Ministop acquisition is long-term positive for Supra Boga Lestari

Supra Boga Lestari: Ministop acquisition is long-term positive (RANC, Rp1,040, Buy, TP: Rp980)

On an announcement submitted to the IDX last Friday, we learned that RANC has concluded the injection of Ministop convenience store by signing a share subscription agreement on May 16 to acquire 70% stakes at PT Bahagia Niaga Lestari (BNL) for Rp28bn. The 70% acquisition would be facilitated through the issuance of 28,000 new shares at BNL, thus the injected money would remain inside the company, which would be used to finance its initial stores expansion capex.

Ministop had earlier stated that it aims to open a minimum 300 stores in Indonesia within 2013-2018. As per capita income rises and middle class population doubles, we believe that the strong growth of convenience stores in Indonesia will continue to prevail. Competition is rising in Jakarta, but consumers’ lifestyles are changing and convenience store’s penetration rate remains attractive, we believe. The side-by-side operations of Alfamart and Indomaret minimarket stores are a strong proof of this solid demand.

For this year, RANC reportedly aims to open 10 Ministop stores, with the first store being opened in mid-June in Bintaro, South Jakarta. To differentiate itself, Ministop would target slightly higher target market than 7-Eleven and focus on its core expertise at fresh food business. As we know, RANC’s management has extensive know-how in the fresh food and groceries retailing business. The shareholders of RANC are also the owner of Hoka Hoka Bento, the biggest local Japanese fast-food chain in Indonesia.

Earning from the experience of 7-Eleven Indonesia, the company achieved its first operating profit in two years after operation, while net profit will turn positive in three years after operation (end-2012). Looking at the infrastructures synergy, better suppliers’ bargaining power (combined with Ranch Market and Farmers Market), and the speed of stores opening (60 stores per year); it is possible that Ministop may do better under RANC. Based on the management’s projection, RANC would be better off with the Ministop consolidation as its future gross.

for Indonesia Market Summaries 23 May 2013

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.

Supra Boga Lestari results within expectation

Supra Boga Lestari: FY12 results within expectation (RANC, Rp880, Buy, TP: Rp1,000)

FY12 NPAT came at Rp36bn (+66.2%yoy), forming 95% of our estimate and 100% of consensus. Net sales and operating profit were broadly aligned with our forecasts, both with 101% realization. We continue to maintain our Buy call and Rp1,000 TP.

FY12 sales grew 21.0 %yoy to Rp1,077bn, with 7% SSSG and 3 new stores opening (2 Farmers Market and 1 Farmers Market) for a total selling space of 6,300sqm (20.3% of existing). Gross margin were relatively unchanged, while operating margin declined from 4.1% to 3.4% as G&A expenses rose 31.0%yoy mostly on rising salaries & allowances. Dissecting 9M12, 4Q12 NPAT came at Rp9bn, up 86.8%yoy or 4.7%qoq. Operating and net margins were weaker on YoY basis, but stronger QoQ.

At pretax profit level, RANC nevertheless booked a solid 64.7%yoy growth to Rp46bn, helped by other income that grew 138.9%yoy. This is also within our expectation, on the back of strong growth of suppliers’ income. As we had written before, the hiring of new COO in mid-2011 (ex-HERO) enabled RANC to obtain more suppliers’ income in the form of listing fees and event promotions.

For 2013, RANC would open 2 Ranch Market and 3 Farmers Market, adding a total selling space of 13,500sqm. The number of new stores opening is in-line with our assumption, but the total selling space addition is 23% higher than our 10,975sqm assumption. SSSG is guided for at least 8%, lower than our 10% assumption. As reported by the local newspaper recently, RANC guided for Rp48bn NPAT this year, aligned with our current Rp50bn estimate. We will review our financial model to incorporate FY12 results. RANC currently trades at 27.4x FY13F PE.