Indopremier RALS (BUY - TP Rp 550)

RALS performance was not looking satisfying during 1Q09
In the first three months this year, Ramayana’s operational performance was not satisfying. We believe that lay-off in several sectors have influenced purchasing power, especially in middle to low economical segment, which served by RALS. This condition has been reflected by a 6.4% YoY RALS’ sales decline in 1Q09 which has reached to Rp 977.3 billion compared to Rp 1.04 trillion in 1Q08.

Profitability depressed in 1Q09 due to sales decline and opex hike
Declining in operational performance has also impacted the company’s profitability. We noted that gross margin dropped by 60 bps in 1Q09 become 25.1% vs 25.7% in 1Q08. This happened since the sales fell deeper that the cost (COGS declined -5.6% YoY versus sales decline of -6.4% YoY). Operating margin has fallen by 280 bps on the same period which was caused by soaring OPEX, mainly driven by salary, rental cost and also electricity.

RALS performance is projected to recovered in 2H09
Respond to 1Q09 financial result, we maintain our FY09 forecast of sales and net profit growth by 3.6% YoY and -11.8% YoY attaining to Rp 5.7 trillion and Rp 379 billion, respectively. We believe that RALS performance would remain sound in second semester this year because of seasonal sales driven by 2009 President Election, Lebaran, Christmas and New Year season as well as school holidays.

Valuation – BUY with new TP at Rp 550,- per share
We believe that the upcoming RALS performance is projected to remain solid, supported by strong in cash at Rp 795 billion or has soared 107.4% YoY per 31 March 2009 and do not depend on borrowings funding for its expansion. Therefore, we maintain our BUY recommendation with new target price at Rp 550,- per share (previous TP at Rp 500,- per share) which is derived by using 15.3% WACC assumption (Rf= 11.84% and Rm= 5.45%) in our DCF model calculation.