Erajaya Swasembada (ERAA IJ) (Buy) - The new era

The new era

Brighter path in sight; maintain Buy with a higher TP of IDR620

ERAA’s performance has been underwhelming over the past three years, largely due to overly aggressive store expansion in 2022-23 (Fig. 3 and Short-term pain that needs to be endured). This expansion led to a lower NPM (Fig. 4). Compounded by the delayed iPhone 16 launch, this resulted in lower revenue and margins in 4Q24 and for the full FY24. As a result, Bloomberg consensus expectations remain conservative, with NPM for 2025 forecast to expand by only 10bp y-y. This is despite two potential upside drivers, in our view: 1) the possibility of selling two iPhone series – 16 &17, both of which typically have higher GPM (mid-teens GPM vs 9.5% for handsets in 2024) and product turnover; and 2) meaningful improvements in the profitability of ERAA’s non-digital business segments (Fig. 5 & 6); We believe these could lead to an earnings surprise for 2025F.

The new rising retailers in town

Discussions with mall operators and tenants suggest ERAA is actively securing retail locations, continuing its strategy of acquiring new brands and expanding into the mid-to-upper lifestyle retail segments. This supports the company’s goal of increasing the contribution of its non-digital business to one-third of total revenue over the next 3-5 years, up from the current ~10%. A broader brand portfolio and expanded store footprint should improve ERAA’s bargaining power in lease negotiations, potentially reducing rent-related costs. We see further upside potential from the rising influence of East Asian brands on Indonesian consumers (Cultural exports as a form of influence). ERAA is well positioned to capitalize on this trend, in our view, due to its more focused portfolio in the active lifestyle and F&B sectors (~25 brands). This leaner portfolio could allow ERAA to integrate new brands more seamlessly without the risk of cannibalizing sales of existing brands.

Maintain Buy with higher TP of IDR620

We upgrade our 2025F/26F earnings forecasts by 9%/6%, reflecting upside from the delayed iPhone 16 launch and encouraging momentum in new business initiatives. As a result, we raise our TP to IDR620, based on an unchanged 7.7x 2025F P/E, in line with its five-year historical average. Drawing parallels with Mobile World Group (MWG VN, Not rated), which traded at 7–8x P/E prior to diversifying into higher-margin retail segments and subsequently witnessing a valuation re-rating to mid-teens P/E, we believe ERAA may follow a similar long-term structural trajectory (Fig. 1-2). Currently, the stock trades at a 2025F P/E of 6x. Downside risks include failing to improve sales productivity in new stores.

Year-end 31 Dec	FY24		FY25F		FY26F		FY27F
Currency (IDR)	Actual	Old	New	Old	New	Old	New
Revenue (bn)	65,280	72,527	72,748	79,335	81,036	0	90,282
Reported net profit (bn)	1,033	1,181	1,292	1,449	1,530	0	1,808
Normalised net profit (bn)	1,033	1,181	1,292	1,449	1,530	0	1,808
FD normalised EPS	64.74	74.06	81.02	90.87	95.90		113.35
FD norm. EPS growth (%)	25.0	25.9	25.2	22.7	18.4		18.2
FD normalised P/E (x)	7.6	–	6.1	–	5.1	–	4.3
EV/EBITDA (x)	4.2	–	3.3	–	2.8	–	2.4
Price/book (x)	1.0	–	0.9	–	0.8	–	0.7
Dividend yield (%)	4.3	–	5.3	–	6.3	–	7.5
ROE (%)	13.4	14.0	15.0	15.4	15.9		16.7
Net debt/equity (%)	37.8	34.2	26.0	24.8	22.2		14.9

