CIMB Ramayana Lestari

Quick takes - The good and bad of March sales - by Erwan Teguh
(RALS IJ / RALS.JK, OUTPERFORM - Maintained, Rp485 - Tgt. Rp560, Consumer)

Ramayana's March sales were 12% below target with same-store growth plunging to -8.9% yoy and weakness in all geographies. This was the worst start of the year for Ramayana in over five years. On a monthly basis, a better trend has emerged with SSG improving from -13% in Feb 09 to -11% in Mar 09, and gross margins picking up 70bp mom. Ex-Java SSG also rebounded, key since this area contributes over 40% of sales and close to 50% of gross profit. The outlook is improving, which is the reason we are maintaining our forecasts and Rp560 target price (DCF with WACC of 15.8%), implying 10.6x and 8x CY09-10 earnings. Maintain Outperform.

CIMB Ramayana Lestari

2008 was a good year for Ramayana, though marred by investment losses. Ramayana’s sales exceeded Rp5tr, of which over 40% came from outside Java. Same-store growth was 6.5%, ahead of its 5.5% target. 2009 will be a trying period as outer-Java same-store sales are contracting faster than in Java. Management has marked down store expansion by 40-45%, and targeting 0.3% same-store growth. We have cut our earnings estimates by 1-8% to reflect lower space expansion but maintaining margin assumptions. Downgrade to Neutral from Outperform with a lower target price of Rp560 (from Rp600), still DCF- derived.