January 26, 2015 Matahari Putra Prima Company Focus More Challenging Expansion Changes to estimates We lowered our 2015E/2016E core EPS by 4.5/-13.0% due to lower expected number of new stores. Our new EPS is 8% lower than consensus. We revised down number of new Hypermart stores from 20 to 10 stores in 2015E, roughly in-line with management s revised target of 10-13 new Hypermart stores (previously also 20). We also reduce our medium and long-term estimates on new store opening by a similar ~50% due to higher uncertainty of 3rd party execution on number of new stores. We approximate at least 80% of new stores to be located in 3rd party malls. An old large competitor rising from its slumber After being acquired by Trans Group in 2012, Carrefour halted its expansion and has lost market share (in terms of number of stores) from 53.6% in 2007 to 36.4% as of 2013, while MPPA has managed to increase its market share from 24.1% to 35.5% in similar period. After internal consolidation that included changing its name to Transmart Carrefour, Carrefour has said publicly that it plans to expand more aggressively with possibility of focusing more on outside Java for growth (which would be similar to MPPA s strategy). While it remains to be seen how well Transmart Carrefour can execute on its expansion, it is a potential risk for MPPA s own growth trajectory (competing for mall space) and SSSG. Upside risk to our estimates There is still room for greater margins if company can execute better on selling more own brand and improve efficiency (man power productivity, head office, and logistic). Our 2015E/16E operating margin assumption is 4.1/4.2% (9M14 3.8% vs. 9M13 2.7%; 2014E 3.9% vs. FY2013 3.3%), same with our old estimates. HOLD Company Update Share Price Sector Rp3,200 Rp3,410 Retail Price Target Rp3,200 (-6%) Stock Data Reuters Code MPPA.JK Bloomberg Code MPPA.IJ Issued Shares (m) 5,378 Mkt Cap (Rpbn) 18,339 Avg. Value Daily 112.4 6 month (Rpbn) 52-Wk range (Rp) 3665 / 1900 Major Shareholders Sebastian Tobing (Sebastian.tobing@trimegah.com) Paula Ruth (paula@trimegah.com) MPPA opened its first hypermart in 2004. It divested its deparment store business in 2010 to focus wholly on hypermarket business. Maintain Hold (-6%) Our DCF-based target price (TP) is Rp3,200 (previously Rp3,700), assuming WACC of 10.8% (previously 10.5%). MPPA trades at 36.2x 2015PE to fall to 27.2x in 2017E. 2015E-17E core EPS CAGR is 16.3%. We maintain Hold recommendation. Companies Data Year end Dec 2012 2013 2014E 2015E 2016E Sales (Rp bn) 10,868 11,913 13,811 15,880 18,365 Net Profit (Rp bn) 221 445 459 507 584 EPS (Rp bn) 41 83 85 94 109 Core Profit (Rp bn) 41 293 430 507 584 Core EPS (Rp) 8 54 80 94 109 Core EPS Growth (%) -49.3% 622.8% 46.7% 18.0% 15.2% DPS (Rp) 186 186 26 28 33 BVPS (Rp) 690 613 512 581 661 Core P/E (x) 452.5 62.6 42.7 36.2 31.4 Div Yield (%) 5.5% 5.5% 0.8% 0.8% 1.0% PT. Multipolar Tbk. 50.3% Other 31.7% Public 18.0% Consensus Core EPS 14F 15F Consensus (Rp) 81 101 TRIM vs. Cons. (%) -1.8% -8.1% Stock Price PT Trimegah Securities Tbk - www.trimegah.com COMPANY FOCUS 1 (Rp) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Volume (RHS) Price (LHS) - Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 (mn) 180 160 140 120 100 80 60 40 20 -
