales productivity, contribute to higher margins in ex-Java compared to Jakarta. By expanding into ex-Java, ACES could achieve a sales CAGR of 14% in 2024F-2026F, surpassing our previous forecast of 11%. This should positively impact its overall margin improvement, asset turnover, and accelerate the turnaround of ROE (Fig. 5-8). We also forecast stronger same-store sales growth (SSSG) of 8% for 24-26F, driven by new store openings and the higher potential of ex-Java markets.

Upgrade to Buy with TP of IDR1,110; +35% potential upside

We raise 2024F-2026F earnings estimates by 3-11%, primarily due to the potential for higher revenue/net profit growth from expanded store network, particularly in ex-Java. As a result, we raise our TP to IDR1,110 (from IDR935), based on an unchanged 2025F P/E of 19x (+1SD of its three-year average). We believe that by aggressively expanding into the underserved ex-Java market, ACES can further improve its ROE. We upgrade the stock to Buy. Potential downside risks include slower-than-expected ex-Java performance and increased competition. Currently, the stock trades at 14.1x P/E 2025F.


Year-end 31 DecFY23FY24FFY25FFY26F
Currency (IDR)ActualOldNewOldNewOldNew
Revenue (bn)7,6128,4168,5339,3049,69410,28711,090
Reported net profit (bn)7648438659741,0011,0901,210
Normalised net profit (bn)7648438659741,0011,0901,210
FD normalised EPS44.5249.1550.4456.8158.3963.5670.56
FD norm. EPS growth (%)14.910.413.315.615.811.920.8
FD normalised P/E (x)18.5–16.4–14.1–11.7
EV/EBITDA (x)12.4–10.9–9.5–7.5
Price/book (x)2.3–2.2–2.1–2.0
Dividend yield (%)3.8–4.0–4.6–5.3
ROE (%)12.713.413.814.815.215.717.3
Net debt/equity (%)net cashnet cashnet cashnet cashnet cashnet cashnet cash
Source: Company data, Verdhana estimates

Key data on Aspirasi Hidup Indonesia

Fig. 1: Ace hardware current store presence in Indonesia heatmap – mostly focused in Java

Source: Google maps, Verdhana research

 

Fig. 2: MR DIY Indonesia (unlisted) current store presence in Indonesia heatmap – its wide presence across the nation presents an opportunity for ACES to open more stores

Source: Google maps, Verdhana research

 

Fig. 3: Ace 2017-2026F gross stores addition (# of stores)

Source: Company data, Verdhana estimates
Fig. 4: Ace 2015-2026F stores sqm addition and increase y-y

Source: Company data, Verdhana estimates

 

Fig. 5: 2015-2026F NPM trend – expecting NPM growth from ex-Java expansion and one-off investments for rebranding

Source: Company data, Verdhana estimates
Fig. 6: 2015 – 2026F asset turnover trend – With expansion focused on ex-Java, we believe the higher sales/transaction should increase productivity

Source: Company data, Verdhana estimates

 

Fig. 7: 2015-2026F inventory days trend – slight increase only in 2024F but expect to normalize later on

Source: Company data, Verdhana estimates
Fig. 8: 2015-2026F ROE trend – Backed with strong NPM recovery and higher asset turnover, this should drive ROE up faster than our initial expectation

Source: Company data, Verdhana research

 

Fig. 9: ACES P/E band

Source: Bloomberg Finance L.P., Verdhana estimates

Fig. 10: Investors’ portfolio weighting on ACES (%)

