Ace Hardware Indonesia: Still not convinced

Ace Hardware Indonesia: Still not convinced (ACES, Neutral, Rp. 890, TP: Rp. 800)

We retain our Neutral call on ACES. We are still uncomfortable with the continuous lengthening of inventory days that would triple to 150 days this year compared with 4Q10, while SSSG is slowing down to 4.4%yoy in 2M13 (from 16.9%yoy in 2M12). In 4Q12, we noticed that inventory turnover lengthened further to 135 days, from 116 days in 3Q12 and 82 days in 4Q11. We understand that the company is on expansionary mode, but we are worried with this worsening trend as SSSG also starts slowing down.

We raised our 13F/14F EPS by 8.7%/9.5% on account of lower tax rates, while main operational assumptions are unchanged. Ability to satisfy the minimum 40% free-float (with no single shareholders holding >5% stakes) since 2Q12 was the reason. Subsequently, our TP is revised up to Rp800 from Rp720 previously.