PT Erajaya Swasembada Tbk. Extending the Benefits of Digital Age 3 August 2018 We initiate our coverage on PT Erajaya Swasembada Tbk (ERAA) with BUY recommendation and FY19 target price at IDR 4,000. Our TP reflects 26% upside potential which implies FY19F 15.4x PE. Successful flagship product launchings and citizens’ rising love towards Xiaomi pushed ERAA’s earnings to a higher level in 1H18. We believe ERAA should be able to explore tons of advantages in the evolving digital ecosystem through its plenty smartphone releases, ever growing demand on Xiaomi smartphones and its upcoming smart-living products. Supported by wider store penetration both in big and smaller cities and the prior mentioned key catalysts, we expect ERAA to maintain its exceptional performance. Downside risks to our call are: 1) Low enthusiasm on new product launchings, 2) Threat from black market, 3) Weakening purchasing power, and 4) Reducing incentives from banks due to tightening liquidity. Significant improvement on profitability. 1H18 has provided higher benchmark for ERAA’s financial performance expectation. The success of Iphone X, along with other flagship products launched during the period, as well as Xiaomi which turned booming altogether boosted ERAA’s sales. In FY18F, we forecast ERAA’s EPS to grow by 114% at IDR 234, and ROE to double up to 17.9% (vs 9.5% in FY17). Xiaomi’s buzz and expanding capacity. Through its consistency on offering value for money products, completed with attractive specifications, Xiaomi turns to be the brand-new gadget darling worldwide. With vast majority of customers in the mid-to-low end segment, Xiaomi’s market share has gradually increased, reaching up to 18% in 1H18 according to Statcounter. Xiaomi has started to transform perception towards Chinese phone-makers into a better one, which used to receive weak sentiment from users. In order to cope with flooding demand on Xiaomi phones, the phone assembly factory’s capacity (owned by PT Sat Nusapersada Tbk) is going to be expanded to shorten assembly days for Xiaomi products which currently stands at 10 days. This is expected to enable the company to meet the market needs and therefore drives sales higher. More stores are coming. Second and third tier cities are no doubt lucrative market for Erajaya to penetrate given the domination of traditional gadget retailers in those areas. With 250 new stores in the pipeline, ERAA is going to enlarge its market share and further push top- line. As much as IDR 300bn of capex is allocated mostly for Erafone (multi- store format) store openings and a couple of Mi-Stores and Samsung Experience Store. Paulina Equity Analyst +62 21 392 5550 ext. 610 [email protected]BUY (TP: IDR 4,000) Highlights (IDR Bn) 2016 2017 2018F 2019F 2020F Net Revenue 20,547 24,230 31,339 36,720 42,254 % growth 2.7% 17.9% 29.3% 17.2% 15.1% Gross Profit 1,792 2,159 3,025 3,463 3,986 Net Profit 263 339 735 818 964 % growth 16.5% 28.9% 116.5% 11.3% 17.8% Gross Margin (%) 8.7% 8.9% 9.7% 9.4% 9.4% Net Margin (%) 1.3% 1.4% 2.4% 2.2% 2.3% Return on Equity (%) 8.0% 9.5% 17.9% 16.9% 17.3% Return on Assets (%) 3.5% 4.2% 7.3% 6.8% 7.2% EPS 82 109 233 259 304 Stock Information Sector Retail Bloomberg Ticker ERAA IJ Market Cap. (IDR tn) 10.18 Share Out./Float (mn) 3.19 Current Price 3,170 FY19F Target Price 4,000 Upside (%) 26.1% Share Price Performance 52W High (07/30/17) 3,280 52W Low (01/04/18) 690 52W Beta 0.4 YTD Change (%) 2,455 Relative Valuations Trailing P/E 14.6 Forward P/E 12.2 P/BV 2.4 EV/EBITDA 15.2
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PT Erajaya Swasembada Tbk.
