Ramayana Lestari Sentosa April sales still sluggish

Ramayana Lestari Sentosa:  April sales still sluggish (RALS, Rp1,530, Buy, TP: Rp1,600)

April gross sales came at Rp489bn, 12% below internal budget. Positive impact from the minimum wage hike has not kicked in yet. SSSG for April remained sluggish at -5.1%yoy, dragged by ex-Java (-8.7%) and Java (-3.5%), while Greater Jakarta was flat (-0.4%).

We are yet to obtain the growth figure at bottom-line level, but believe that it remains encouraging given the 25.5% gross margin achieved in 4M13 (against the 23% level in 4M12, despite moderating from 26.1% in 3M13). As such, we believe that operating profit should remain on track with our and consensus' forecasts, despite weak top-line realization at 22% to the full-year.

We reiterate our Buy call with Rp1,600/share target price. We still believe that strong wage hikes in the past two years would strongly benefit RALS. When the volume is back, likely in July-August (during the back-to-school and Eid-ul-Fitr periods), RALS growth should be much higher at the bottom-line level as the company now earns more profit for each sales generated. In 1Q13, RALS already reported higher-than-expected 36%yoy growth at operating profit level.

Indonesia Market Summaries, 10 May 2013