ERAA IJ: A Clearer Line Ahead, Still BUY
Jessica Pratiwi & Michael W. Setjoadi – RHB Sekuritas
We recently published a note on ERAA as we rollover our valuation and forecast to 2020F onwards.
Despite weak cellular sales this year (78% of topline), we are positive on ERAA’s cellular sales volume (9M: 9.76m units, -21% YoY) to gradually recover in the next 1-2 quarters.
This is supported by:
1. IMEI implementation starting Apr’20 onwards as illegal market accounts for c.20% of industry’s volume.
2. Improving productivity from the recent opened retail stores (YTD: 230 stores).
3. Tendency of consumers to typically change to new phones for every 2-3 years as most of the sales were booked during 4Q17-4Q18.
In addition, we believe there is an ample room for consumers to up-trade cellular phone purchases given current ASP stood at IDR1.88m (+9.9% YoY). This is mainly to follow telco operator’s aggressive expansion, leading to more 2G subscribers are migrating to 4G in ex. Java area.
GPM also should normalize post inventory clearances this year (mostly for Xiaomi products) and growing non-handset business, albeit still small.
As such, we adjust our cellular sales volume to -18% YoY from -5% YoY in 2019F and expected positive growth of +8% YoY in 2020F, and +15% YoY in 2021F; as we are assuming 8+0%/12+3% additional volume from illegal market and recovery in consumer purchasing power, respectively.
Maintain our Buy recommendation with 12m-TP stood at IDR1,900, implying 12x 2020F PER.
Link to report: https://bit.ly/2Og3qOv
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