Source KSEI, Verdhana research

Income statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Revenue
6,763
7,612
8,533
9,694
11,090
Cost of goods sold
-3,495
-3,914
-4,394
-4,993
-5,711
Gross profit
3,268
3,698
4,138
4,702
5,378
SG&A
-2,521
-2,835
-3,140
-3,546
-3,929
Employee share expense
0
0
0
0
0
Operating profit
747
863
999
1,156
1,449
EBITDA
880
993
1,126
1,285
1,582
Depreciation
-133
-130
-127
-130
-133
Amortisation
EBIT
747
863
999
1,156
1,449
Net interest expense
-51
-43
-51
-67
-84
Associates & JCEs
Other income
125
133
121
148
130
Earnings before tax
821
953
1,068
1,237
1,495
Income tax
-147
-189
-203
-235
-284
Net profit after tax
674
764
865
1,002
1,211
Minority interests
-9
0
0
0
-1
Other items
Preferred dividends
0
0
0
0
0
Normalised NPAT
664
764
865
1,001
1,210
Extraordinary items
Reported NPAT
664
764
865
1,001
1,210
Dividends
-353
-531
-573
-649
-751
Transfer to reserves
312
232
292
353
459
Valuations and ratios
Reported P/E (x)
21.3
18.5
16.4
14.1
11.7
Normalised P/E (x)
21.3
18.5
16.4
14.1
11.7
FD normalised P/E (x)
21.3
18.5
16.4
14.1
11.7
Dividend yield (%)
2.5
3.8
4.0
4.6
5.3
Price/cashflow (x)
22.9
10.4
17.4
13.4
11.2
Price/book (x)
2.4
2.3
2.2
2.1
2.0
EV/EBITDA (x)
14.2
12.4
10.9
9.5
7.5
EV/EBIT (x)
16.8
14.3
12.3
10.5
8.2
Gross margin (%)
48.3
48.6
48.5
48.5
48.5
EBITDA margin (%)
13.0
13.0
13.2
13.3
14.3
EBIT margin (%)
11.0
11.3
11.7
11.9
13.1
Net margin (%)
9.8
10.0
10.1
10.3
10.9
Effective tax rate (%)
17.9
19.8
19.0
19.0
19.0
Dividend payout (%)
53.1
69.6
66.2
64.8
62.1
ROE (%)
11.6
12.7
13.8
15.2
17.3
ROA (pretax %)
15.3
16.4
17.8
19.6
23.2
Growth (%)
Revenue
3.4
12.6
12.1
13.6
14.4
EBITDA
-3.1
12.9
13.4
14.2
23.1
Normalised EPS
-3.8
14.9
13.3
15.8
20.8
Normalised FDEPS
-3.8
14.9
13.3
15.8
20.8
Source: Company data, Verdhana estimates
Cashflow statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
EBITDA
880
993
1,126
1,285
1,582
Change in working capital
-634
-27
-181
-185
-192
Other operating cashflow
373
390
-132
-45
-122
Cashflow from operations
619
1,356
813
1,055
1,268
Capital expenditure
-107
-132
-183
-287
-302
Free cashflow
511
1,224
630
767
966
Reduction in investments
0
0
0
0
0
Net acquisitions
5
1
0
0
0
Dec in other LT assets
0
0
0
0
0
Inc in other LT liabilities
0
0
0
0
0
Adjustments
0
0
0
0
0
CF after investing acts
516
1,226
630
767
966
Cash dividends
-353
-531
-573
-649
-751
Equity issue
0
0
0
0
0
Debt issue
0
0
0
0
0
Convertible debt issue
0
0
0
0
0
Others
-574
-515
0
0
0
CF from financial acts
-927
-1,047
-573
-649
-751
Net cashflow
-410
179
57
119
215
Beginning cash
2,544
2,133
2,312
2,370
2,488
Ending cash
2,133
2,312
2,370
2,488
2,703
Ending net debt
-2,128
-1,863
-1,920
-2,039
-2,253
Balance sheet (IDRbn)
As at 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Cash & equivalents
2,133
2,312
2,370
2,488
2,703
Marketable securities
0
0
0
0
0
Accounts receivable
86
199
0
0
0
Inventories
2,811
2,665
2,969
3,151
3,338
Other current assets
333
486
619
672
730
Total current assets
5,363
5,662
5,957
6,311
6,771
LT investments
0
0
0
0
0
Fixed assets
0
0
0
0
0
Goodwill
0
0
0
0
0
Other intangible assets
0
0
0
0
0
Other LT assets
1,886
2,091
2,162
2,244
2,334
