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P H
Sep 24,2017 09:11:39

Matahari Department Store – Moving From Growth To Dividend Play

We upgrade Matahari to BUY (from Neutral) with a revised DCF-derived TP of IDR10,950 (from IDR16,000, 9% upside). At current levels, we believe the downside is limited and that it offers decent risk-reward trade-offs, moving from growth to dividend play. We are projecting profit growth of 4-7% (2012- 2015: 23-49%) and dividend yields of 4-5% during 2017-2019. The dividend yield and upside to our revised TP give a total potential return of 13-14%, while the stock is trading at much lower valuations vs its peers. Our lowerend valuation for the stock is IDR9,850, derived from a dividend discount model, assuming a 100% payout ratio in 2020F from 70% during 2017F- 2019F. We trim our 2017F-2019F profits by 3-8% to factor in lower SSSG on weakness across the industry.


  • Well managed. Matahari Department Store (Matahari) is one of the wellmanaged retailers in Indonesia. We like its past 5-year track record, and efforts to increase store productivity consistently since 2010. It now plans to utilise big data analytics to continue raising productivity and better serve its customers. So far, the plan has shown good progress as loyal members’ contribution has increased to about half of total sales, from around two-fifths last year.
     
  • From growth to dividend play. Financial deleveraging was Matahari’s biggest source of profit growth during 2013-2015. At that time, revenue and EBIT registered CAGR of 14%, but profit posted a much stronger CAGR of 32%. Without financial deleveraging, it would have only posted low to midteen earnings growth. As Matahari had completed its debt repayment in 4Q15, we expect slower single-digit profit growth during 2017F-2019F. Nevertheless, with the extra cash flow, we expect Matahari to offer dividend yield of 4-5%.
     
  • Merits of investment in e-commerce business, Matahari-mall. Post financial deleveraging, Matahari has extra cash flow that can be allocated for more dividends or investments. We believe an allocation for investment signals management’s confidence in the industry’s prospects, and the converse for dividend allocations. The bulk of lucrative opportunities in the retail sector can be found in the online channel, which has mouth-watering long-term promise but hazy economic returns in the foreseeable future. Given the cash flow muscle, we think Matahari can afford to venture into investments such as Matahari-mall, to strengthen its longer-term strategic position.
     
    On the flipside, we understand that related-party transactions are not ideal, especially when one of the businesses is still struggling. Yet, we do see some merits for its investment in MatahariMall.com.
     
  • Potential total return is ahead of our JCI upside. At current levels, Matahari offers a total potential return of 13-14%, which is above our expected JCI return of 6% (based on index target of 6,150). Our lower-end valuation for the stock is IDR9,850, derived from our 10-year dividend discount model, and assuming a 100% payout ratio in 2020F from 70% during 2017F-2019F. Upgrade to BUY given the limited downside from current levels and relatively attractive potential total return of the stock.
     
    Downside risk includes weaker-than-expected SSSG. (Stifanus Sulistyo)
     

$LPPF

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P H
Feb 22,2017 11:07:45

Retail - Tailwinds Trump Headwinds

We see stronger signs of improvement in consumer demand and expect the trend to continue, supported by better commodity prices, lower interest rates, and more investment inflows. In addition, rationalised expansion over the last few years should help retailers’ margins, in our view. As such, we believe retailers in general would do well this year. We reinitiate coverage on the sector with OVERWEIGHT. In particular, we like turnaround efforts at Mitra and Ramayana. Key risks include political instability and currency volatility that could prolong the recovery process.

  • Demand side: Gradual improvement along with economic recovery. We believe consumer confidence is key in supporting private sector spending, and we see the positive momentum potentially being boosted further by improving commodity prices in the near term, and more investment inflows in the longer term. As such, we expect retailers’ topline to grow at high single-digit to low double-digit levels in 2017F, from mid- to high single-digit growth rates in 2016.
     
