2018: Golden Moment
Satisfactory Performance in 1Q18
HRTA displayed satisfactory performance in 1Q18, with a 22.44% increase in revenues YoY, from IDR601 billion in 1Q17 to IDR736 billion in 1Q18. This is in line with our expectations, representing 25.10% of MNCS’ FY18E estimate. The rise in sales was supported by their Wholesale and Store Division, which recorded growth by 21.04%/35.46% YoY respectively, contributing 89.03%/10.30% to total sales. The franchise business run by HRTA began showing results at the end of FY17, contributing IDR504 million. HRTA also successfully maintained their operational performance and cost efficiency, holding their gross margin at 9.32% (as opposed to the 9.34% in 1Q17). Meanwhile, net profit increased by 28.58% YoY at IDR38.03 billion in 1Q18 (as opposed to IDR29.58 billion in 1Q17) maintaining a 5.17% margin, which reflects 28.44% of MNCS estimate.
Investment Strategy : Continuous Innovation and Robust Expansion
We believe that healthy financial performance will be sustained along the year with the opening of new outlets, and with several new products launching, which will boost revenue growth through FY18E, reaching IDR2.93 trillion (+18.13% YoY). HRTA launched local-patterned jewelry to add to the 1Q18 signature collection. Other than applying product development strategies, HRTA is also tracking various jewelry exhibitions to build their brand in the market. As an effort to improve its competitiveness, HRTA is already entering new markets by opening distribution channels such as Matahari Department Store. As of April 2018, We noted that HRTA had opened 33 retail outlets spread across Batam, Jambi, Jakarta, Semarang, Surabaya, Bali and Makassar.
Recommendation : BUY with Target Price IDR460
We recommend BUY for HRTA with TP: IDR460, which implies PE/PBV of 14.12x/1.71x in FY18E and 11.53x/1.53x in FY19F. We believe that the massive expansion and adoption of business strategies resulting in better margins will maintain the company’s growth. Meanwhile, risks that could potentially hamper performance growth includes: 1) Company expansion strategies not running as expections; 2) Highly intensive working capital; 3) Gold price fluctuations; 4) Foreign exchange risk.