Total assets
7,249
7,753
8,120
8,554
9,105
Short-term debt
0
0
0
0
0
Accounts payable
144
144
144
144
144
Other current liabilities
525
619
676
725
779
Total current liabilities
670
764
820
869
923
Long-term debt
450
450
450
450
450
Convertible debt
0
0
0
0
0
Other LT liabilities
196
353
393
435
479
Total liabilities
1,315
1,567
1,663
1,754
1,852
Minority interest
44
43
43
43
43
Preferred stock
0
0
0
0
0
Common stock
612
612
612
612
612
Retained earnings
0
0
0
0
0
Proposed dividends
0
0
0
0
0
Other equity and reserves
5,278
5,531
5,802
6,145
6,598
Total shareholders' equity
5,890
6,143
6,414
6,757
7,210
Total equity & liabilities
7,249
7,753
8,120
8,554
9,105
Liquidity (x)
Current ratio
8.01
7.42
7.27
7.26
7.34
Interest cover
14.8
20.2
19.7
17.4
17.3
Leverage
Net debt/EBITDA (x)
net cash
net cash
net cash
net cash
net cash
Net debt/equity (%)
net cash
net cash
net cash
net cash
net cash
Per share
Reported EPS (IDR)
38.74
44.52
50.44
58.39
70.56
Norm EPS (IDR)
38.74
44.52
50.44
58.39
70.56
FD norm EPS (IDR)
38.74
44.52
50.44
58.39
70.56
BVPS (IDR)
343.43
358.21
373.97
394.00
420.42
DPS (IDR)
20.55
30.99
33.39
37.83
43.80
Activity (days)
Days receivable
4.7
6.8
4.3
0.0
0.0
Days inventory
270.4
255.3
234.6
223.7
207.4
Days payable
21.0
13.5
12.0
10.6
9.2
Cash cycle
254.1
248.7
226.8
213.1
198.1
Source: Company data, Verdhana estimates
Company profileACES is the biggest home improvement retailer in Indonesia with 55% revenue coming from home improvement products, 41% from lifestyle products and 4% from toys.
Valuation MethodologyOur target price of IDR1,110 based on 2025F target P/E of 19x (+1SD of its three-year average). The benchmark index of the stock is JCI Index.
Risks that may impede the achievement of the target priceDownside risks include slower-than-expected ex-Java performance and increased competition.
ESGLabor practice is currently one of ACES' strongest ESG aspects, though partly due to Indonesia's strong labor practice standards. Nevertheless, ACES can disclose more, particularly regarding working-hour policy, employee turnover, mentorship and training programs. One key area that could be improved is data security, in which better disclosure is a low-hanging fruit as current disclosure is limited.

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.


This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.


RESTRICTIONS ON DISTRIBUTION

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Rating Table

Rating
Up from Neutral
Buy
Target price
Increased from IDR 935
IDR 1,110
Closing price
14 November 2024
IDR 825
Implied upside+34.5%
Market Cap (USD mn)892.7
ADT (USD mn)2.6

Relative performance chart


Source: LSEG, Verdhana
M cap (USDmn)
892.7
Free float (%)
39.7
3-mth ADT (USDmn)
2.6
(%)
1M
3M
12M
Absolute (IDR)
-5.2
9.3
1.9
Absolute (USD)
-6.9
8.1
0.8
Rel to Jakarta Stock Exchange Composite Index
-0.6
12.2
-3.3

Research Analysts

Jody Wijaya (jody.wijaya@verdhana.id), 

Sandy Ham (sandy.ham@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)

Tags: Consumer Related, ACES, ACES JK, ACES IJ, Jody Wijaya, Sandy Ham, Samuel Christian
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