  • Supply side: Rationalised expansion lowers pricing pressure. We think retailers’ margins should be underpinned by rationalised expansion and improved inventory levels. Retailers’ expansion over the past two years has been generally slower than previous years’, thanks to slower property completion and the weaker market. Retailers’ inventory positions have also generally improved, with some retailers already at comfortable inventory levels. We believe these conditions have eased pricing pressure and provided some upside to margins.
     
  • Online shopping a promising market in the longer term, but obstacles continue to drag the full unleashing of its potential in the near term. Rising income and a young population are long term key growth drivers, in our view. On the flipside, short term obstacles such as relatively high costs of good internet access and mobile devices, drag online shopping adoption. The online shopping format is set to grow as more Indonesians come online, and purchasing power grows. We believe this trend would have a disproportionately negative impact on Matahari Department Store ($LPPF) as incremental online shoppers are likely to come from Matahari’s target market segments, in our opinion.
     
  • Tailwinds trump headwinds. Overall, we expect profit acceleration in 2017-2018F, stemming from gradual topline growth, GP margin recovery, operating leverage as well as financial leverage. We forecast average topline growth of 10-11% in 2017-2018F, a slight improvement from previous years, supported by higher commodity prices and rising confidence level. We expect margin recovery as rationalised expansion and economic recovery gain pace. Politics and currency stability are macro wild cards, though we remain optimistic.
     
  • We like turnaround efforts at Mitra and Ramayana. Ideally, an investment case should be made on a company that is heading towards the fourth quadrant in Figure 1, or at least one that is pushing its asset turnover towards the first quadrant, or improving its profitability/margin towards the third quadrant. Ramayana Lestari Sentosa ($RALS) and Mitra Adiperkasa ($MAPI) are our Top Picks with relatively faster asset turnover growth and stronger margin improvements, a combination that would ultimately increase profitability. Both companies have undertaken business and management turnarounds, which were timed well with the improvement in general economic conditions. (Stifanus Sulistyo)
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P H
Dec 08,2016 11:10:43

LPPF: Discovering Value & Store #148

Investors are no strangers to LPPF - a department store catering to a fast growing middle class, Matahari Department Store is positioned for the sweet spot - reason why the company always catches the investors’ eye.
 
But the stock price has had a tough few months (~30% correction) after reaching all-time highs back in July (thanks to Lebaran seasonality where the company reaps peak sales).  
 
Robert explains the price correction for context before turning positive on the stock:

4 main reasons for the correction:


So why is it time to BUY now?
 
Pictures (or charts) > 1000 words…

Value?  At 17x.. for sure…
 
Liquidity?  Aplenty…  LPPF is a top 20 MSCI Indonesia constituent.
 
LPPF is current trading at 3 standard deviation below 3yr historical average valuation - we argue that share price has priced in all the negative news: 3Q16 weakness & additional investment in MatahariMall.com.  
 
And while we also do not like LPPF’s additional investment in MatahariMall.com (though fair to point out that some investors DO LIKE IT), the company’s FCF is more than enough to cover it.
 
So what’s the catalyst?  Leveraging private labels could become big for LPPF..
 
Behold… store number 148... Nevada Store – Matahari’s first-ever private-label outlet.

Located in Plaza Semanggi in Central Jakarta, Nevada Store is LPPF’s 148th store offering ONLY LPPF’s private-label products.  We believe this is LPPF’s experiment or pilot project to test the market on its Nevada brands.
 
Robert points out in his BUY call that one way for LPPF to reduce rising e-commerce risk is by increasing direct purchase contribution to its overall mix.  Out of LPPF’s direct purchase brand, Nevada takes the lion share at 28% last year.
 
Chart of the day: Matahari Dept ($LPPF) sales from direct purchase steadily increasing 

Note that LPPF’s gross sales from direct purchases has increased steadily by about 2% every year.   In 2010, direct purchase sales was at 30%.  Today that number is closer to 40%.  Retail analyst Robert Pranata forecast that direct purchase vs. consignment will be evenly split at 50% in 2020.
 
