by Credit Suisse
ACES recently reported another strong quarterly result, with 2Q11A revenue increasing by 45.6% YoY, and earnings by 32.5% YoY. We reiterate our Outperform call and top-of-the-market earnings forecasts and PT. Impact
Accelerating revenue growth: ACES’s revenue growth rate accelerated to 45.6% in 2Q11A (gross sales, inclusive of consignment sales), from 41.8% YoY growth in 1Q11A. The company opened two new stores during the first half, taking its total to 47 (with 52 targeted by FY11E year-end), including its large-format 14,695sqm Banten store in February, which appears to be making a strong contribution to overall growth. At the same time, same-store sales growth accelerated to 13.8% for the half (11.8% during 1Q11A).
Lifestyle products continue to outpace growth in home improvement products, growing to 36.2% of sales compared to 33.5% in the pcp. Geographically, ACES’s growth was broad-based, although Jabodetabek’s proportion of total sales nevertheless increased slightly to 56.4% from 54.0% in the pcp.
Gross margin surges; SG&A costs rise: 2Q11A gross margin accelerated to 47.3% compared to 42.2% in 1Q11A and 43.3% in the pcp (2Q10A) However, this was offset by an increase in SG&A costs during the quarter from 28.6% of sales to 34.4% QoQ, which resulted in quarterly EBIT margin declining slightly from 13.6% to 13.0% in QoQ. Blended half-yearly EBIT margin was nevertheless up YoY from 12.7% to 13.3%.
Higher A&P costs were a contributor to higher costs, increasing QoQ to 2.7% of sales from 1.6% (pcp 0.4%). This is a line item that can fluctuate from quarter-to-quarter, and in any case will contribute to improved brand equity. Other rapidly-growing cost items included employee costs (both admin and sales staff), as well as store rental costs (4.8% of sales vs. 4.3% in FY10A).
Earnings and target price revision
No material change: ACES is performing in line with our top-of-market expectations. For FY11E, we are forecasting 34.9% revenue growth (a sequential deceleration in quarterly growth owing to no further large store openings this year), and 13.5% EBIT margin (FY10A 12.9%, 1H11A 13.3%).
12-month price target: Rp4,000 based on a DCF methodology.
Catalyst: 3Q11A result (expected in late October).