Erajaya Swasembada: Insignificant EPS dilution from MESOP issuance (ERAA, Rp3,225, Buy, TP: Rp3,875)
ERAA yesterday announced a plan to issue Management and Employee Stock Options Plan (MESOP), pending shareholders approval at the upcoming EGM on May 30, 2013. Under the MESOP scheme, ERAA would conduct a non-preemptive issuance of a maximum of 20mn new shares with an exercise price of at least 90% of the average price of the last 25 trading days prior to the announcement day. The eligible employees would be given a timeline of up to 2-year (deadline on May 30, 2015) to exercise their options.
Who are eligible? The eligible employees for the MESOP include permanent employees nominated by the BoD (with BoC approval), BoC members (except for the independent commissioner), BoD members, and key employees that have been working for at least 1-year with with a minimum Assistant Manager position.
Insignificant EPS dilution at 0.7%, but sizeable cash inflow at 31% of total cash balance. Assuming that the MESOP is fully exercised today, the EPS dilution effect would be insignificant at a maximum of 0.7%, as the 20mn new shares issuance is very little as compared to the outstanding 2,900mn shares. Considering the small dilution, we think that the plan could yield some positive impact to further realign the interests of BoD and key employees with the shareholders.
We retain our Buy call. Strong new products launching would be the key catalyst to ERAA. Recent BlackBerry's announcement to introduce R5, the mid-end version of BB10, has partially answered uncertainties over the potential slowdown in ERAA's mid-to-low-end BlackBerry products, which have more than 50% volume contribution.
for Indonesia Market Summaries 17 May 2013
Showing posts with label ERAA. Show all posts
Showing posts with label ERAA. Show all posts
Friday, May 17, 2013
Thursday, May 2, 2013
Erajaya Swasembada 1Q13 came weak
Erajaya Swasembada: As expected, 1Q13 came weak (ERAA, Buy, Rp3,175, TP: Rp3,875)
1Q13 NPAT came at Rp75bn, forming 12% of our and consensus’ full-year estimates. This is not really a surprise, as management has earlier been guiding for weak 1Q13, as:
Sales still in-line if not for the 2-weeks flood disruption. On a YoY basis, 1Q13 NPAT fell 5.3%yoy as sales declined 7.5%yoy to Rp2,935bn. Weak sales (17% of us and consensus) came on the back of the Jakarta flood that disrupted ERAA’s central distribution in Jakarta for about two weeks long, affecting sub-distribution across cities. Had there been no flood, we estimate that ERAA”s sales would have been Rp3,522bn, an increase of 11%yoy and 9%qoq, still in-line with 20-21% realization to our and consensus’ full-year forecast.
Stores opening seasonality affected weak 1Q13. Seasonality in the retail stores opening also contributed to the weak 1Q13 sales. Out of the targeted 105 net stores opening (including stores closures), ERAA only realized a total net opening of 2 stores in 1Q13. The company keeps its opening target unchanged, expecting the roll-out to ramp up in 2Q13 onwards.
Expect a strong rebound 2Q13. We still expect a strong rebound in 2Q13, on account of a) sharp reduction in BB grey market handset (from 30% to 5% post new import ruling) that should benefit ERAA, b) strong new products pipeline (BB Z10, Samsung Galaxy S4, and BBQ10), b) normalized distribution and inventory after flood issues and new import ruling, and c) better stores opening seasonality. Beyond 2Q13, we think that the key catalyst would be the potential launching of BB R10, the mid-end segment for BB10.
Indonesia Market Summaries, 2 May 2013.
1Q13 NPAT came at Rp75bn, forming 12% of our and consensus’ full-year estimates. This is not really a surprise, as management has earlier been guiding for weak 1Q13, as:
- flood affected its central distribution in Jakarta,
- absent of key products launching affected its volume
- changes in import regulation affected some importation activities in the beginning of this year (which also led to doubling interest expenses as ERAA stocked up more inventories).
Sales still in-line if not for the 2-weeks flood disruption. On a YoY basis, 1Q13 NPAT fell 5.3%yoy as sales declined 7.5%yoy to Rp2,935bn. Weak sales (17% of us and consensus) came on the back of the Jakarta flood that disrupted ERAA’s central distribution in Jakarta for about two weeks long, affecting sub-distribution across cities. Had there been no flood, we estimate that ERAA”s sales would have been Rp3,522bn, an increase of 11%yoy and 9%qoq, still in-line with 20-21% realization to our and consensus’ full-year forecast.
