Indonesia Initiating Coverage 6 July 2021 Consumer Non-cyclical | Retail - Staples Matahari Putra Prima (MPPA IJ) Buy The Rising Phoenix; Initiate BUY Target Price (Return): IDR1,750 (+50%) Price: IDR1,170 Market Cap: USD606m Avg Daily Turnover (IDR/USD) 81,591m/5.66m Initiate coverage with a BUY and IDR1,750 TP, 50% upside. Matahari Putra Analysts Prima’s recent revamping of initiatives should help to transform its business and keep it ahead of competitors. A strong focus on digital initiatives – particularly Indonesia Research Team the collaboration with Indonesia’s largest technology group GoTo – will likely +6221 5093 9888 lead to greater monetisation from the e-groceries trend. Our SOP-based TP is [email protected] derived from 1.7x 2023F P/S (fresh products) and 11.0x 2023F EV/BITDA (non- fresh products). Possible additional investment from GoTo is a likely catalyst to its share price. Michael Setjoadi Internal business transformation on the cards. The company aims to strongly +6221 5093 9844 [email protected] focus on expanding sales of its fresh products. We are positive on this strategy given less intense competition in the segment and this strategy may work well, supported by its strong merchandising programme (ie partnership with Disney), Marco Antonius Indonesian Ulama Council’s (MUI) halal assurance system (HAS) and strong +6221 5093 9849 logistics facilities. The company will also continue its expansion with a new, [email protected] smaller efficient yet modern hypermarket format, yielding better productivity and efficiency. This should help MPPA penetrate into residential areas, as well as Tier II and III cities. Further, the integration of data analytics across all operations Share Performance (%) will allow for more business insight to enhance its value. YTD 1m 3m 6m 12m Tapping into the enormous potential of e-groceries. E-groceries have gained Absolute 1014.3 3.5 223.2 983.3 917.4 popularity since the pandemic, with the online to offline (O2O) strategy Relative 1013.9 4.5 222.6 985.5 896.7 performing better – particularly retail businesses – resulting in greater 52-wk Price low/high (IDR) 86.0 – 1,235 collaboration between offline and online players. In recognition of this, MPPA has launched its own platform to tap in digital opportunity. Furthermore, the Matahari Putra Prima (MPPA IJ) company currently has a presence in several online marketplace and e- Price Close Relative to Jakarta Composite Index (RHS) groceries apps – giving it the widest online footprint among offline retailers. We 1,400 1,200 expect online channel contribution to be stronger given MPPA’s aim of 1,200 1,029 increasing its digital stores on top of the GoTo collaboration. 1,000 857 Financial outlook: We forecast sales to grow by 9%, 16% and 19% in 2021- 800 686 2023 on the expectations of a full economic recovery kicking in and MPPA’s 600 514 initiatives bearing fruit. This also helped EBITDA margins to gradually improve from around 4-5% in 2020 to about 9-10% in 2023F. Also, this is in line with the 400 343 improvement of its bottomline, although we expect the company only to start 200 171 booking profit in 2023. With a strong balance profile, owing to better working 0 0 Jul-20 Jul-20 Oct-20 Apr-21 capital management, the company is expected to be in net cash position in Oct-20 Jan-21 Jan-21 Jun-21 Jun-21 Feb-21 Feb-21 Mar-21 Mar-21 Nov-20 Dec-20 Dec-20 Aug-20 Aug-20 Sep-20 Sep-20 May-21 FY21F. Risks to our call include rising new COVID-19 cases, slower-than- May-21 expected vaccine rollout leading to slower economic recovery, slower-than- Source: Bloomberg expected expansion, and increasing competition. Forecasts and Valuation Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F Total turnover (IDRb) 8,655 6,748 7,351 8,494 10,085 Recurring net profit (IDRb) (580) (476) (338) (100) 186 Recurring net profit growth (%) (7.9) (17.9) (29.0) (70.3) - Recurring P/E (x) na na na na 52.00 P/B (x) 18.3 52.5 15.4 15.9 10.9 P/CF (x) na 9.30 127.11 21.17 11.96 Dividend Yield (%) na na na na na EV/EBITDA (x) 266.88 31.00 22.96 14.62 8.79 Note: Return on average equity (%) (65.8) (113.0) (63.9) (3.6) 37.3 Small cap stocks are defined as companies with a market InterestNet debt cover to equity (x) (%) 112.2 (1.64) 357.4 (0.77) net (0.49) cash net cash0.32 net cash2.21 capitalisation of less than USD1bn. Source: Company data, RHB See important disclosures at the