Robert believes LPPF’s shift towards direct purchase will likely accelerate going forward though he recognize there is a trade-off as LPPF’s balance sheet will likely be heavier due to higher inventory, but margins to gross sales will increase as well as direct purchase has higher GP margins.  In addition, slightly heavier balance sheet is better than being cannibalized by e-commerce.
 
Yield play?
 
Even with the higher direct purchase contribution and inventory day assumption, LPPF still have ample cash even factoring in its additional Rp590bn (USD45mn) investment in MatahariMall.com.  Robert points out that a 100% dividend payout ratio next year will not add any burden to LPPF’s balance sheet, although there’s NO official guidance from the company pointing to the 100% payout ratio.

Robert does adjust his numbers post 9M16 result - mainly reducing growth assumption, which resulted in lower sales growth.  He now expects 6% SSSg for 16CL (from 8% previously) and 7% SSSg for 17CL (from 10% previously).  Margins were, however, slightly above our assumptions for 9M16.
 
These changes resulted in 2% earnings upgrade in 16CL and 2% earnings decline in 18CL.
 
Given the recent sharp correction, we see attractive risk-reward on LPPF for the next 12 months - upgradding LPPF to BUY (from UPF) with TP of Rp17,500.  This is based on 19x 18CL PE, -2.5 std dev below LPPF’s 3-year mean.

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P H
Dec 08,2016 11:06:12

LPPF: Discovering Value & Store #148

Investors are no strangers to LPPF - a department store catering to a fast growing middle class, Matahari Department Store is positioned for the sweet spot - reason why the company always catches the investors’ eye.
 
But the stock price has had a tough few months (~30% correction) after reaching all-time highs back in July (thanks to Lebaran seasonality where the company reaps peak sales).  
 
Robert explains the price correction for context before turning positive on the stock:

4 main reasons for the correction:


So why is it time to BUY now?
 
Pictures (or charts) > 1000 words…

Value?  At 17x.. for sure…
 
Liquidity?  Aplenty…  LPPF is a top 20 MSCI Indonesia constituent.
 
LPPF is current trading at 3 standard deviation below 3yr historical average valuation - we argue that share price has priced in all the negative news: 3Q16 weakness & additional investment in MatahariMall.com.  
 
And while we also do not like LPPF’s additional investment in MatahariMall.com (though fair to point out that some investors DO LIKE IT), the company’s FCF is more than enough to cover it.
 
So what’s the catalyst?  Leveraging private labels could become big for LPPF..
 
Behold… store number 148... Nevada Store – Matahari’s first-ever private-label outlet.

Located in Plaza Semanggi in Central Jakarta, Nevada Store is LPPF’s 148th store offering ONLY LPPF’s private-label products.  We believe this is LPPF’s experiment or pilot project to test the market on its Nevada brands.
 
Robert points out in his BUY call that one way for LPPF to reduce rising e-commerce risk is by increasing direct purchase contribution to its overall mix.  Out of LPPF’s direct purchase brand, Nevada takes the lion share at 28% last year.
 
Chart of the day: Matahari Dept ($LPPF) sales from direct purchase steadily increasing 

Note that LPPF’s gross sales from direct purchases has increased steadily by about 2% every year.   In 2010, direct purchase sales was at 30%.  Today that number is closer to 40%.  Retail analyst Robert Pranata forecast that direct purchase vs. consignment will be evenly split at 50% in 2020.
 
Robert believes LPPF’s shift towards direct purchase will likely accelerate going forward though he recognize there is a trade-off as LPPF’s balance sheet will likely be heavier due to higher inventory, but margins to gross sales will increase as well as direct purchase has higher GP margins.  In addition, slightly heavier balance sheet is better than being cannibalized by e-commerce.
 
Yield play?
 
