Regional Morning Notes: Comprehensive Analysis of Listed Companies
Date: Monday, 11 November 2024
Broker: UOB Kay Hian
Company Update: Erajaya Swasembada (ERAA)
Investment Rating and Target Price
We have downgraded Erajaya Swasembada (ERAA) to a HOLD rating with a revised target price of Rp480, reflecting a 9.6% upside potential from the current share price of Rp438. This adjustment follows a prior target price of Rp540.
Company Description
Erajaya Swasembada is a prominent distributor and retailer of cellular telephones in Indonesia. The company holds licenses to distribute internationally recognized brands of cell phones and operates a network of retail stores across the country.
Stock Data
- GICS Sector: Consumer Discretionary
- Bloomberg Ticker: ERAA IJ
- Shares Issued: 15,950.0 million
- Market Cap: Rp6,986.1 billion (US\$446.3 million)
- 3-month Average Daily Turnover: Not available
Share Price Performance
The share price has fluctuated between a 52-week high of Rp486 and a low of Rp326. Over the past year, ERAA has shown a 3.3% YTD growth, with notable performances of -4.8% in the past month, 7.88% over three months, and 10.1% over six months, culminating in a 30.4% increase over the year.
Major Shareholders
Eralink International holds a 54.5% stake in the company.
Analyst Coverage
Paula Ruth is the lead analyst covering ERAA. Contact her at +6221 2993 3876 or via email at [email protected].
Unclear Outlook and Regulatory Risks
The downgrade to HOLD stems from uncertainties surrounding ERAA’s 2025 guidance and the pending TKDN (Local Component Level) certification for Apple products in Indonesia. Reports suggest Apple plans to invest an additional US\$10 million (Rp156 billion) in a plant in Bandung, potentially increasing its fulfilled investment to around 95% of the required amount for TKDN certification.
What’s New
- Apple’s investment in Indonesia could reach Rp1.6 trillion, including a potential US\$10 million investment in Bandung, which may push the fulfilled investment to approximately 95% of the required amount for TKDN certification.
- Uncertainties surround the iPhone 16 release schedule in Indonesia due to the expired TKDN certification. Apple has reportedly requested a meeting with the Industrial Minister to discuss the sale of iPhone 16 in Indonesia.
- ERAA’s international business, contributing 18% of revenue, includes Apple’s reseller business in Malaysia through Switch and multi-brand handset store Urban Republic. The iPhone 16 pre-order period began on 13 September 2024 under Switch Malaysia.
- The company expects an 8% year-on-year NPAT growth in 2026, with revenue growth of 5% yoy in 2025 and 6% yoy in 2026 as existing stores improve productivity and new stores open.
Key Financials
| Year to 31 Dec (Rpb) |
2022 |
2023 |
2024F |
2025F |
2026F |
| Net turnover |
49,471 |
60,139 |
63,030 |
66,297 |
70,288 |
| EBITDA |
2,187 |
2,485 |
2,581 |
3,094 |
3,566 |
| Operating profit |
1,591 |
1,625 |
1,655 |
1,936 |
2,147 |
| Net profit |
1,013 |
826 |
950 |
818 |
880 |
| EPS (Rp) |
63.5 |
51.8 |
59.5 |
51.3 |
55.2 |
| PE (x) |
6.9 |
8.5 |
7.4 |
8.5 |
7.9 |
| P/B (x) |
1.0 |
1.0 |
0.9 |
0.8 |
0.7 |
| EV/EBITDA (x) |
3.3 |
2.9 |
2.8 |
2.3 |
2.0 |
| Dividend yield (%) |
5.2 |
3.8 |
3.1 |
3.5 |
3.0 |
| Net margin (%) |
2.0 |
1.4 |
1.5 |
1.2 |
1.3 |
9M24 and 3Q24 Results
ERAA’s 9M24 NPAT (Rp791 billion) exceeded our (96%) and consensus’ (83%) full-year estimates. The 3Q24 NPAT growth was driven by strong double-digit yoy revenue growth and net margin expansion to 1.7% in 9M24 from 0.3% in 9M23.
