The JCI July 13, 2020
Dear All,
Jᴜʟʏ 13, 2020
* Tʜᴇ JCI ᴛʀᴀᴅɪɴɢ ʀᴀɴɢᴇ: 5,000ᴘᴛ – 5,125ᴘᴛ ( Fʀɪᴅᴀʏ ᴄʟᴏsᴇ: 5,031ᴘᴛ)
* Wᴀʟʟ Sᴛʀᴇᴇᴛ ᴇɴᴅᴇᴅ ʜɪɢʜᴇʀ ʙʏ ᴏᴠᴇʀ 1% ᴏɴ ɴᴇᴡs ᴏꜰ ᴘʀᴏᴍɪsɪɴɢ ʀᴇsᴜʟᴛ ᴏꜰ Cᴏᴠɪᴅ-19 ᴠɪʀᴜs ꜰʀᴏᴍ Gɪʟᴇᴀᴅ Sᴄɪᴇɴᴄᴇ’s Rᴇᴍsᴇᴅɪᴠɪʀ
* Tʜᴇ JCI ɪs ᴇxᴘᴇᴄᴛᴇᴅ ᴛᴏ ɢᴀɪɴ ᴇᴅɢᴇ ᴀʟsᴏ ᴏɴ sᴛᴀʙʟᴇ USDIDR ᴀɴᴅ ᴏɪʟ ᴄʟᴏsᴇ ᴀᴍɪᴅ ɪɴᴠᴇsᴛᴏʀs’ ᴄᴀᴜᴛɪᴏᴜs ᴏᴠᴇʀ 2Q20 ᴇᴀʀɴɪɴɢs ʀᴇʟᴇᴀsᴇ
Morning,
The Jakarta Composite Index (JCI) today (13/7) is expected to be in the range of 5,000pt – 5,125pt to gain edge with investors remain cautious in stance for 2Q20 earnings release.
In the United States , 2Q20 earnings are expected to fall by 44% YoY, the worst quarterly performance since the Great Recession when S&P 500 profits fell by 67% in the fourth quarter of 2008, according to Refinitiv I/B/E/S data. Meanwhile, Friday last week (10/7) in Wall Street the DJIA ended higher by 369 points or 1.4% at 26,075pt, while the S&P500 and the Nasdaq both closed higher by 1.1% and 0.7%, respectively. Investors’ cheered the news on the day that clinical trials for Remsedivir showed better results as compared to the other drugs.
𝐈𝐧𝐝𝐨𝐧𝐞𝐬𝐢𝐚 𝐂𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐒𝐞𝐜𝐭𝐨𝐫
𝐀𝐂𝐄𝐒, 𝐛𝐢𝐠-𝐭𝐢𝐜𝐤𝐞𝐭𝐬 𝐜𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐩𝐥𝐚𝐲, 𝐜𝐨𝐦𝐦𝐢𝐭 𝐭𝐨 𝐛𝐞𝐬𝐭-𝐜𝐚𝐭𝐞𝐫𝐞𝐝 𝐜𝐮𝐬𝐭𝐨𝐦𝐞𝐫𝐬 𝐚𝐦𝐢𝐝 𝐭𝐡𝐞 𝐩𝐚𝐧𝐝𝐞𝐦𝐢𝐜
𝐌𝐚𝐢𝐧𝐭𝐚𝐢𝐧 𝐨𝐮𝐫 𝐁𝐔𝐘 𝐜𝐚𝐥𝐥 𝐰𝐢𝐭𝐡 𝐚𝐧 𝐅𝐘𝟐𝟎 𝐫𝐞𝐯𝐢𝐬𝐞𝐝 𝐞𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝-𝐞𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐚𝐭 𝐚 𝟏𝟐-𝐌 𝐓𝐚𝐫𝐠𝐞𝐭 𝐏𝐫𝐢𝐜𝐞 𝐨𝐟 𝐈𝐃𝐑𝟏,𝟖𝟓𝟎/𝐬𝐡𝐚𝐫𝐞
Factoring in ACE Hardware Indonesia (ACES) 1Q20, we revised down our earnings estimate this year accordingly. Applying conservative approach, we hold to 5% YoY sales growth (2019:12.5% YoY, 1Q20:4.5% YoY), and attached an operating margins of 16.0% (2019:16.0%, 1Q20:16.0%, 2018:16.7%), and net profit margins of 12.7% (2019:12.7%, 1Q20: 12.4%, 2018:13.5%). With this we came in with an estimated net sales of IDR8.5tr (+5% YoY, 2019: +12.5% YoY) and net profit for this year of IDR1.08tr (+5% YoY, 2019: 6.2% YoY).
𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧𝐬 𝐚𝐫𝐠𝐮𝐦𝐞𝐧𝐭
Last year, ACES commanded some 29% premium over Indonesia overall weighted average market multiple at 20.1 times. Attaching similar assumptions call the share to be valued at a fair price of IDR1,850/share over 12-months horizon or representing some 19% capital gains.
We argue the above premium to be a reference to the counter’s target price as fair, given the scale of the company and its track record (see our published report on November 18, 2019 for brief profile and track record of the company). Most important, ACES has access to the Indonesia aspiring middle class consumers bracket. Furthermore, we like ACES strong balance sheet whereby the company maintained its net-cash status in 1Q20 with an addition of IDR3.5bn bank loan (2019: none) while cash stood at IDR1.5tr (2019:IDR1.3tr), and total equity at IDR4.9tr(2019: IDR4.7tr).
𝐋𝐚𝐭𝐞𝐬𝐭 𝐝𝐞𝐯𝐨𝐥𝐞𝐨𝐩𝐦𝐞𝐧𝐭
In response to the current pandemic situation, to best-served customers, ACES adjust its operational hours but intensified on-line sales experiences to include other digital ways such as whats-up applications. At the other end, the company seemed to stick to the country’s longer-term prospect. Until the present time, ACES has already added 6 (six) new stores, out of 10 to 15 originally planned in the start of the year. ACES is a big-tickets consumer items that investors should not miss to allocate, in our view.
At the other end, Friday last week (13/7) the WTI price closed l with a hike at USD40.6/barrel, or by 2.3%, and the USDIDR closed at IDR14.501 vs. IDR14.446 the previous one.
We advise the following recommendation as for now, for both trading and longer-time investment purpose. 𝐀𝐀𝐋𝐈, 𝐋𝐒𝐈𝐏 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘈𝘨𝘳𝘪, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘜𝘯𝘥𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵 ), 𝐔𝐍𝐓𝐑, 𝐈𝐓𝐌𝐆, 𝐀𝐃𝐑𝐎, 𝐏𝐓𝐁𝐀 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘊𝘰𝘢𝘭 𝘔𝘪𝘯𝘪𝘯𝘨, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵), 𝐆𝐆𝐑𝐌, 𝐔𝐍𝐕𝐑, 𝐈𝐂𝐁𝐏 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘊𝘰𝘯𝘴𝘶𝘮𝘦𝘳, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘖𝘷𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵 ), 𝐀𝐒𝐈𝐈 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘈𝘶𝘵𝘰𝘮𝘢𝘵𝘪𝘷𝘦, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵), 𝐚𝐧𝐝 𝐀𝐂𝐄𝐒, 𝐒𝐂𝐌𝐀, 𝐌𝐀𝐏𝐈 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘛𝘳𝘢𝘥𝘦, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘖𝘷𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵),𝐚𝐧𝐝 𝐓𝐊𝐈𝐌 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘉𝘢𝘴𝘪𝘤 𝘐𝘯𝘥𝘶𝘴𝘵𝘳𝘺, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵).
Cheers,