Smartphone Sales Boost ERAA

Smartphone sales will be the catalyst for Erajaya Swasembada Tbk (ERAA) business
growth this year. Expansion of 40 to 50 retail outlets will also support the
achievement in the modern handset retailer business by 15 to 20 percent.

Stevanus Juanda and Posmarito Pakpahan, Analysts of UOB Kay Hian, said as
Indonesia’s leading handset retailer and distributor, ERAA will record revenue
growth of 10.1 percent and 10.7 percent in 2017 and 2018. “The launch of new
products includes 4G smartphones from Apple and Xiaomi’s combined with promotions
at various ERAA outlets will drive corporate earnings,” said Stevanus. ERAA also
markets 15 gadget brands to diversify its portfolio and capture consumer needs.

On the other hand, the expansion of retail outlets will result in higher gross
margin at the level of 11 to 12 percent compared to the distribution channel
providing three to five percent. Historically, ERAA sales in retail business grew
with SSSG 10 to 15 percent.

The company will also sell old items to improve margins. “We expect working capital
to be more controlled by old stock sales with a 120-day turnover rate. Gross margin
rose from 6.6 percent in the fourth quarter of 2015 to 8.6 percent in the second
quarter of 2017 with an average turnover of 40 to 50 days,” said Stevanus in his

UOB Kay Hian recommended BUY for ERAA with a target price of IDR 910. (*)

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