Ace Hardware Indonesia (ACES IJ)

Solid FY24 growth outlook warrants further rerating

• Upbeat FY24 guidance of ≥7% SSSG with ≥10% yoy sales growth and 15-20 new store openings.
• Strong FY23 delivery amid higher productivity and sustained margins. We revise up our FY24-25F net profits by 13-11%.
• Solid SSSG until Feb24 paves the way for good 1Q24 results and also a further rerating. Maintain BUY with a higher TP of Rp1,200.

Store expansion plan continues in FY24

ACES aims for ≥7% SSSG to achieve ≥10% sales growth with the target of 15-20 new store openings in FY24 (vs. 13 in FY23). By end-Mar24, ACES had opened 3 new stores (1 home center and 2 Hardware stores in Pejaten Park-Jakarta, Banyuwangi – East Java and Garut – West Java), bringing total store space to 592k sqm. ACES foresees more opportunities ahead in tapping underserved 3rd tier cities in Java and ex-Java areas. We deem the management’s target to be realistic amid strong delivery in FY23 and see continued initiatives in marketing and efficiency also provide greater room for higher operating leverage going forward.

We revise up our FY24-25F net profit estimates by 13-11%

The latest SSSG data from Feb24 augurs well for continued solid growth for ACES this year, as all areas have shown improving SSSG including Jakarta and Jakarta ex Java (Exhibit 2 &3). For FY24F, we estimate 11% top line growth supported by 10 net additional stores (15 including Express) and 7% growth in revenue/sqm. We expect the solid top line to pave the way for a 20bps gross margin improvement. Combined with 10bps efficiency in opex and a normalized tax rate (regulatory adjustment on the free float increased the tax rate in FY23), we forecast FY24F net profit growth of 13.4% yoy. The expectation of higher sales/sqm, higher gross margins and higher operating leverage prompt us to revise up our FY24-25F earnings forecasts by 13% and 11%, respectively.

Maintain BUY with a higher TP of Rp1,200 on re-rating potentials

ACES currently trades at FY24F PE of 18.2x, above its -1SD avg 5y PE of 17.5x. We expect the top line to remain solid supported by all areas in addition to store expansion and increasing operating leverage. As such, we believe the stock has room to rerate to the pre-covid valuation of avg PE of 24x - which translates into our higher TP of Rp1,200. Key risks to our rating include a soft top line post Ramadan if inflation remains stubbornly high, leading to lower margins and Rupiah weakening which will hamper overall purchasing power.

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