Figure 1. MPPA s Food Retailers vs. Competitors Store Foodprint as of 30 Sep 2014 Hypermart already competes with Carrefour and Giant (HERO) in several areas outside Java island. Source: MPPA Figure 2. MPPA s Revenue Drivers and Estimates 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E Revenue drivers Number of stores 99 107 117 129 144 159 167 179 New stores built in the year 19 8 10 12 15 15 8 12 Estimated Avg. Net Revenue per store 119 128 135 142 148 158 176 183 Revenue per existing store 139 146 155 164 173 184 195 Revenue per new store - 12 12 13 14 14 15 Total net revenue 11,913 13,811 15,880 18,365 21,435 25,300 29,475 32,864 Department store 11,826 13,719 15,781 18,259 21,323 25,180 29,348 32,729 Others (consignment) 87 93 99 105 112 119 127 135 Net Revenue growth 15.9% 15.0% 15.6% 16.7% 18.0% 16.5% 11.5% Source: MPPA, TRIM Research PT Trimegah Securities Tbk - www.trimegah.com COMPANY FOCUS 2
SSSG (%) Realized 80% of TRIM 2014E New Hypermart Stores Last year, MPPA opened 8 new Hypermart stores (-20% below TRIM FY target; -53%/-58% to FY2012/13). According to MPPA, it decreased its targeted new Hypermart stores in 2014E to concentrate on new store s format launching (completed in Dec 2014). 75% of FY2014 new Hypermart stores were opened in 4Q14, including 3 stores (37.5% of total FY2014 new Hypermart) launched very near to end of year. Assuming insignificant contribution from those new stores, our 2014E revenue is Rp13.8tr (+15.9%YoY; -2.3% to our old estimates), of which 72.9% (vs. 9M13 73.1% of FY2013) realized during 9M last year. In January this year, MPPA opened 1 new Hypermart store at West Kalimantan, which was initially ready to be opened in Dec 2014, but moved to this month due to developer s decision to open in January 2015. Risk of delay in opening new Hypermart stores Among the 2015E new Hypermart stores, MPPA plans to open ~70-85% inside malls indicating risk from delay on mall s construction and opening (outside MPPA s control). ~15-20% of 2015E new Hypermart stores will be located in properties of Lippo group. For 2016E-26E new Hypermart stores, we decreased it to 8-15 stores/year from previously 25/26 stores in 2016E/17E, continued with 15-20 stores/year until 2026E. Renovation projects temporarily decreased stores traffic In the next several years, MPPA plans to renovate its old Hypermart (5 to 7 years old) stores gradually, of which big stores located at prime locations is going to be upgraded to its newest store format (G7). Hence, those stores will need to be partially or fully closed down for several months, leading to temporarily lower stores traffic during renovation progress. For this year, the company targets to renovate ~10 Hypermart stores (~9.3% of current total Hypermart stores). MPPA said after a store is renovated, it might help to improve sales up to 10% compared to before renovation. We assumed 2015E/16E revenue growth at 15.0/15.6%YoY (vs. old estimates 23.0/25.8%YoY). Figure 3. MPPA s Historical SSSG 9 8 7 7.9 7.8 6.8 6.7 6 5.7 5 4 4.5 4.1 3.7 3 2.4 2 1 0 2011 2012 2013 2014E 2015E 9M13 9M14 3Q13 3Q14 Source: MPPA PT Trimegah Securities Tbk - www.trimegah.com COMPANY FOCUS 3