Even with the higher direct purchase contribution and inventory day assumption, LPPF still have ample cash even factoring in its additional Rp590bn (US$45mn) investment in MatahariMall.com.  Robert points out that a 100% dividend payout ratio next year will not add any burden to LPPF’s balance sheet, although there’s NO official guidance from the company pointing to the 100% payout ratio.

Robert does adjust his numbers post 9M16 result - mainly reducing growth assumption, which resulted in lower sales growth.  He now expects 6% SSSg for 16CL (from 8% previously) and 7% SSSg for 17CL (from 10% previously).  Margins were, however, slightly above our assumptions for 9M16.
 
These changes resulted in 2% earnings upgrade in 16CL and 2% earnings decline in 18CL.
 
Given the recent sharp correction, we see attractive risk-reward on LPPF for the next 12 months - upgradding LPPF to BUY (from UPF) with TP of Rp17,500.  This is based on 19x 18CL PE, -2.5 std dev below LPPF’s 3-year mean.

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P H
Dec 02,2016 13:08:24

LPPF achieves full-year new store openings target

PT Matahari Department Store ($LPPF) launched its 8th new store, which has a selling space of 9,900m2 , at Lippo Plaza Keboen Raya Bogor, bringing in the total number of stores to 151. With this new store opening, LPPF has achieved its full-year target of new store openings, and similarly for 2017, LPPF aims to open up another 8 new stores, and capex for each store would fall between IDR20bn and IDR30bn as stated by the company. (kontan)

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P H
Dec 01,2016 23:16:30

Retail: Brighter days ahead

Roy Nicholas Mandey, head of Indonesia Retailers Association or APRINDO, stated that there was an uptick in spending in November, as opposed to slightly disappointing September and October numbers. He is confident that in December alone, the retail industry will generate IDR40tn in sales, contributing roughly about 20-25% of total full year sales, on the back of Christmas and New Year festivities. In comparison, Lebaran sales contribution is along the lines of 35-40% of total industry sales. He asserted that sales will mainly come from apparels, which we think is positive for the likes of Matahari Department Store ($LPPF), Ramayana ($RALS) and Mitra Adi Perkasa ($MAPI). Lastly, he believes that this year would be much better compared to 2015 supported by low inflation. (Investordaily)

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P H
Nov 22,2016 15:33:44

Matahari Department Store ($LPPF): Looks oversold

Consumer Discretionary: Indonesia 

Some clarity on strategies previously thought unclear
Investors did not seem receptive to the idea of LPPF’s decision to invest an additional IDR590bn or USD44.4mn in mataharimall.com, particularly given the company’s already wholly owned mataharistore.com. This apparently created confusion as to the need for two e-commerce domains, resulting in the share price declining by 22% since 19 October, coinciding with the announcement date of Mitsui and Co’s and LPPF’s decision to buy in into Matarimall.com. However, we note that LPPF had stated in the past that owning a 10.5% stake (IDR180bn investment) in Mataharimall.com would allow a learning process of the IT infrastructure system, paving the way for the eventual development of its own e-commerce website. Additionally, it is worth noting that mataharimall.com is a marketplace where other retailers can sell their products. That said, mataharimall.com, which is already up and running, can show items and redirect customers to LPPF’s own website e-commerce, mataharistore.com. With MPPA’s and Mitsui Co’s investments in mataharimall.com, LPPF’s current stake is unclear, although we believe this has been a solid investment given mataharimall.com’s estimated market value of IDR5.9tn. Nevertheless, further investments in its e-commerce business could adversely affect interest income despite LPPF’s strong FCF generation (2016F: IDR2,024bn; 2017F: IDR2,538bn). This note marks a transfer of analyst coverage.

LPPF should become leader in e-commerce
As of late, LPPF has been actively investing in e-commerce, hoping to garner a 20% market share of Indonesia’s rapidly growing e-commerce market, despite its still nascent stage at 1.2% of 2015 national sales based on Euromonitor. In spite of operating challenges due to the low credit and debit card penetration rate in the mid-income segment as well as slow infrastructure progress in under-penetrated areas causing higher logistics costs, e-commerce is expected to rise to 5% by 2020. At this stage, we believe that both online and conventional shopping along with in-store experiential events/promotions as well as visual & tactile dimensions, can amply grow for LPPF.

