Lower Revenues, as Expected

RALS’ total revenues had declined by 8.4% (yoy) in FY23 to Rp2,744.4 billion vs. Rp2,996.8 billion in FY22, driven by a notable drop in outright sales – which have been the primary contributor to total revenues. Conversely, commission on consignment sales had slightly expanded in FY23. In Q4/23 alone, total revenues were up by 27.0% (qoq) to Rp604.3 billion as both outright sales and commission on consignment sales turned higher. At the bottom line, profitability had shrunk to Rp300.4 billion in FY23, or down by 14.7% (yoy) from Rp352.0 billion in FY22. Quarter-to-quarter comparison however, showed that profitability had jumped significantly in Q4/23 vs. Q3/23, albeit still lower compared to Q4/22 [see Exhibit 1]. The drop in revenues was in line with our sales seasonality analysis which was published in November 2023.

Margins and Returns Slipped

Profitability margin had drifted lower, with core operating profit margin (cOPM) and net profit margin (NPM) slipped to 5.7% and 10.9%, respectively in FY23 vs. FY22. Gross profit margin however, was relatively steady at 50.7% in FY23 vs. 50.5% in FY22. Furthermore, Return on Assets (ROA) and Return on Equity (ROE) have also deteriorated from 6.7% and 9.4%, respectively in FY22 to 6.1% and 8.4%, respectively in FY23.

Segment Analysis

Geographically, only the Sulawesi & Papua region had managed to expand in terms of revenues and income in FY23. Java, Bali & Nusa Tenggara remained as the biggest contributing region, but its revenues and income were shrinking in FY23. Based on its products, both fashion & accessories and groceries segments had posted lower net revenues throughout FY23. A closer look however, suggests that the drop of both product segments was driven by lower outright sales in each segment. 

Another Round of Buybacks

Throughout FY23, RALS had conducted a series of shares buybacks and in Q4/23, there were 42.8 million shares bought back. Consequently, the number of shares outstanding had declined from 6,012.7 million shares at the end of Q3/23 to 5,969.9 million shares and the number of treasury shares had increased from 1,083.3 million shares at the end of September 2023 to 1,126.1 million shares. Compared to the end of FY22, RALS’ number of shares outstanding had declined by 4.0% (yoy).

Target Price Adjusted Lower

The less encouraging performance in FY23 has led to adjustments in our valuation. Based on the updated variables used in the valuation process, we have come up with a new target price of Rp539 per share, which is lower than our previous target price of Rp595 per share stated in our November report. The new target price however, still implies 20% upside potential from the current reference price of Rp448 per share (April 23rd 2024).