Source: Company data, Verdhana estimates

Key data on Erajaya Swasembada

Income statement (IDRbn)
Year-end 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Revenue	60,139	65,280	72,748	81,036	90,282
Cost of goods sold	-53,692	-58,004	-64,505	-71,718	-79,749
Gross profit	6,448	7,276	8,243	9,318	10,533
SG&A	-4,823	-5,570	-6,093	-6,807	-7,599
Employee share expense	0	0	0	0	0
Operating profit	1,625	1,706	2,150	2,511	2,934
EBITDA	2,535	2,843	3,442	3,971	4,575
Depreciation	-911	-1,137	-1,292	-1,460	-1,641
Amortisation	0	0	0	0	0
EBIT	1,625	1,706	2,150	2,511	2,934
Net interest expense	-583	-611	-611	-611	-611
Associates & JCEs	-21	-1	-1	-1	-1
Other income	221	426	426	426	426
Earnings before tax	1,242	1,519	1,964	2,324	2,747
Income tax	-385	-400	-559	-662	-782
Net profit after tax	857	1,119	1,405	1,663	1,965
Minority interests	-31	-87	-112	-133	-157
Other items	0	0	0	0	0
Preferred dividends	0	0	0	0	0
Normalised NPAT	826	1,033	1,292	1,530	1,808
Extraordinary items	0	0	0	0	0
Reported NPAT	826	1,033	1,292	1,530	1,808
Dividends	-268	-335	-420	-497	-587
Transfer to reserves	558	697	872	1,033	1,221
Valuations and ratios
Reported P/E (x)	9.5	7.6	6.1	5.1	4.3
Normalised P/E (x)	9.5	7.6	6.1	5.1	4.3
FD normalised P/E (x)	9.5	7.6	6.1	5.1	4.3
Dividend yield (%)	3.4	4.3	5.3	6.3	7.5
Price/cashflow (x)	5.6	3.4	3.0	3.5	2.7
Price/book (x)	1.1	1.0	0.9	0.8	0.7
EV/EBITDA (x)	4.8	4.2	3.3	2.8	2.4
EV/EBIT (x)	7.5	6.9	5.2	4.5	3.7
Gross margin (%)	10.7	11.1	11.3	11.5	11.7
EBITDA margin (%)	4.2	4.4	4.7	4.9	5.1
EBIT margin (%)	2.7	2.6	3.0	3.1	3.2
Net margin (%)	1.4	1.6	1.8	1.9	2.0
Effective tax rate (%)	31.0	26.3	28.5	28.5	28.5
Dividend payout (%)	32.5	32.5	32.5	32.5	32.5
ROE (%)	11.7	13.4	15.0	15.9	16.7
ROA (pretax %)	9.2	8.8	10.5	11.6	12.5
Growth (%)
Revenue	21.6	8.5	11.4	11.4	11.4
EBITDA	13.4	12.1	21.1	15.3	15.2
Normalised EPS	-18.4	25.0	25.2	18.4	18.2
Normalised FDEPS	-18.4	25.0	25.2	18.4	18.2
Source: Company data, Verdhana estimates