Persistently weak SSSG expected to improve
Earlier this year, LPPF guided for 2016 SSSG of 6.5-7.5%. However, following 9M16 SSSG of 6% y-y, LPPF cut its 2016F SSSG to 5-6.5% (2015: 6.8%), mainly attributable to weakness in Greater Jakarta, the worst regionally as outlying areas are helped by higher commodity prices. Greater Jakarta’s Q3 SSSG of -25% q-q lowered aggregate 9M16 SSSG to 3.5%. On a more positive note, LPPF signaled promising 10M16 SSSG, hoping to achieve the top end of revised full-year guidance. LPPF’s CEO mentioned that the lower end of the SSSG target range is plausible when year-end sales would prove to be mediocre, caused by persistently weak purchasing power as opposed to competition. Nonetheless, he said he believed that domestic weakness had bottomed out this year and is on track to a solid recovery in 2017.

$LPPF$MPPA

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P H
Nov 16,2016 12:30:59

Matahari Department Store: Overhang Removal ($LPPF)

- The additional stakes in MatahariMall.com is not something exciting, but will become LPPF's final investment. This should remove the overhang on the cash flow risk going forward; though we think investment risk will remain given the competition in the e-commerce industry. Maintain Buy given undemanding valuation and limited downside risk.

- No more cash flow uncertainties. The company will inject a Rp590bn capital to MatahariMall.com following the news on USD100mn capital injection by Mitsui. This transaction will be done in stages starting from end of 2016 and is expected to be done by 3Q17. The final stakes will be kept below 20% to avoid the consolidation reporting, in our view. On the press release, the management stated that this will be the final investment in MatahariMall.com and does not plan to participate in any further funding activities. With the sizeable total investment of Rp769bn, the company is still exposed to investment risk as future fund raising for MatahariMall will be tougher due to the e-commerce industry now starting to show a consolidation. The upside, however, is the potential monetization of this early-stage investment.

- Ample cash balance. LPPF has Rp671bn cash balance as of 9M16 and annual free cash flow generation of Rp1tn – 1.5tn, which is still enough to finance this transaction. The assurance on the last capital injection will be positive for the company in the long term, as it eliminates the overhang on future cash outflow and hence translates into potential increase in dividend payout ratio.

- Highest exposure to e-commerce. Among all retail players under our coverage, LPPF is the only one that has an aggressive stance towards the e-commerce investment. It has also launched its MatahariStore.com on 10 Sept’16 to fulfill its mission in becoming the omni-channel retailer.

- Limited downside risk, maintain Buy. The impact on this transaction will only affect FY17 cash flow, while the remaining years will be intact. We trim our DCF-based TP to Rp19,200, as we used high risk-free rate assumption of 7.1% from 6.5% previously. The stock is now trading at an undemanding valuation of 18.7x FY17 P/E, at 3.1s.d. below its historical average.

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P H
Nov 16,2016 12:26:41

Matahari Department Store: Overhang Removal ($LPPF)

- The additional stakes in MatahariMall.com is not something exciting, but will become LPPF’s final investment. This should remove the overhang on the cash flow risk going forward; though we think investment risk will remain given the competition in the e-commerce industry. Maintain Buy given undemanding valuation and limited downside risk.

- No more cash flow uncertainties. The company will inject a Rp590bn capital to MatahariMall.com following the news on US$100mn capital injection by Mitsui. This transaction will be done in stages starting from end of 2016 and is expected to be done by 3Q17. The final stakes will be kept below 20% to avoid the consolidation reporting, in our view. On the press release, the management stated that this will be the final investment in MatahariMall.com and does not plan to participate in any further funding activities. With the sizeable total investment of Rp769bn, the company is still exposed to investment risk as future fund raising for MatahariMall will be tougher due to the e-commerce industry now starting to show a consolidation. The upside, however, is the potential monetization of this early-stage investment.

