Aspirasi Hidup Indonesia (ACES.IJ Rp 725; BUY TP Rp 1,100) Steady SSSG, but Challenges Loom; reaffirm Buy Rating with a lower TP

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Aspirasi Hidup Indonesia (ACES IJ)

Steady SSSG, but Challenges Loom; reaffirm Buy Rating with a lower TP

ACES will terminate its agreement with ACES US, with an expected additional cost for rebranding in FY25.
We lowered FY24-25F net profit by 3.2%/3.5% due to higher opex and lower gross margins.
Despite steady SSSG, we see uncertainty lingering post-license termination. Maintain Buy rating with a lower TP of Rp1,100.

ACES optimistic on achieving its FY24 guidance

ACES management is optimistic about achieving its FY24 guidance of SSSG ≥7% with sales growth ≥10% yoy. In 1H24, the company saw normalized traffic returning to pre-pandemic levels. Combined with new innovative SKUs, Boom Sale and monthly thematic campaigns, it expects to maintain sales momentum in 2H24, with lower 1H24 inventory days of 234 (down from 265 days in 1Q24). ACES has decided to terminate its license agreement with Ace Hardware US, with further details to follow towards the end of the year. This will eliminate ~Rp40bn in royalty expenses from opex starting in 2025. On the flip side, the company expects an additional cost of around 1% of rev. for rebranding in 1H25, which will be offset by the absence of royalty expenses.

We lowered our FY24-25F net profit by 3.2%/3.5% on higher opex

Following the 2Q24 results, we have adjusted our FY24-25F sales/sqm growth to 7.5%/6.5% yoy (from prev. 7%/5%), while maintaining our target for an additional 15 stores. We believe the introduction of new SKUs, new store concepts, and key events have contributed to a recovery in productivity (1H24: 10.5% yoy – Exh. 5). However, we have trimmed our FY24-25F GPM by 20/10bps, taking into account a potential shift in product mix due to the expected increase in store openings in 2H24. Additionally, we have increased our FY24/25F opex/revenue by 50/80bps. This adjustment reflects higher professional fees and A&P, driven by the increasing contribution of E-commerce (11% of 1H24 rev vs. less than 10% in 2023) and planned rebranding efforts in 2025. As a result, we project -3.2%/-3.5% decrease in net profit for FY24-25F. Nevertheless, we estimate FY24-25F net profit growth of 9.8%/9.7% yoy.

Steady SSSG yet uncertainty lingers from license termination, maintain Buy

ACES reported a steady SSSG ytd despite coming off a high base last year. While we remain confident in the company’s strong execution and proven track record in merchandising, the termination of the agreement with ACES US and the need for rebranding in FY25 add uncertainty. We believe the market will wait for further clarity and observe ACES’ performance post-license termination. We roll over our valuation to 2025, translating to a lower TP of Rp1,100 with a lower implied PE of 20x (avg 3y PE) to incorporate these concerns.

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