Subdued quarter

Revenues were flat in 6M24 at Rpp1,666 million vs. Rp1,664 million in 6M23; while net profit was also almost unchanged at Rp248 million in 6M24 vs. Rp247 million in 6M23. Weak Q2/24 was the key factor behind the subdued performance even after a relatively strong Q1/24. Profitability margins were mostly lower with both gross profit margin (GPM) and core operating profit margin slipped in 6M24 vs. 6M23, while net profit margin (NPM) however, has managed to inch slightly higher during the period. Segment-wise, the heavy-weighted fashion and accessories segment and the smaller groceries segment have both saw weaker net outright sales. Geographically, the positive performances of Sumatera, Kalimantan and Sulawesi & Papua regions have been unable to help counter the notable decline in revenues of the Java, Bali and Nusa Tenggara region.

Flat in FY24?

To forecast revenues for FY24, we analyze the Company’s quarterly revenues from FY13-FY23. We then removed data from FY13-FY16, as Eid al-Fitr has shifted from the second half to the first half since FY17, implying changing seasonal pattern. From the FY17-FY23 data, we then find the average contribution of each quarter’s revenues to full-year revenues. The results are: Q2 is the biggest contributor which represents an average of 39.9% of FY revenues; Q4 is the second biggest with 22% and coming at the close third is Q1 with 21.8%. The weakest quarter is Q3, which on average contributes 16.3% of FY revenues. Next, we divide the Q1/24 and Q2/24 revenues with the 7-year average contributions of Q1 and Q2. From this we get Rp3,802 million and Rp2,097 million from Q1/24 and Q2/24 data, respectively. Hence, we can assume that FY24 revenues will be ranging between Rp2,097 million and Rp3,802 million.

Given the wide range of the quarterly-based forecasts, we turn to the half-to-half data and find the average revenue contributions of first and second halves from FY17-FY23. The result is unanimous: H1s have been contributing more than H2s in all of the available data, averaging at 61.7%. Conversely, H2s have been consistently contributing less than H1s on an average of 38.3%. Since we have H1/24 data, we use it to find the likely FY24 revenues. The result is Rp2,700 million, which lies in between the quarter-based forecasts. We then average these three numbers and find Rp2,866 as the average. Compared to FY23, this would mean around 4% (yoy) increase and is in line with the Company’s expectation that revenues will be up by 3%-5% (yoy) in FY24. See exhibit 5 for more detailed explanation.

Target price lowered

We have adjusted our target price on RALS to reflect its financial performance in 6M24. In our previous report, we had set the target price at Rp539 per share, and the new target price is now at Rp496 per share based on the same valuation methods. The valuation methods used for valuation of RALS consist of the price multiples (PER, PBV and PRR); the discounted cash flows (DCF) and the dividend discount model (DDM). Based on the price multiples, we have three target prices: Rp544 per share from the PER; Rp488 per share from the PBV; and Rp498 per share from the PRR. The average of these three target prices is Rp510 per share. Next is the DDM, which assumes that the next RALS’ dividend per share (DPS) is at Rp50 per share, unchanged from the most recent DPS. We also assume that the growth rate will be 3% and the cost of equity (COE) is at 15.6%, resulting in the target price of Rp396 per share. Finally, the DCF yields Rp580 based on the WACC of 15.6%. All three target prices are then averaged using equal weightings, resulting in the blended target price of Rp496 per share. This target price implies 28.9% upside potential from the reference price of Rp396 per share and is equivalent to trailing-twelve-month (TTM) PER of 9.8x, TTM PRR of 1.1x and 0.8x PBV (most recent quarter/MRQ). Note that the number of shares outstanding used in the valuation is 5.39 billion shares – which excludes treasury shares.