Supra Boga Lestari is On the right track

Supra Boga Lestari: On the right track (RANC, Rp830, Buy, TP: Rp980)

The flat operating profit growth in FY12, despite 21% increase in sales, is not something to be surprised about. RANC just hired three new BoDs in mid-2011, causing a 31% increase in salary expense (50% of total G&A expenses), which was within our expectation. The trend shall stabilize this year, as they only hired new CFO from Plaza Indonesia. In fact, the strategy of hiring the current COO from HERO (in mid-2011) enabled RANC to substantially increase its suppliers’ income in the form of listing fees and events promotions, which led to 66% earnings growth in FY12.

After incorporating FY12 results and realignment of selling space assumptions into our model, we fine-tuned FY13F and FY14F EPS by -2.2% and -2.6%.  We lowered our TP slightly to Rp980 (previous: Rp1,000), derived using a similar 1.0x target PEG that implies 31x FY13F PE. Our BUY call is unchanged. RANC is currently trading at 26.4x FY13F PE, at a steep 42% discount to HERO (45.1x PE) as the closest comparable in the supermarket segment.