Key Metrics for 3Q24
- Sales: Rp15,490 billion, a 5.9% qoq decrease but an 11.3% yoy increase.
- Gross Profit: Rp1,860 billion, a 7.0% qoq increase and a 32.3% yoy increase.
- Operating Profit: Rp404 billion, a 4.3% qoq decrease but an 82.3% yoy increase.
- Net Profit: Rp268 billion, a 0.3% qoq decrease but a 639.8% yoy increase.
Earnings Revision and Risks
We have revised our 2024 NPAT upwards given the strong 9M24 NPAT performance. However, we have lowered our 2025 NPAT forecast to reflect a more conservative outlook due to regulatory risks associated with Apple products in Indonesia.
Upside Risks
- Rupiah appreciation
- Higher-than-expected store productivity
- Extension of Apple’s TKDN certification by the government in the near term
New and Original Forecasts
| (Rpb) |
2024F |
2025F |
Original 2024F |
Original 2025F |
Difference (%) 2024F |
Difference (%) 2025F |
| Revenue |
63,030 |
66,297 |
63,030 |
72,612 |
0.0% |
-8.7% |
| Gross Profit |
7,013 |
7,040 |
6,608 |
7,673 |
6.1% |
-8.2% |
| Operating Profit |
1,655 |
1,936 |
1,724 |
2,082 |
-4.0% |
-7.0% |
| Net Profit |
950 |
818 |
770 |
934 |
23.3% |
-12.4% |
Margins
|
New 2024F |
New 2025F |
Original 2024F |
Original 2025F |
Difference (bp) 2024F |
Difference (bp) 2025F |
| Gross Margin |
11.1% |
10.6% |
10.5% |
10.6% |
64.3 |
5.3 |
| Operating Margin |
2.6% |
2.9% |
2.7% |
2.9% |
(10.9) |
5.2 |
| Net Margin |
1.5% |
1.2% |
1.2% |
1.3% |
28.5 |
(5.2) |
Valuation and Recommendation
We have downgraded ERAA to HOLD with a target price of Rp480, based on a 9.3x 2025F PE, aligning with the historical mean of 2017-23 PE (excluding the COVID-19 pandemic period in 2020-21). ERAA is currently trading at 8.6x 2025F PE, close to +0.25SD of its five-year historical mean. We will continue to monitor ERAA’s operational performance and updates from its 9M24 earnings call on 13 November 2024.
Business Portfolio
ERAA’s business portfolio includes Switch, a reseller of Apple products in Malaysia, and multi-brand handset store Urban Republic. The iPhone 16 pre-order period started on 13 September 2024 under Switch Malaysia.
PE Band
The PE band ranges from +2 standard deviations (11x) to -2 standard deviations (5x) from the average (8x) over the past few years, reflecting market volatility and investor sentiment.
Profit & Loss Balance Sheet
| Year to 31 Dec (Rpb) |
2023 |
2024F |
2025F |
2026F |
| Net turnover |
60,139 |
63,030 |
66,297 |
70,288 |
| EBITDA |
2,485 |
2,581 |
3,094 |
3,566 |
| Operating profit |
1,625 |
1,655 |
1,936 |
2,147 |
| Net profit |
826 |
950 |
818 |
880 |
| EPS (Rp) |
51.8 |
59.5 |
51.3 |
55.2 |
Cash Flow Key Metrics
| Year to 31 Dec (Rpb) |
2023 |
2024F |
2025F |
2026F |
| Operating |
882 |
907 |
857 |
1,006 |
| Investing |
(1,208) |
(1,282) |
(1,481) |
(1,618) |
| Financing |
1,054 |
538 |
1,013 |
746 |
Key Metrics
- EBITDA margin is expected to increase from 4.1% in 2023 to 5.1% in 2026.
- Net margin is forecasted to range from 1.2% to 1.5% over the same period.
- ROE is anticipated to be around 9.8% in 2025 and 2026.
- Debt to equity is expected to rise slightly from 90.0% in 2023 to 96.0% in 2026.
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