- Ample cash balance. LPPF has Rp671bn cash balance as of 9M16 and annual free cash flow generation of Rp1tn – 1.5tn, which is still enough to finance this transaction. The assurance on the last capital injection will be positive for the company in the long term, as it eliminates the overhang on future cash outflow and hence translates into potential increase in dividend payout ratio.

- Highest exposure to e-commerce. Among all retail players under our coverage, LPPF is the only one that has an aggressive stance towards the e-commerce investment. It has also launched its MatahariStore.com on 10 Sept’16 to fulfill its mission in becoming the omni-channel retailer.

- Limited downside risk, maintain Buy. The impact on this transaction will only affect FY17 cash flow, while the remaining years will be intact. We trim our DCF-based TP to Rp19,200, as we used high risk-free rate assumption of 7.1% from 6.5% previously. The stock is now trading at an undemanding valuation of 18.7x FY17 P/E, at 3.1s.d. below its historical average.

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P H
Nov 16,2016 12:18:39

Matahari Department Store: Overhang Removal ($LPPF)

- The additional stakes in MatahariMall.com is not something exciting, but will become LPPF’s final investment. This should remove the overhang on the cash flow risk going forward; though we think investment risk will remain given the competition in the e-commerce industry. Maintain Buy given undemanding valuation and limited downside risk.

- No more cash flow uncertainties. The company will inject a Rp590bn capital to MatahariMall.com following the news on US$100mn capital injection by Mitsui. This transaction will be done in stages starting from end of 2016 and is expected to be done by 3Q17. The final stakes will be kept below 20% to avoid the consolidation reporting, in our view. On the press release, the management stated that this will be the final investment in MatahariMall.com and does not plan to participate in any further funding activities. With the sizeable total investment of Rp769bn, the company is still exposed to investment risk as future fund raising for MatahariMall will be tougher due to the e-commerce industry now starting to show a consolidation. The upside, however, is the potential monetization of this early-stage investment.

- Ample cash balance. LPPF has Rp671bn cash balance as of 9M16 and annual free cash flow generation of Rp1tn – 1.5tn, which is still enough to finance this transaction. The assurance on the last capital injection will be positive for the company in the long term, as it eliminates the overhang on future cash outflow and hence translates into potential increase in dividend payout ratio.

- Highest exposure to e-commerce. Among all retail players under our coverage, LPPF is the only one that has an aggressive stance towards the e-commerce investment. It has also launched its MatahariStore.com on 10 Sept’16 to fulfill its mission in becoming the omni-channel retailer.

- Limited downside risk, maintain Buy. The impact on this transaction will only affect FY17 cash flow, while the remaining years will be intact. We trim our DCF-based TP to Rp19,200, as we used high risk-free rate assumption of 7.1% from 6.5% previously. The stock is now trading at an undemanding valuation of 18.7x FY17 P/E, at 3.1s.d. below its historical average.

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P H
Nov 16,2016 12:15:56

Matahari Department Store: Overhang Removal ($LPPF)

- The additional stakes in MatahariMall.com is not something exciting, but will become LPPF’s final investment. This should remove the overhang on the cash flow risk going forward; though we think investment risk will remain given the competition in the e-commerce industry. Maintain Buy given undemanding valuation and limited downside risk.

- No more cash flow uncertainties. The company will inject a Rp590bn capital to MatahariMall.com following the news on US$100mn capital injection by Mitsui. This transaction will be done in stages starting from end of 2016 and is expected to be done by 3Q17. The final stakes will be kept below 20% to avoid the consolidation reporting, in our view. On the press release, the management stated that this will be the final investment in MatahariMall.com and does not plan to participate in any further funding activities. With the sizeable total investment of Rp769bn, the company is still exposed to investment risk as future fund raising for MatahariMall will be tougher due to the e-commerce industry now starting to show a consolidation. The upside, however, is the potential monetization of this early-stage investment.

