Analisa Saham RALS | 7 November 2018

Transformation Leads to Solid Operating Performance
PT Ramayana Lestari Sentosa Tbk (RALS)

Shinhan Sekuritas Indonesia
Billy Ibrahim


Background. PT Ramayana Lestari Sentosa Tbk (RALS) has been established since 1978 as a department store which offers a full range of clothing, shoes, bags, accessories, special buy, toys & stationery, housewares, and supermarket. RALS is the market leader, especially in middle-low retail segment and operates 118 stores in 54 major cities. Currently, RALS is going through a major transformation by introducing “Ramayana Prime” outlet to attract Indonesia massive young population and large middle class with rising levels of disposable income.

Supermarket business swings back to positive. RALS has closed down 18 loss making Supermarket outlet since last year. As a result, Supermarket net sales decline by -16.6% YoY in 9M18. Nevertheless, Supermarket operating profit managed to swing back to positive at IDR 43.4Bn in 9M18. Previously, Supermarket recorded operating loss of IDR 37.2Bn in FY17 and weighed down overall operating margin to 6.7%. The loss was attributable to increased competition from mini markets such as Indomaret and Alfamart. The company will be focusing on Fashion and Accessories business as it provides more sustainable growth that grew by 11.6% YoY to IDR 3.3Tn or contributed 72.9% of total net sales in 9M18.

Consignment sales contribution to total gross sales gradually increased. The contribution of consignment sales reached 44.9% in 3Q18, compared to 38.2% in FY16. More consignment means reducing operational costs, as the direct purchase come along with full operational costs, including payroll, capital costs, carrying, and the damage goods among others. The growth of consignment by 11.7% YoY also offset the declining direct purchase of 0.6% YoY in 9M18. This is in line with the company’s strategy to utilize additional retailing space, after the closure of several Supermarket outlets, by re-assigning the space to potentially more profitable divisions.

Major transformation through Ramayana Prime. RALS have been known for its retail philosophy as “cheap but good” which appeal to the middle-low segment. The company intended to change the philosophy to “lifestyle experience” by introducing Ramayana Prime store, which the first one is located in City Plaza Jatinegara, East Jakarta. Ramayana Prime offered various shopping experience by lease its retail space to well-known tenants, such as Starbucks, Ace Hardware, KFC, and Cinema XXI to increase the customer traffic of its department store.

Valuation. RALS solid 9M18 earnings performance is in line with our expectation, as net sales grew by 2.2% YoY and represents 74.6% of our full-year estimates. Operating and net profit also recorded robust growth by 56.3% YoY and 43.4% YoY, respectively. Going forward, we believe RALS will continue to reap the benefits from the closed down of unprofitable Supermarket and encouraging consignment sales growth performance. Therefore, we overweight on RALS with TP of IDR 1,425 derived from blended DCF method and implying 15x 2019F P/E.