Cashflow statement (IDRbn)
Year-end 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
EBITDA	2,535	2,843	3,442	3,971	4,575
Change in working capital	-396	255	227	-492	-545
Other operating cashflow	-732	-778	-1,055	-1,264	-1,161
Cashflow from operations	1,407	2,319	2,615	2,214	2,870
Capital expenditure	-1,022	-688	-688	-722	-758
Free cashflow	385	1,632	1,927	1,492	2,112
Reduction in investments	0	0	0	0	0
Net acquisitions	0	0	0	0	0
Dec in other LT assets	0	0	0	0	0
Inc in other LT liabilities	0	0	0	0	0
Adjustments	-1,530	-1,433	-1,029	-1,127	-1,243
CF after investing acts	-1,145	199	898	366	869
Cash dividends	-300	-268	-335	-420	-497
Equity issue	0	0	0	0	0
Debt issue	1,711	-256	-341	0	-1,000
Convertible debt issue	0	0	0	0	0
Others	455	325	147	159	172
CF from financial acts	1,866	-199	-530	-261	-1,325
Net cashflow	722	0	369	105	-456
Beginning cash	1,044	1,766	1,766	2,134	2,239
Ending cash	1,766	1,766	2,134	2,239	1,783
Ending net debt	3,350	3,075	2,366	2,261	1,717
Balance sheet (IDRbn)
As at 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Cash & equivalents	1,766	1,766	2,134	2,239	1,783
Marketable securities	51	65	65	65	65
Accounts receivable	1,365	1,156	1,405	1,565	1,744
Inventories	8,047	7,131	8,129	9,038	10,051
Other current assets	1,736	3,190	2,143	2,288	2,445
Total current assets	12,965	13,308	13,877	15,195	16,086
LT investments	0	0	0	0	0
Fixed assets	2,217	2,493	2,652	2,758	2,815
Goodwill	821	826	867	910	956
Other intangible assets	0	0	0	0	0
Other LT assets	4,445	5,148	5,537	6,027	6,284
Total assets	20,447	21,774	22,933	24,891	26,141
Short-term debt	4,457	4,418	4,000	4,000	3,000
Accounts payable	3,671	3,870	4,202	4,681	5,215
Other current liabilities	2,202	2,588	2,683	2,926	3,194
Total current liabilities	10,330	10,876	10,885	11,607	11,409
Long-term debt	659	423	500	500	500
Convertible debt	0	0	0	0	0
Other LT liabilities	1,327	1,418	1,441	1,466	1,492
Total liabilities	12,317	12,717	12,827	13,573	13,401
Minority interest	807	923	1,015	1,117	1,229
Preferred stock	0	0	0	0	0
Common stock	2,193	2,193	2,193	2,193	2,193
Retained earnings	5,181	5,945	6,902	8,012	9,323
Proposed dividends	0	0	0	0	0
Other equity and reserves	-51	-4	-4	-4	-4
Total shareholders' equity	7,323	8,134	9,091	10,201	11,512
Total equity & liabilities	20,447	21,774	22,933	24,891	26,141
Liquidity (x)
Current ratio	1.26	1.22	1.27	1.31	1.41
Interest cover	2.8	2.8	3.5	4.1	4.8
Leverage
Net debt/EBITDA (x)	1.32	1.08	0.69	0.57	0.38
Net debt/equity (%)	45.7	37.8	26.0	22.2	14.9
Per share
Reported EPS (IDR)	51.79	64.74	81.02	95.90	113.35
Norm EPS (IDR)	51.79	64.74	81.02	95.90	113.35
FD norm EPS (IDR)	51.79	64.74	81.02	95.90	113.35
BVPS (IDR)	459.15	509.98	569.98	639.56	721.76
DPS (IDR)	16.82	21.03	26.32	31.15	36.82
Activity (days)
Days receivable	7.4	7.1	6.4	6.7	6.7
Days inventory	48.1	47.9	43.2	43.7	43.7
Days payable	20.7	23.8	22.8	22.6	22.6
Cash cycle	34.8	31.2	26.8	27.8	27.7
Source: Company data, Verdhana estimates

Company profileEstablished in 1996, PT Erajaya Swasembada Tbk (Erajaya) is an integrated mobile telecommunication device importer, distributor, and retailer. In addition to its digital businesses, the company also has ventures in the Active Lifestyle, Beauty and Wellness, and Food and Nourishment sectors. Erajaya was publicly listed in 2011, and has since provided region-wide omni-channel coverage in Indonesia, Malaysia, and Singapore.

Valuation MethodologyWe value ERAA based on a target 2025F P/E multiple of 7.7x (equal to its five-year-average), arriving at a TP of IDR620. The benchmark index is the JCI.

Risks that may impede the achievement of the target priceDownside risks include failing to improve sales productivity in new stores.

ESGErajaya is strongly committed to its ESG efforts through its Corporate Social Responsibility arm, Lentara-Erajaya Perduli. Through CSR, they prioritize maternal and child health issues, commit to community empowerment through the improvement of infrastructure, increase the capacity and enhance the economy of target communities. Lentara Hijau, its environmental CSR sector, focuses on the aspect of corporate responsibility towards the environment and preservation of nature. Lentara Cerdas, its CSR education sector provides community welfare through education access.

Fig. 1: MWG financials

GPM increased from 15% to 20%, driven by higher contributions from the non-digital business.