Stores opening seasonality affected weak 1Q13. Seasonality in the retail stores opening also contributed to the weak 1Q13 sales. Out of the targeted 105 net stores opening (including stores closures), ERAA only realized a total net opening of 2 stores in 1Q13. The company keeps its opening target unchanged, expecting the roll-out to ramp up in 2Q13 onwards.
Expect a strong rebound 2Q13. We still expect a strong rebound in 2Q13, on account of a) sharp reduction in BB grey market handset (from 30% to 5% post new import ruling) that should benefit ERAA, b) strong new products pipeline (BB Z10, Samsung Galaxy S4, and BBQ10), b) normalized distribution and inventory after flood issues and new import ruling, and c) better stores opening seasonality. Beyond 2Q13, we think that the key catalyst would be the potential launching of BB R10, the mid-end segment for BB10.
Indonesia Market Summaries, 2 May 2013.
Thursday, April 11, 2013
Erajaya Swasembada Too early to call for a competition
Erajaya Swasembada: Too early to call for a competition (ERAA, Rp2,875, Buy, TP: Rp3,875)
ERAA fell 5.7% yesterday, contributing a total decline of 16.1% from its high of Rp3,425 last month. We have specifically asked the company - and it clearly stated to us that there are no company-specific issues behind the recent sell-off. Potentially weak 1Q13 results, as has been discussed in our recent report, should be quite widely understood and thus expected. We believe that the recent sell-off could be driven by rising market worries over the issues on the potential threat of Taiwanese distributor Synnex entering the competition in the Indonesian handset market. We believe that this call is too early, justified by our explanations below.
Synnex's presence in Indonesia is not new. Synnex is a Taiwanese-based distribution company with main focus in the IT products distribution for the North Asian region like China. Its presence in the Indonesian market is not new at all, as it already has a local joint venture with PT Metrodata Electronics (MTDL) under a company called PT Synnex Metrodata Indonesia, established in 2011.
Synnex's network is not comparable to main players like ERAA and TRIO. As revealed in the website, Synnex distributes its products in Indonesia through agents and sellers using 6 distribution centres in Jakarta, Bandung, Yogyakarta, Surabaya, Medan, and Makassar. This is very insignificant as compared to ERAA that has presence in more than 50 cities with about 90 distribution centres and more than 20,000 retailers.
Synnex's brands portfolio are limited. When we screened through its Indonesian website, we learned that Synnex has wide brands portfolio in the IT products but not in handsets with only a few brands like Samsung, Sony, and ZTE. Its distribution market share in key brand like Samsung, if any, should also be small, we believe, as Samsung has about 50 distributors in Indonesia with ERAA alone, as the largest among all, having approximate market share of 30%. In the IT products distribution, which is its core, what we know is that Synnex is not as big as the main players like Astrindo which distributes Acer products. ERAA, given its strong distribution network, has also been trusted.
Synnex’s costs structures are no better than ERAA. There has been a few investors asking us about the potential price war and margin cuts happening to ERAA if Synnex is competing in the handset market. We do not think that the company is able to do price war as we learned that Synnex uses a lot of master-dealer concept when distributing products in Indonesia, which yields lower gross margin by 1-2ppt as compared to directly selling to end-retailers. At the same time, having a price war between distributors is also not a good thing for brands principals (who normally set its suggested retail price), as it would have impact to the sustainability of their brands. Some investors also aske
Reiterate our BUY call. After the sell-off, ERAA’s valuation has come off to 13.2-10.7x FY13F-14F PE, on a 30% EPS CAGR in FY12-15F periods. With the continuous increase of retail business proportion, ERAA’s valuation becomes attractive against those high-flyer retailers. We continue to reiterate our BUY call on the stock. Grey market clampdown and strong products launching (i.e. BB Z10, BB Q10, Samsung Galaxy S4, and potentially iPad mini) would make 2Q13 a strong quarter.
ERAA fell 5.7% yesterday, contributing a total decline of 16.1% from its high of Rp3,425 last month. We have specifically asked the company - and it clearly stated to us that there are no company-specific issues behind the recent sell-off. Potentially weak 1Q13 results, as has been discussed in our recent report, should be quite widely understood and thus expected. We believe that the recent sell-off could be driven by rising market worries over the issues on the potential threat of Taiwanese distributor Synnex entering the competition in the Indonesian handset market. We believe that this call is too early, justified by our explanations below.
Synnex's presence in Indonesia is not new. Synnex is a Taiwanese-based distribution company with main focus in the IT products distribution for the North Asian region like China. Its presence in the Indonesian market is not new at all, as it already has a local joint venture with PT Metrodata Electronics (MTDL) under a company called PT Synnex Metrodata Indonesia, established in 2011.