end of this report 1 Matahari Putra Prima Indonesia Initiating Coverage 6 July 2021 Consumer Non-cyclical | Retail - Staples Financial Exhibits Asia Financial summary (IDR) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F Indonesia Recurring EPS (70.05) (57.48) (40.83) (12.13) 22.50 Consumer Non-cyclical BVPS 64.07 22.30 76.14 73.43 107.12 Matahari Putra Prima Return on average equity (%) (65.8) (113.0) (63.9) (3.6) 37.3 MPPA IJ Buy Valuation metrics Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F Recurring P/E (x) na na na na 52.00 P/B (x) 18.3 52.5 15.4 15.9 10.9 Valuation basis FCF Yield (%) (3.1) 10.6 (0.0) 2.9 6.2 SOP EV/EBITDA (x) 266.88 31.00 22.96 14.62 8.79 EV/EBIT (x) na na na 129.59 21.37 Key drivers i. Collaboration with GoTo; Income statement (IDRb) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F ii. Improved performance from better online Total turnover 8,655 6,748 7,351 8,494 10,085 channels; Gross profit 1,580 1,308 1,440 1,760 2,222 iii. Growing e-groceries trend. EBITDA 39 334 412 624 966 Depreciation and amortisation (250) (545) (538) (554) (569) Key risks Operating profit (212) (211) (125) 70 397 i. Slower result from collaboration with GoTo; Net interest (118) (267) (250) (199) (158) ii. Increasing competition. Pre-tax profit (315) (407) (289) (29) 358 Taxation (238) 2 29 6 (79) Company Profile Reported net profit (553) (404) (260) (22) 279 Matahari Putra Prima operates retail stores focusing on Recurring net profit (580) (476) (338) (100) 186 merchandising operation which includes general merchandising and food discount stores, including Cash flow (IDRb) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F hypermarkets throughout Indonesia Change in working capital 292 208 36 127 167 Cash flow from operations (260) 1,042 76 458 810 Capex (37) (19) (77) (179) (212) Cash flow from investing activities 421 (1,137) 62 (169) (250) Cash flow from financing activities (206) 90 641 (345) (383) Cash at beginning of period 349 304 300 1,079 1,023 Net change in cash (45) (5) 779 (56) 177 Ending balance cash 304 300 1,079 1,023 1,200 Balance sheet (IDRb) Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F Total cash and equivalents 304 300 1,079 1,023 1,200 Total assets 3,821 4,511 5,130 5,235 5,729 Short-term debt 650 960 860 460 0 Total long-term debt 250 0 0 0 0 Total liabilities 3,290 4,326 4,499 4,626 4,841 Total equity 531 185 631 609 888 Total liabilities & equity 3,821 4,511 5,130 5,235 5,729 Key metrics Dec-19 Dec-20 Dec-21F Dec-22F Dec-23F Revenue growth (%) (19.1) (22.0) 8.9 15.6 18.7 Recurrent EPS growth (%) (7.9) (17.9) (29.0) (70.3) 0.0 Gross margin (%) 18.3 19.4 19.6 20.7 22.0 Operating EBITDA margin (%) 0.4 4.9 5.6 7.3 9.6 Net profit margin (%) (6.4) (6.0) (3.5) (0.3) 2.8 Capex/sales (%) 0.4 0.3 1.1 2.1 2.1 Interest cover (x) (1.64) (0.77) (0.49) 0.32 2.21 Source: Company data, RHB See important disclosures at the end of this report 2 Matahari Putra Prima Indonesia Initiating Coverage 6 July 2021 Consumer Non-cyclical | Retail - Staples Internal Business Transformation On The Cards Fresh products as its primary strategy MPPA, recognised as one of Indonesia’s leading retailers, operates seven types of retail formats. Each store format is also differentiated by its brand name, target market and product offering. Figure 1: MPPA’s store format Compact Hypermarket/ Supermarket Wholesale Convenience Store Store Format Number 100 Hypermart, 26 Foodmart & 10 1 SmartClub 64 Boston & 14 FMX The company operates seven types of of Stores HyFresh ♦ stores with different formats and Hypermart: 3,000-6,000 sqm; Average brands Foodmart: 1,500-2,000 sqm; 3,000 sqm 80-150 sqm Store Size HyFresh: 500- 1,000 sqm ♦ This allows MPPA to cater to different Fresh food, types and needs of customers across Grocery, Fresh food, Grocery, General Health, Vitamins & Beauty Product General all segments Merchandising, Electronics (for (Boston) and Ready-To- Selection Merchandising Hypermart only) Eat, Food & Drinks (FMX) & Horeca equipment Horeca, Mom & Pops Retailers, Midde to High Income Middle to High Income Segment Target traders, Offices Segment Customers & Institutions Source: Company MPPA faced challenging times in 2015-2016 amidst the fall of supermarkets and high business-to-business (B2B) contribution of around 30%. This resulted in SSSG remaining either in a low single digit or negative territory during that period.