Figure 4. Changes in Assumptions and Forecast Old New New vs. Old (%) 2015E 2016E 2015E 2016E 2015E 2016E Number of Hypermart stores 129 154 117 129-9.3% -16.2% (In Rp bn) Revenue per store 134 141 135 142 0.6% 0.1% Total Revenue 17,390 21,882 15,880 18,259-8.7% -16.6% EBITDA 1,074 1,443 942 1,145-12.3% -20.7% Operating Profit 713 908 651 762-8.7% -16.1% Pretax Profit 690 886 655 768-5.1% -13.4% Net Profit 525 674 498 584-5.1% -13.4% Core Net Profit 521 671 498 584-4.5% -13.0% Core EPS 97 125 93 109-4.5% -13.0% Gross Margin 16.9% 16.9% 17.1% 17.1% Operating Margin 4.1% 4.2% 4.1% 4.2% Source: TRIM Research Expecting higher gross margin As its number of stores grew, we think better gross margin (TRIM 2015E 17.1%; 9M14 17.1% vs. 9M13 15.7%) is still possible. This is supported by the company s ability to negotiate good deals with its vendors, including for newly opened stores. MPPA also targets to rise its private brands contribution to 5-10% for the next 3-5 years (currently 3.5%) and decrease further its shrinkage margin. Operational efficiency strategy Continuously seeking ways to improve efficiency, MPPA aims to increase stores man power productivity by improving its training program (more focus on specific skills). Considering the possibility to move employees from old stores to new stores, the company finds that man power requirement per store can be reduced (using G7 format for store sized ~5,000sqm ) by 31-39% to ~110 personnel. Salaries and benefits (~5.8% of sales in 9M14) takes the biggest portion of MPPA s opex. In the long term, expense savings (lower portion to sales) are also expected from head office (target 2.0%; currently 2.5%) and logistic (target 0.0%; currently 0.3%). PT Trimegah Securities Tbk - www.trimegah.com COMPANY FOCUS 4
Valuation and Price Target Our TP (Rp3,200) is -14% to old TP (Rp3,700), mainly caused by lowering estimated number of Hypermart stores for 2015E-26E to range of 8-15 stores, implying average of ~13 stores/year (-32% to previously ~19 stores/year). We updated the Beta to 0.89 following MPPA s adjusted Beta figure. It is slightly higher from previous Beta of 0.86 (MPPA s adjusted Beta until December 2014). Figure 5. WACC and DCF Calculations Risk free rate 8.1% Market premium 5.0% Beta 0.89 Adjusted beta of MPPA is 0.889. Debt rate 11.6% Debt proportion 30.0% Tax rate 25.0% Equity cost of capital 11.7% Debt cost of capital 8.7% WACC 10.8% LT growth rate 5.0% Description 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E EBIT (1- tax) 580 685 818 964 1,087 1,250 1,452 1,675 1,921 2,170 2,468 Depreciation and Amortisation 383 496 595 606 659 737 806 866 886 936 926 Changes in non-cash Working Capital 61 (28) (72) (8) (36) (48) (41) (57) (57) (59) (69) Capex (1,029) (1,286) (1,286) (686) (1,029) (1,286) (1,286) (1,286) (1,029) (1,286) (857) FCFF (5) (133) 54 876 681 653 931 1,198 1,722 1,761 2,469 40,695 Discounted FCFF (5) (109) 40 582 408 353 455 528 685 633 13,200 Total discounted FCFF 16,771 Net cash (debt) 211 NAV 16,982 # of shares 5,378 NAV / share 3,158 Target price after rounding 3,200 Source: TRIM Research PT Trimegah Securities Tbk - www.trimegah.com COMPANY FOCUS 5