- Ample cash balance. LPPF has Rp671bn cash balance as of 9M16 and annual free cash flow generation of Rp1tn – 1.5tn, which is still enough to finance this transaction. The assurance on the last capital injection will be positive for the company in the long term, as it eliminates the overhang on future cash outflow and hence translates into potential increase in dividend payout ratio.

- Highest exposure to e-commerce. Among all retail players under our coverage, LPPF is the only one that has an aggressive stance towards the e-commerce investment. It has also launched its MatahariStore.com on 10 Sept’16 to fulfill its mission in becoming the omni-channel retailer.

- Limited downside risk, maintain Buy. The impact on this transaction will only affect FY17 cash flow, while the remaining years will be intact. We trim our DCF-based TP to Rp19,200, as we used high risk-free rate assumption of 7.1% from 6.5% previously. The stock is now trading at an undemanding valuation of 18.7x FY17 P/E, at 3.1s.d. below its historical average.

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P H
Nov 14,2016 12:37:57

The 14th stimulus - e-commerce roadmap
 
The government announced its 14th economic stimulus package focusing on e-commerce roadmap in Indonesia, with main emphasis on the of Small Medium Enterprises (SMEs) and e-commerce start-ups through tax inventive. Acknowledging Indonesia potential to be the biggest digital economy in Southeast Asia with 93.4m internet users and 71m smartphone users by 2020, the stimulus policy on E-commerce is timely and continue to signify government’sprolific approach to encourage robust economic activity. The roadmap for e-commerce will be prepared in 2016-2019 with targets of 1,000 technopreneurs with USD10bn valuation which brings up the e-commerce business to USD130bn in 2020.
 
The e-commerce business is still in early stage of development in Indonesia, with large retail companies have been embarking into this segment, with $ACES, $MAPI and $LPPF owns and operate their e-commerce platform. However, the financial benefit of this stimulus is unlikely to be immediate, and would rather be gradual. We believe with more potential development in the e-commerce segment, it could support the ad-spend growth. In the 1H16, the e-commerce has made into the top 10 largest ad-spend in Indonesia, above the like of instant noodle. As such, the media company with strong market share domination such as $MNCN and $SCMA could also benefited in the longer run. Also, growing e-commerce business could be seen as one of potential tax source for government in the future.
 
The government stated the road maps in 8 aspects including: i) financing, ii) taxation, iii) consumer protection, iv) education, v) logistics, vi) infrastructure, vii) cyber security, and viii) monitoring. (Helmy Kristanto)

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P H
Nov 08,2016 18:29:17

MQQ Strategy – Nov 2016 update

- The Mansek Quant Quest (MQQ) strategy marked its debut with 2.9% return (vs JCI’s 1.1%) in October. We reshuffle the MQQ ten-stock portfolio for November by substituting $KREN and $LPPF with $BBNI and $BJTM.

- Top picks for November 2016. We reshuffle our MQQ ten-stock portfolio, adding $BBNI and $BJTM to replace $KREN and $LPPF. Estimated outperformance (equal-weighted) of the rebalanced portfolio is 1.8% relative to our Quant universe, with greatest contributions coming from Value and Profitability again this month. For a forecast of each stock in the universe, please refer to Figure 8 inside.

- Outperformed in October 2016. October is a boost to confidence. The MQQ’s recommendations (includes Mansek non-rated) managed to gain an equalweighted return of 2.9% (vs JCI’s 1.1%) in its debut. The biggest contributors were the coal-related stocks – $PTBA (+23.6%) and $UNTR (+22.2%), while the cement companies dragged on performance – $INTP (-5.2%) and $SMGR (-2.5%). Overall, it is a tougher month as the MQQ strategy tends to perform better in trending markets, while October is rather uneventful for the JCI.

