Company Update

09 Juli 2018

PT Erajaya Swasembada Tbk ERAA

XIAOMI AND ASUS : Get In The Spot-Light


Solid Performance in 1Q18

ERAA showing satisfactory performance, with revenues in 1Q18 increasing by 60.28% YoY, from IDR5.16 trillion in 1Q17 to IDR8.28 trillion in 1Q18. This is above our expectation, which represent 30.76% of the MNCS estimate. The rise in sales was supported by cellular phones and tablets, which recorded growth by 70.04% YoY, respectively, contributing 83.53% to total sales. We believe increasing sales volume in Samsung and Xiaomi brand drives the topline growth. ERAA also successfully managed to maintain operational performance and cost efficiency, holding their operating margin at a level 3,95% (vs 2.29% at 1Q17).  EBITDA stood at IDR308.10 billion or 205.45% YoY higher. Meanwhile, net profit increased significantly by 214.18% YoY to IDR205.35 billion in 1Q18 from IDR60.89 billion in 1Q17, which reflects 50,24% of MNCS estimate.


Xiaomi and Asus Captivates the Middle-to-Low Segment with Affordable Prices

International Data Corporation (IDC) research reveals smartphone products targeting middle-to-low consumers accounted for 71% of total smartphone sales in Indonesia in 2Q17, with low-end and mid-range prices around USD100-200 and USD200-400, respectively. We see that Xiaomi and Asus comes with fantastic specifications at an affordable price (value for money).


Black Market Devices Still a Threat

Up to 5M17, 60 million 4G-enabled smartphones are circulating in Indonesia; of these, around 20% are illegally-imported products that do not have an official import permit. The Government is dealing with this issue by ensuring that the IMEI number of each mobile unit is registered with the appropriate ministry. A price differential of 20%-30% for black market products means ERAA tends to lose market share, so it needs appealing innovations to attract and keep customer appeal.


Recommend BUYWith Target PriceIDR 2,000

We recommend BUY for ERAA, with a TP: of IDR 2,000 which implies a PE18E/19F 14,19x/12,32x and PBV18E/19F 1.45x/1.33x. We believe the strategy of product mix development and opportunities in the wearable device market can increase its margins in the future. In addition, the ERAA’s business is supported by 57 authorized stores and 42 service centers offering vital after-sales service. ERAA is currently trading at a level of +0.5 STD (average 5-years PE) with PE of 10.84x.



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