RALS - 9M23

Seasonal Headwind

Earnings Update 9M23

RALS’ revenues and profit fell - mostly driven by seasonal factor – while margins drifted lower. The Company had also conducted more shares buybacks in Q3/23. As a result, RALS valuation has been updated to reflect the weaker performance in Q3/23 and changes in outstanding shares, leading to the target price revised lower. We expect the FY23 performance is likely to be softer than FY22, and going forward the Company will continue to struggle to return to its pre-pandemic performance.

Lower Revenues, Profit and Margin

Total revenues fell in Q3/23, driven by seasonal factor, leading to a cumulative decline in 9M23. Outright sales – the dominant contributor to total revenues – fell, while commissions coming from consignment sales were up in 9M23 despite lower compared to previous quarter. In terms of profitability, the bottom line also fell – both on quarter-to-quarter basis as well as on cumulative basis. Similarly, net profit margin (NPM) also fell in Q3/23 vs. Q3/22 and in 9M23 from 9M22. Return on Assets (ROA) and Return on Equity (ROE) have slightly improved, but partly due to fewer outstanding shares at the end of Q3/23 as a result of recent shares buyback.

Post-Ramadhan Drop

In our previous analysis we had expected that sales would be soft in Q3/23 due to post-Ramadhan seasonal factor. As it turned out, total revenues had indeed fell to Rp476 billion or 56% lower vs. Q2/23, roughly the same as last year when Q3/22 fell 56% from Q2/22. Using several angles of comparisons, we forecast that total revenues in FY23 will be somewhere around Rp2,748 billion, or 8.3% (yoy) lower than FY22. This is higher than the Rp2,658 billion that we had forecast before in our previous analysis. In addition, this also implies that total revenues in Q4/23 will be around Rp608 billion, making it the second-best quarter this year. Historically, ever since FY17 the fourth quarter has been the second-best quarter for five times out of possible six. Sales seasonality analysis of RALS’ total revenues can be found in the appendix section of this report.

Another Shares Buyback

Year-to-date, the Company had conducted shares buyback of 206.95 million shares with the average buyback price of Rp125.72 per share. In Q1/23 there were 70.2 million of shares bought back, and in Q2/23 and Q3/23 there were 10 million shares and 126.8 shares bought back, respectively. There have been no sales of treasury shares so far this year, so at the end of September 2023 the Company’s total outstanding shares amounted to 6.01 billion shares with a total of 1.08 billion treasury shares, totaling 7.09 billion shares.

Target Price Adjusted Lower

To reflect the latest financial performance of the Company and the adjustments of some variables used in the valuation process, we have done re-valuation of RALS using multiples, DCF and DDM. This resulted in the blended target price of Rp685 per share in our previous report to be revised down to Rp595 per share. The new target price implies 19% upside potential from the last price of Rp498 per share (November 16th 2023).