(in VNDbn)	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024
Net Sales	25,253	44,613	66,340	86,516	102,174	108,546	122,958	133,405	118,280	134,341
Sales growth		76.7%	48.7%	30.4%	18.1%	6.2%	13.3%	8.5%	-11.3%	13.6%
Gross Profit	3,922	7,214	11,142	15,292	19,488	23,954	27,632	27,632	27,632	27,632
GPM	15.5%	16.2%	16.8%	17.7%	19.1%	22.1%	22.5%	20.7%	23.4%	20.6%
EBITM	5.2%	4.5%	4.2%	4.5%	4.9%	4.8%	4.8%	4.4%	5.0%	4.4%
NPAT	1,076	1,578	2,206	2,879	3,834	3,918	4,899	4,100	168	3,722
NPM	4.3%	3.5%	3.3%	3.3%	3.8%	3.6%	4.0%	3.1%	0.1%	2.8%
Revenue Breakdown by Product
Digital					82.5%	74.0%	72.1%	78.3%	71.2%	67.6%
Fresh foods and FMCGs					10.5%	19.6%	22.9%	20.3%	26.7%	30.6%
Others					7.0%	6.4%	5.0%	1.4%	2.1%	1.8%

Source: Company data, Verdhana research

Fig. 2: MWG one-year-forward P/E band

P/E ratio has rerated from 7-9x since the company began shifting away from digital retail to mid-teens, even though NPM has remained relatively unchanged.

Source: Bloomberg Finance L.P., Verdhana research

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.

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Rating Table

Rating Remains	Buy
Target price Increased from IDR 570	IDR 620
Closing price 20 May 2025	IDR 492
Implied upside	+26.0%
Market Cap (USD mn)	478.2
ADT (USD mn)	2.3

Relative performance chart

Source: LSEG, Verdhana

M cap (USDmn)	478.2
Free float (%)	45.5
3-mth ADT (USDmn)	2.3

(%)	1M	3M	12M
Absolute (IDR)	16.6	26.2	18.3
Absolute (USD)	19.5	25.5	15.1
Rel to Jakarta Stock Exchange Composite Index	6.4	21.6	20.6

Research Analysts

Jody Wijaya (jody.wijaya@verdhana.id)

Sandy Ham (sandy.ham@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)

Tags: RETAIL, ERAA, ERAA JK, ERAA IJ, Jody Wijaya, Sandy Ham, Samuel Christian

Erajaya Swasembada (ERAA IJ) (Buy) - The new era

The new era

Key data on Erajaya Swasembada

Fig. 1: MWG financials

Fig. 2: MWG one-year-forward P/E band

Fig. 3: ERAA number of stores – aggressive stores expansion in 2022-23

Fig. 4: ERAA annual net margin – 2023 reflects aggressive stores expansion in 2022-23

Fig. 5: Erablue (consumer electronics) quarterly sales and net margin trend – positive net margin in the past three quarters

Fig. 6: JDSports retail quarterly sales and net margin trend before the consolidation to ERAL – constant net margin inmid-single digits

Rating Table

Relative performance chart

Research Analysts

yudi Administrator

Indonesia Retailers - Limited surprises as expected

Map Aktif Adiperkasa MAPA IJ - Buy - Lowest margin for the year

Midi Utama Indonesia MIDI IJ - Buy - Strategic move for a more agile MIDI

Indonesia Retailers - Discretionary retail 3Q24F preview

Map Aktif Adiperkasa (MAPA IJ) (Buy) - Emerging stronger

Mitra Adiperkasa (MAPI IJ) (Buy) - Expecting short-term pressure

Erajaya Swasembada (ERAA IJ) (Buy) - The new era

Fig. 1: MWG financials

Fig. 2: MWG one-year-forward P/E band

Fig. 3: ERAA number of stores – aggressive stores expansion in 2022-23

Fig. 4: ERAA annual net margin – 2023 reflects aggressive stores expansion in 2022-23

Fig. 5: Erablue (consumer electronics) quarterly sales and net margin trend – positive net margin in the past three quarters

Fig. 6: JDSports retail quarterly sales and net margin trend before the consolidation to ERAL – constant net margin inmid-single digits

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