Indonesian Department Stores in Focus: Ramayana Lestari Sentosa
Ramayana Lestari Sentosa, one of Indonesia's biggest department stores, is expected to see improving corporate earnings in the years ahead. In the first nine months of 2016 the company's sales reached IDR 6.4 trillion (approx. USD $492 million), or about 77 percent of the full-year sales target that was set by Danareksa Sekuritas (IDR 8.07 trillion). This strong performance is primarily supported by same-store sales growth in Jakarta (+8.7 percent y/y), Java (+7.3 percent), and outside Java (+4.1 percent).
In terms of floor size, Ramayana Lestari Sentosa experienced contraction. Per September 2016 the total floor size of all departments stores stood at 994,102 square meters, down from 966,506 square meters in the same month one year ago. However, the number of stores grew to 115 (in 65 Indonesian cities).
The company's improving corporate earnings are partly the result of accelerating economic growth of Indonesia. After the slowdown between 2011-2015, Indonesia's gross domestic products is expected to accelerate to 5.0 percent (y/y) in 2016 (from 4.79 percent last year). Together with low inflation, economic growth will improve Indonesia's purchasing power and therefore consumers will be able to purchase more goods.
Moreover, Ramayana Lestari Sentosa has raised its focus on outright sales instead of consignment. This strategy brings a higher profit margin. According to Danareksa Sekuritas the decision to focus on selling products under its own label is a good one and boosts earnings.
Danareksa Sekuritas recommends investors to purchase shares of Ramayana Lestari Sentosa, putting the target on IDR 1,350 per share, reflecting a price-to-earnings (PE) ratio of 20.4 times. On Wednesday (19/10) shares of Ramayana surged 4.88 percent to IDR 1,290 a piece. So far this year the company's shares have soared a whopping 100 percent.
Stock Quote Ramayana Lestari Sentosa - RALS:
Ramayana Lestari Sentosa, which focuses on the middle-low and lower retail segments of Indonesia (rather than the middle class-up and elite segments), also decided to partner with Tokopedia to seek further business growth. Tokopedia has grown into one of Indonesia's biggest online marketplaces. On 4 September 2016 both parties launched the Tokopedia Ramayana partnership on the Internet. With Tokopedia's massive online audience and Ramayana's offline distribution channels it should be a solid partnership. Since the launch more than 15,000 products of Ramayana (such as clothes and shoes) have been sold online.
Earlier this year, the company's board said it expects profit to increase by 10 to 15 percent (y/y) to IDR 370 billion in 2016.
Ramayana Lestari Sentosa has also tied up with Dutch SPAR International BV, one of the world's biggest food retail stores, to open 55 SPAR units across Indonesia by 2018. At least 15 SPARs are targeted to be opened this year.
Projection Ramayana Lestari Sentosa's Financial Highlights:
| 2016F | 2017F | 2018F | |
| Sales |
8,079 | 8,551 | 9,139 |
| EBITDA | 5,761 | 6,097 | 6,516 |
| Net Income | 396 | 468 | 513 |
| P/E Ratio (x) |
21.8 | 18.5 | 16.9 |
| P/BV (x) | 27.2 | 25.8 | 24.3 |
in billion IDR rupiah unless otherwise stated
Source: Danareksa Sekuritas (17/10/2016)