Still struggling

RALS’ revenues fell slightly by 1.2% (yoy) to Rp2,113.8 billion in 9M24 vs. Rp2,140.2 billion in 9M23. At the bottom line, net profit was also lower at Rp252.7 billion in 9M24 or 0.8% (yoy) lower vs. Rp254.7 billion in 9M23. Quarter-to-quarter data shows that both revenues and net profit were significantly lower in Q3/24, both vs. Q2/24 as well as Q3/23. Compared to Q2/24, revenues were down by 46.5% (qoq) and 5.9% (yoy) to Rp447.8 billion and net profit fell by 96.5% (qoq) and 39.2% (yoy) to Rp4.9 billion. As the bottom line fell, profitability margins have declined as well. Net profit margin (NPM) for instance, fell to 1.1% in Q3/24 vs. 1.7% in Q3/23 and vs. 16.9% in Q2/24. Cumulatively however, NPM for 9M24 was at 12%, slightly higher than 11.9% seen in 9M23.

Underperforming in key segments

On geographical basis, revenues and net profit in 9M24 were down vs. 9M23 in Java, Bali & Nusa Tenggara – the biggest contributor to overall revenues and net profit, while Sumatera – the second biggest contributor – saw mixed results as its revenues were up but its net profit was slightly lower. On the other hand, both revenues and net profit were up in Kalimantan and Sulawesi & Papua during the same period. Nevertheless, all regions have posted lower revenues and net profit in Q3/24 vs. Q2/24, but compared to the same quarter a year earlier the readings were mixed: Java, Bali & Nusa Tenggara saw its revenues and income lower vs. Q3/23; Sumatera had recorded relatively unchanged revenues but lower income; Sulawesi & Papua had its revenues slipped slightly but posted higher income; while Kalimantan’s revenues and income were up. Based on its products, fashion & accessories’ outright sales had turned lower in 9M24, while groceries had recorded higher outright sales in the same period. Nevertheless, both segments’ gross profits were down compared to 9M23. On quarterly basis however, outright sales were down in Q3/24 for both segments vs. Q2/24 and vs. Q3/23; while in terms of gross profit, groceries saw higher gross profit but fashion & accessories saw the opposite.

In line with historical pattern

Based on the Q3/24 data, we have updated our revenues forecast for FY24 (refer to the previous report). We base the forecast on the Q1, Q2, and Q3, as well as H1 and 9M averages to come up with the final forecast number, which is Rp2,811 billion. Compared to FY23, the forecast number implies a modest increase of 2.4% (yoy) vs. Rp2,744 billion in FY24. Note that from exhibit 5, we can also see that the drop in Q3/24 was not a big surprise as it was still in line with its historical pattern. Historically, since FY17 the third quarter of each year has always been the weakest quarter of a year. Based on the same data set, we can thus assume that Q4/24 is highly likely to be stronger than Q3/24.

Valuation adjusted

We have adjusted our valuation method to using three price multiples: Price-to Earnings Ratio (PER), Price-to-Book Value Ratio (PBV), and Price-to-Revenues Ratio (PRR). Instead of using forward-looking price multiples, we are using the trailing-twelve-month (TTM) approach to find the target multiples, of which we will be using to find the target prices based on each multiple. On PER, we have the target price of Rp392 per share; while on PBV we get Rp548 as the target price; and for PRR we get Rp429 as the target price. Averaged based on equal weighting, we get Rp456 per share as the target price. This target price implies 9.1x PER (TTM), 0.8x PBV (MRQ), and 1.0x PRR (TTM). Currently, based on the last price of Rp380, the shares are trading at 7.6x PER (TTM), 0.6x PBV (MRQ), and 0.8x PRR (TTM). Compared to its current price, the target price represents 20.1% upside potential. Key risks being faced by RALS currently are, among others: the competition against its rivals – particularly the online-based competitors, the risk of deteriorating consumers’ purchasing power – especially due to inflation of essential goods.