Income Statement (Rpbn) Revenue 10,868 11,913 13,811 15,880 18,365 Growth (%) 22.0% 9.6% 15.9% 15.0% 15.6% Gross Profit 1,898 1,889 2,362 2,715 3,140 Opr. Profit 120 389 539 651 762 EBITDA 365 589 749 942 1,145 Growth (%) 18.4% 61.2% 27.1% 25.8% 21.6% Net Int Inc/(Exp) (46) (3) 27 16 6 Gain/(loss) Forex 0 0 0 0 0 Other Inc/(Exp) 224 200 38 0 0 Pre-tax Profit 298 585 604 667 768 Tax (59) (140) (145) (160) (184) Minority Int. 19 0 0 0 0 Extra. Items 0 0 0 0 0 Reported Net Profit 221 445 459 507 584 Core Net Profit 41 293 430 507 584 growth (%) -49.3% 622.8% 46.7% 18.0% 15.2% Dividend per share 186 186 26 28 33 growth (%) 3000.0% 0.0% -86.2% 10.5% 15.2% Dividend payout ratio (%) 454% 225% 30% 30% 30% Balance Sheet (Rpbn) Cash and equivalents 2,916 1,366 580 220 68 Other curr asset 2,169 2,802 3,350 4,007 4,540 Net fixed asset 775 1,087 1,297 1,587 1,971 Other asset 2,365 1,325 2,271 2,189 2,775 Total asset 8,225 6,580 7,497 8,003 9,354 ST debt 535 188 0 0 0 Other curr liab 2,181 2,850 3,304 3,799 4,393 LT debt 1,280 0 0 0 0 Other LT Liab 383 247 1,439 1,081 1,405 Minority interest 0 0 0 0 0 Total Liabilities 4,379 3,285 4,743 4,880 5,798 Shareholders Equity 3,846 3,295 2,754 3,123 3,555 Net debt / (cash) (1,101) (1,178) (580) (220) (68) Total cap employed 5,509 3,542 4,194 4,205 4,961 Net Working capital 2,369 1,131 626 429 215 Debt 1,815 188 0 0 0 Cash Flow (Rpbn) Core Net Profit 41 293 430 507 584 Depr / Amort 275 200 210 291 383 Chg in Working Cap Interim Results (345) 35 (93) (162) 61 Others 363 571 0 0 0 CF's from oprs 334 1,100 546 636 1,028 Capex (382) (299) (686) (857) (1,029) Others 3,196 1,958 542 0 0 CF's from investing 2,814 1,659 (144) (857) (1,029) Net change in debt 50 (1,817) (188) 0 0 Others (3,240) (1,002) (1,000) (138) (152) CF's from financing (3,190) (2,818) (1,188) (138) (152) Net cash flow (41) (59) (786) (359) (153) Cash at BoY 2,957 1,425 1,366 580 220 Cash at EoY 2,916 1,366 580 220 68 Free Cashflow (265) 232 (160) (233) (5) Year end Dec 3Q 13 4Q 13 1Q 14 2Q 14 3Q14 Sales 3,263 3,203 3,126 3,301 3,634 Key Ratio Analysis Profitability Gross Margin (%) 17.5% 15.9% 17.1% 17.1% 17.1% Opr Margin (%) 1.1% 3.3% 3.9% 4.1% 4.2% EBITDA Margin (%) 3.4% 4.9% 5.4% 5.9% 6.2% Core Net Margin (%) 0.4% 2.5% 3.1% 3.2% 3.2% ROAE (%) 0.9% 8.2% 14.2% 17.3% 17.5% ROAA (%) 0.4% 4.0% 6.1% 6.5% 6.7% Stability Current ratio (x) 1.9 1.4 1.2 1.1 1.0 Net Debt to Equity (x) (0.3) (0.4) (0.2) (0.1) (0.0) Net Debt to EBITDA (x) (3.0) (2.0) (0.8) (0.2) (0.1) Interest Coverage (x) 0.5 4.7 51.5 nm nm Efficiency A/P (days) 58 72 74 74 74 A/R (days) 1 1 1 1 1 Inventory (days) 60 72 87 91 89 Capital History Date 18-Dec-92 IPO @ 7,150 Gross Profit 513 524 530 555 638 Opr. Profit 141 151 82 110 195 Net profit 99 124 51 152 151 Core profit 107 114 60 95 151 Gross Margins (%) 15.7% 16.3% 16.9% 16.8% 17.6% Opr. Margins (%) 4.3% 4.7% 2.6% 3.3% 5.4% Net Margins (%) 3.0% 3.9% 1.6% 4.6% 4.1% Core Margins (%) 3.3% 3.5% 1.9% 2.9% 4.2% PT Trimegah Securities Tbk - www.trimegah.com COMPANY FOCUS 6
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