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TRIM Company Focus 20131113 MPPA .Indd TRIM COMPANY FOCUS Nov 13, 2013 Matahari Putra Prima Hypergrowth Strong growth outlook We initiate MPPA with a Buy and 19% upside on the back of 1) MPPA’s largest store network implies it will be the prime bene ciary of growth in modern retail grocery outside Java, implying it can grow faster than other hypermarkets, 2) Strong growth outlook with EPS CAGR (2013-16E) of 25% on the back of 23% revenue CAGR and margin expansion, and 3) Strong balance sheet with potential upside in dividend payout. Matahari Putra Prima opened its fi rst Plenty of upside for modern retail grocery business outside Java hypermart in 2004. It divested its department store business in 2010 to Currently only 14% of total grocery value in Indonesia is modern grocery retail, focus wholly on hypermarket business. far below neighboring countries such as Philippines (25%), Thailand (42%), and Malaysia (53%). We expect MPPA to grow aggressively at ~20 stores per year in coming three years, most of which will be in outside Java market which has lower BUY Rp2700 sales per store but higher pro t per store. Currently stores in Java contribute 66.5% of revenue but 44.9% of operating pro t. Hypermart currently has ~2.6x as many Initiate Coverage stores as its competitors outside Java as its competitors have been mainly focused in Java market. Share Price Rp2,275 Sector Consumer Strong balance sheet Target Price Rp2,700 (19%) We estimate the company’s EBITDA to net interest expense ratio to be 11.4x in Prev. TP - 2014E with only 9 days of cash cycle, implying the company has a healthy FCFF generation, particularly from 2015 onward. We believe there is some upside risk to Stock Data our dividend payout ratio of 30%, which implies a 0.5% dividend yield. Reuters Code MPPA.JK Bloomberg Code MPPA.IJ On the ground visit Issued Shares (m) 5,378 We visited three hypermarkets: Hypermart, Carrefour, and Lotte. We found that Mkt Cap (Rpbn) 12,369 there is potential upside in margins from selling own brands as we noticed many Average Daily T/O (m) 11.4 owned brands in Carrefour and Lottemart but less in Hypermart store. Hypermart 52Wk range Rp3,150 / Rp900 store feels more luxurious and easier to navigate, but could improve by adding a canteen in their store and by having more promotions or lower prices. Major Shareholders: Valuation: DCF-based target price of Rp2,700 (19% upside) PT. Multipolar Tbk. 50.3% We use DCF valuation method with a WACC of 11.0% to arrive at our target price of Prime star Investment Pte. Ltd. 26.1% Rp2,700. Current price implies 27x PE but we believe the company’s strong growth Public 13.6% justi es such valuation. MPPA trades at 2014 PEG of 1.08x to fall to 0.9x in 2015. Forecast & Rating Consensus Year end 31 Dec 2011 2012 2013E 2014E 2015E EPS 13E 14F Consensus (Rp) NA NA Revenue (Rpbn) 8,909 10,868 11,968 14,761 18,361 TRIM VS Cons (%) NA NA Revenue Growth (%) 4.3 22.0 10.1 23.3 24.4 Stock Price EBITDA (Rpbn) 309 365 730 933 1,192 EBITDAGrowth (%) (10.5) 18.4 99.7 27.9 27.8 Volume Price Core net pro t (306) 184 382 460 598 3,500 90,000,000 80,000,000 3,000 EPS Growth (%) (98.2) (159.9) 108.2 20.4 29.9 70,000,000 2,500 60,000,000 ROAE(%) (4.8) 3.9 9.5 10.4 12.3 2,000 50,000,000 1,500 40,000,000 DPS (Rp) 482 9 10 21 26 30,000,000 1,000 20,000,000 Div Yield (%) 21.2 0.4 0.5 0.9 1.1 500 10,000,000 P/E (x) (39.9) 66.7 32.0 26.6 20.5 - - P/BV (x) 2.2 3.2 2.9 2.7 2.4 1/9/2013 3/9/2013 5/9/2013 7/9/2013 9/9/2013 11/9/2012 11/9/2013 EV/EBITDA (x) 41.2 30.5 17.0 13.1 10.2 Sebastian Tobing [email protected] TRIM Company Focus Nov 13, 2013 Hypermarket business is on hyper-growth mode Given strong economic growth outlook of 5-6% GDP growth in the next ve years, increasing urbanization rate, and increasing labor force, disposable income is forecasted by EIU to grow signi cantly with 2012- 17E CAGR of 11.8%. This in turn implies potential growth of 5.8% CAGR (2012-17E) in food expenditure and 15.3% in non-food expenditure. Not only Indonesia has a healthy population growth at 4% CAGR (2009-12), Indonesia’s middle income group has also grown at a strong pace of 13% CAGR (2009-12) while its’ high income group grew at 12% CAGR (2009-12). Indonesian USD140bn retail market (source: EIU), approximately USD97bn is grocery retail, of which only USD14bn or 14% of total grocery value is modern grocery retail. Hypermarkets currently has 24% of the modern grocery retail business, with the remaining shared by convenience stores (36%) and supermarkets (39%). Figure 1. Urbanization and increase in labor force in Indonesia Source: EIU Figure 2. Indonesia’s disposable income and growth in consumer Source: EIU Figure 3. Expenditure per Capita/Month High Income >475 Middle Income 74475 Low Income <74 Source: Company, Central Bureau of Statistics, and Mark Plus 2 TRIM Company Focus Nov 13, 2013 Figure 4. Modern retail grocery as % of total retail grocery Vietnam 4% Indonesia 14% Philippines 25% Thailand 42% Taiwan 44% Malaysia 53% Hong Kong 62% China 63% Singapore 71% USA 84% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Source: company and Euromonitor 3 TRIM Company Focus Nov 13, 2013 Management strategy In the middle of aggressive expansion Since selling its department store business back in 2010 to focus on hypermart, MPPA has accelerated annual store opening from 5 stores in 2010 to 15-17 per year in 2011-12. This year, we expect MPPA to open 19 new stores (11 new stores opened up to end of Oct13) and expect a pace of ~20 new stores in the next three years, similar to management’s guidance. Figure 5. MPPA’s number of Hypermart stores and growth rate in 2013-16 21% CAGR 2013-16E 300 255 250 235 215 195 200 175 150 150 120 99 100 80 63 51 50 0 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Source: Trimegah, company, and Euromonitor Figure 6. MPPA’s number of Hypermart stores and growth rate in 2013-16 MPPA's Hypermart revenue Market share 40.0 60.0% 35.0 50.0% 30.0 40.0% 25.0 20.0 30.0% 15.0 20.0% 10.0 10.0% 5.0 - 0.0% 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Source: Trimegah, company, and Euromonitor Most of the new stores will be opened outside Java, which are usually smaller in area and revenue but higher in pro tability, mostly due to lower labor and rental costs. Stores in Java currently contributes approximately 66.5% of revenue but only 44.9% of operating pro t while stores outside Java contributes 42.5% of revenue but 55.1% of operating pro t. As the proportion of stores outside Java grows, we expect the average area per store to be smaller, revenue per m2 to decline but operating pro t per m2 to grow. MPPA owns three distribution centers that supplies to all of its store locations. Having its own distribution center helps improve supply chain which in turn help reduce working capital requirement. 4 TRIM Company Focus Nov 13, 2013 Thriving and gaining market share There are four major companies competing in hypermarkets in Indonesia from largest to smallest: Carrefour (majority owned by CT Trans group), Hypermart (MPPA), Giant (Jardine group’s Dairy Farm), and Lottemart (Lotte group from Korea). As of Sep13, Hypermart has the largest number of stores in Indonesia overall and particularly outside Greater Jakarta and outside Java, while Carrefour has the largest number of stores in Greater Jakarta. Since 2007, Hypermart has gained signi cant market share while Carrefour has lost market share. We believe this is due to: 1) Hypermart’s aggressive expansion in under-penetrated markets outside Greater Jakarta area, particularly outside Java, and 2) Carrefour slowing down its expansion as new ownership (Trans group) had little experience in retail business. We expect Hypermart to continue its aggressive expansion outside Java as it aims to be the rst mover in many cities Figure 7. Number of stores per company Greater Jakarta Other Java Outside Java Total 100 89 90 82 80 13 70 39 60 30 49 50 4 40 28 15 30 20 20 39 30 7 10 22 6 - 7 Hypermart Carrefour Giant Lottemart Source: MPPA Figure 8. Market share versus competitors Source: MPPA 5 TRIM Company Focus Nov 13, 2013 Carrefour and Lottemart usually own larger stores (7000-8000m2) versus MPPA’s slightly smaller (averaging 6,809m2 per store in 2012) format. We expect MPPA’s average store size to decline as it opens more stores outside Greater Jakarta area. From the perspective of items sold in their stores, MPPA focuses more on food items, which implies it competes more directly with Giant. Only 26% of Hypermart’s sales is non-food versus 45% for Carrefour. Figure 9. Hypermart Carrefour Food, 26% Food, 45% Non-Food, Non-Food, 74% 55% Source: MPPA Initiatives that could drive improvement in margins and upside in revenue growth Despite signi cant increase in market share in the past ve years, we believe there is still potential upside that make us con dent in our projection of 23% hypermart revenue CAGR in 2013-16E and operating margin increase from 4.5% in 2013 to 4.7% in 2016E.
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