CIMB Quick Takes – Ace Hardware Indonesia – 1H10 preview

Outperform and target price maintained for Ace. No change to our earnings forecasts as well as target price of Rp2,200, DCF based (WACC 13%, LTG 7%), and implying 22x and 17x CY10-11 earnings. We preview Ace’s 1H10 results with sales growth of 18% yoy expected, driven by over 9% SSG. Margins may spring a nice surprise on rupiah strength and stronger-than-expected SSG. While June’s SSG dipped to -3%, management did not sound alarmed, as an absence of its popular ‘’Boom” sales seemed to be the main culprit. Four to five new stores would be opened in 2H10, adding to the two opened in 1H10, which suggests that 2H10 sales could be stronger. Ace’s appeal continues to stem from its above-market growth, providing potential share-price catalysts, in our view.