Synnex's network is not comparable to main players like ERAA and TRIO. As revealed in the website, Synnex distributes its products in Indonesia through agents and sellers using 6 distribution centres in Jakarta, Bandung, Yogyakarta, Surabaya, Medan, and Makassar. This is very insignificant as compared to ERAA that has presence in more than 50 cities with about 90 distribution centres and more than 20,000 retailers.
Synnex's brands portfolio are limited. When we screened through its Indonesian website, we learned that Synnex has wide brands portfolio in the IT products but not in handsets with only a few brands like Samsung, Sony, and ZTE. Its distribution market share in key brand like Samsung, if any, should also be small, we believe, as Samsung has about 50 distributors in Indonesia with ERAA alone, as the largest among all, having approximate market share of 30%. In the IT products distribution, which is its core, what we know is that Synnex is not as big as the main players like Astrindo which distributes Acer products. ERAA, given its strong distribution network, has also been trusted.
Synnex’s costs structures are no better than ERAA. There has been a few investors asking us about the potential price war and margin cuts happening to ERAA if Synnex is competing in the handset market. We do not think that the company is able to do price war as we learned that Synnex uses a lot of master-dealer concept when distributing products in Indonesia, which yields lower gross margin by 1-2ppt as compared to directly selling to end-retailers. At the same time, having a price war between distributors is also not a good thing for brands principals (who normally set its suggested retail price), as it would have impact to the sustainability of their brands. Some investors also aske
Reiterate our BUY call. After the sell-off, ERAA’s valuation has come off to 13.2-10.7x FY13F-14F PE, on a 30% EPS CAGR in FY12-15F periods. With the continuous increase of retail business proportion, ERAA’s valuation becomes attractive against those high-flyer retailers. We continue to reiterate our BUY call on the stock. Grey market clampdown and strong products launching (i.e. BB Z10, BB Q10, Samsung Galaxy S4, and potentially iPad mini) would make 2Q13 a strong quarter.
Tuesday, April 2, 2013
Erajaya Swasembada raised TP from IDR 3125 to IDR 3875
Erajaya Swasembada: Hidden value (ERAA, Buy, Rp3,275, TP: Rp3,875)
We raised our TP on ERAA from Rp3,125 to Rp3,875, and reiterated our BUY call for another 18% upside. Higher proportion of retail business makes ERAA’s valuation attractive as compared to the other high-flyer retailers that continue to book record-high P/E multiples. Management expects sales contribution from the retail business to rise to 28% this year, from 18% last year. ERAA’s retail business would also earn better margins this year.
To derive our new TP, we now assigned 20% weighting on the retail business with 25x P/E multiple and 80% weighting on the distribution with 16x P/E multiple. This leads to a weighted average target P/E of 17.8x for ERAA, justified by its 30% EPS CAGR in FY12-15F. Strong market dominance and extensive distribution network also justifies the premium that we assigned for ERAA.
The next catalyst, in our view, is the black market clamp down. As we all know, the new handset importation rule became effective on March 15, after being delayed from January 1. Management revealed that the implementation has led to a substantial reduction in black market share of BlackBerry handsets from 30% to 5%, thus implying additional 25% volume to be captured. This benefits ERAA as the largest distributor of BlackBerry with about 50% distribution share in Indonesia.
We raised our TP on ERAA from Rp3,125 to Rp3,875, and reiterated our BUY call for another 18% upside. Higher proportion of retail business makes ERAA’s valuation attractive as compared to the other high-flyer retailers that continue to book record-high P/E multiples. Management expects sales contribution from the retail business to rise to 28% this year, from 18% last year. ERAA’s retail business would also earn better margins this year.
To derive our new TP, we now assigned 20% weighting on the retail business with 25x P/E multiple and 80% weighting on the distribution with 16x P/E multiple. This leads to a weighted average target P/E of 17.8x for ERAA, justified by its 30% EPS CAGR in FY12-15F. Strong market dominance and extensive distribution network also justifies the premium that we assigned for ERAA.
The next catalyst, in our view, is the black market clamp down. As we all know, the new handset importation rule became effective on March 15, after being delayed from January 1. Management revealed that the implementation has led to a substantial reduction in black market share of BlackBerry handsets from 30% to 5%, thus implying additional 25% volume to be captured. This benefits ERAA as the largest distributor of BlackBerry with about 50% distribution share in Indonesia.
Subscribe to:
Posts (Atom)