Extending the Benefits of Digital Age
3 August 2018
We initiate our coverage on PT Erajaya Swasembada Tbk (ERAA)
with BUY recommendation and FY19 target price at IDR 4,000. Our
Total Current Assets 5,168 6,685 8,646 9,795 11,268
Fixed Assets 457 486 685 698 642
Other Non Current Assets 1,799 1,703 1,949 2,139 2,334
Total Assets 7,425 8,874 11,279 12,632 14,244
Trade Payables 2,614 2,619 3,775 4,423 5,089
ST Bank Loans 801 1,747 2,207 2,124 2,162
Other Current Liabilities 520 682 663 777 894
Total Current Liabilities 3,935 5,049 6,645 7,323 8,145
Other Non Current Liabilities 80 119 114 133 153
Total Liabilities 4,015 5,167 6,759 7,456 8,298
Share & APIC 1,884 1,884 2,189 2,189 2,189
Retained Earnings 1,463 1,744 2,333 2,987 3,758
Non Controlling Interest 61 79 79 79 79
Other Components of Equity 2 -1 -1 -1 -1
Total Equity 3,409 3,707 4,521 5,175 5,946
Total Equity & Liabilities 7,425 8,874 11,279 12,632 14,244
Income Statement (IDR Bn) 2016 2017 2018F 2019F 2020F
Revenue 20,547 24,230 31,339 36,720 42,254
Cost of Revenue 18,755 22,071 28,314 33,257 38,268
Gross Profit 1,792 2,159 3,025 3,463 3,986
% growth 19.0% 20.5% 40.1% 14.5% 15.1%
Operating Expenses 1,309 1,636 1,952 2,287 2,632
Opex to Sales (%) 6.4% 6.8% 6.2% 6.2% 6.2%
EBITDA 594 673 1,263 1,398 1,610
% growth 13.1% 13.4% 87.7% 10.7% 15.2%
EBT 383 480 1,004 1,116 1,313
% growth 19.6% 25.2% 109.3% 11.2% 17.6%
Tax -122 -133 -261 -290 -341
Non Controlling Interest -2 8 8 8 8
Net Profit for the Year 263 339 735 818 964
% growth 16.5% 28.9% 116.5% 11.3% 17.8%
12 PT Erajaya Swasembada Tbk. | 3 August 2018
Cash Flow (IDR Bn) 2016 2017 2018F 2019F 2020F
Net Income 263 339 735 818 964
Depreciation 51 58 101 115 122
Chg. in NWC -913 920 442 427 439
Chg. in Other CT Assets 76 553 -286 127 131
Chg. in Other CT Liabilities 44 -24 18 12 12
CF from Operating 1,195 -1,100 697 391 528
Capital Expenditure 71 87 300 128 66
Chg. in LT Assets -99 -96 245 190 195
Chg in LT Liabilities 19 37 1 19 20
CF from Investing 46 46 -545 -299 -242
Dividends Paid -58 -58 -147 -164 -193
Chg. in Debt -694 848 453 -84 38
Share Capital & APIC 7 0 306 - -
Others -9 16 -79 - -
CF from Financing -754 806 532 -247 -155
Change in Cash 488 -248 685 -155 132
Beginning Cash 127 615 366 1,052 897
Ending Cash 615 366 1,052 897 1,029
Financial Ratio 2016 2017 2018F 2019F 2020F
Profitability
ROE 8.0% 9.5% 17.9% 16.9% 17.3%
ROA 3.5% 4.2% 7.3% 6.8% 7.2%
Operating Margin 2.6% 2.5% 3.8% 3.5% 3.5%
EBITDA Margin 2.9% 2.8% 4.0% 3.8% 3.8%
Liquidity & Solvency
Current Ratio 1.3 1.3 1.3 1.3 1.4
Debt to Equity 1.2 1.4 1.5 1.4 1.4
Debt to Assets 0.5 0.6 0.6 0.6 0.6
Interest Coverage 3.5 4.2 5.9 6.0 7.0
Valuation
Price to Earning (PE) 7.3 6.8 12.2 15.4 13.1
Price to Book (PBV) 0.6 0.6 2.8 2.5 2.1
Key Assumptions 2016 2017 2018F 2019F 2020F
Number of Stores 700 775 975 1050 1090
Receivable Days 29.6 22.7 22.7 25.2 25.4
Payable Days 46.0 39.4 37.2 40.7 41.1
Inventory Days 42.2 42.1 42.6 42.4 42.8
Cash Conversion Cycle 25.8 25.4 28.1 26.9 27.1
13 PT Erajaya Swasembada Tbk. | 3 August 2018
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