Ace Hardware Indonesia (ACES IJ): November’20 SSSG: on-track performance
Sales improvement remained on track. Ace Hardware Indonesia (ACES) recorded sales of IDR583bn in November 2020 (-1.4% m-m, +0.5% y-y). The sales improvement is currently on track as: 1) SSSG declines continued to narrow to -6.7% y-y in November vs. -9.7% y-y in October, and 2) ACES managed to book a y-y increase in its November sales. Among all the regions, Jakarta still booked the lowest sales growth with SSSG of -10.1% (Java ex Jakarta: -5.2%, Outside Java: -6.1%). We believe this is in line with Jakarta as one of the most affected cities with the highest number of Covid-19 cases across Indonesia. On a cumulative basis, 11M20 SSSG came in at -8.8% y-y with gross sales declining by 6.8% y-y to IDR6.7tn, which was broadly in-line with our expectation (forming 93.7% of our FY20 estimate).
ACE Boom Sale extended to January 2021. ACES’ biggest thematic program ACE Boom Sale, which was held in October, is now extended to 3 January 2021, making this the longest ACE Boom Sale in history as it was generally held within one month in previous years. Although the gross margin was slightly compressed during the ACE Boom Sale quarter (three-year average at 47.4% vs. 48.0% in other quarters), we believe the program will boost ACES’ top line and help its inventory normalization throughout 4Q20.
Enhancing omnichannel strategy through MISS ACE. Along with its 25-year anniversary celebration in November, ACES launched MISS ACE or Mobile Interactive Shopping Solution ACE to make shopping easier for its customers, as it enables them to shop through the mobile app. This service is a development on the Mobile ACE Indonesia application which was launched in 2016. Through MISS ACE, customers are able to know about all the product promotions and special price offers, including the product descriptions. MISS ACE also provides customer service through online chatting, e-mail, telephone, and messaging. Although the online channel still contributes below 5% to ACES’ total sales, we believe the mobile apps should further strengthen ACES’ omnichannel strategy going forward through its online sales and service. We expect ACES’ online sales contribution to reach a high single-digit by 2025. At the same time, ACES also continued to expand its offline channels. It opened two more new stores in December, in Malang and Living Plaza Manado, for a total of 208 ACES stores as of today. Net store addition YTD is currently 11 as ACES has closed down three stores.
Reaffirm BUY with higher TP of IDR2,035. Overall, ACES’ sales improvement remained on track and we believe ACES’ aggressive store expansion during 2020 will translate into higher growth in the next few years. We maintain our forecast numbers and incorporate the 2022E EPS in our valuation given better earnings visibility post the COVID-19 pandemic. We reaffirm our BUY call on ACES with a higher blended TP of IDR2,035 (from: IDR1,900), based on a 2021-22E PER target of 28.7x or +1SD above its five-year-mean. We believe that this premium is justified by ACES’ positioning as one of the most resilient retailers during the pandemic and its likely solid earnings growth of 17-28% y-y in 2021-22E, which should bring its 2021 earnings to a pre-pandemic level. Downside risks to our call include: 1) a longer-than-expected Covid-19 outbreak, and 2) higher-than-expected operating expenses.