- What investment styles worked? Momentum and Profitability worked spectacularly in October, with each recorded a long-only return of 8.3% mom and 11.4% mom respectively. Monthly style performance, however, can swing widely, and is thus a noisy indicator of future performance. The MQQ weighting to each style in November remains largely similar – 26% Value, 23% Profitability, 25% Growth and 26% Low Risk.

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P H
Jul 27,2016 08:50:23
EARNINGS CALENDAR (Half Year 2016 - Estimated)

JULY 2016

Jul 25, 2016 :
$BBTN (Bank Tabungan Negara (Persero) Tbk PT)

Jul 26, 2016
$BDMN (Bank Danamon Indonesia Tbk PT)
$BMRI (Persero) Tbk PT Earnings Release - 4:00PM GMT+7

Jul 27, 2016
$AALI (Astra Agro Lestari Tbk PT)
$HMSP (Hanjaya Mandala Sampoerna Tbk PT)
$LPPF (Matahari Department Store Tbk PT)
$MPPA (Matahari Putra Prima Tbk PT)
$PTBA (Bukit Asam (Persero) Tbk PT)

Jul 28, 2016
$ASII (Astra International Tbk PT)
$BEST (Bekasi Fajar Industrial Estate Tbk PT)
$BJBR (PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk)
$DOID (Bloomberg)
$NCO (Vale Indonesia Tbk PT)
$JPFA (Bloomberg)
$PSAB (Bloomberg)
$SSMS (Bloomberg)
$SMGR (Semen Indonesia (Persero) Tbk PT)
$UNTR (United Tractors Tbk PT)
$UNVR (Unilever Indonesia Tbk PT)

Jul 29, 2016
$ASRI (Alam Sutera Realty Tbk PT)
$ADHI (Bloomberg)
$BSDE (Bumi Serpong Damai Tbk PT)
$BNGA (Bloomberg)
$BNLI (Bloomberg)
$BNII (Bloomberg)
$BKSL (Bloomberg)
$BHIT (Bloomberg)
$BISI (Bloomberg)
$CPIN (Bloomberg)
$CTRA (Ciputra Development Tbk PT)
$CTRP (Bloomberg)
$ELSA (Bloomberg)
$GIAA (Bloomberg)
$GJTL (Bloomberg)
$GGRM (Gudang Garam Tbk PT)
$NKP (Bloomberg)
$INTP (Indocement Tunggal Prakarsa Tbk PT)
$INDF (Indofood Sukses Makmur Tbk PT)
$ICBP (Indofood CBP Sukses Makmur Tbk PT)
$INDY (Bloomberg)
$KARW (Bloomberg)
$KAEF (Bloomberg)
$KIJA (Bloomberg)
$KLBF (Kalbe Farma Tbk PT)
$KRAS (Bloomberg)
$LPKR (Lippo Karawaci Tbk PT)
$LSIP (Perusahaan Perkebunan London Sumatra Indonesia Tbk PT)
$MAPI (Bloomberg)
$PWON (Bloomberg)
$PNBN, $PNLF, $PNIN (Bloomberg)
$PTPP (Bloomberg)
$RALS (Bloomberg)
$SMRA (Bloomberg)
$TBLA (Bloomberg)
$TLKM (Telekomunikasi Indonesia (Persero) Tbk PT)
$TOTL (Bloomberg)
$WSKT (Bloomberg)

AUGUST 2016
Aug 1, 2016
$HRUM (Harum Energy Tbk PT)
$SSIA (Surya Semesta Internusa Tbk PT)

Aug 10, 2016
$ITMG (Indo Tambangraya Megah Tbk PT)

Aug 12, 2016
$EXCL (XL Axiata Tbk PT)

Aug 29, 2016
$ADRO (Adaro Energy Tbk PT)
$ANTM (Aneka Tambang (Persero) Tbk PT)
$BBRI (Bank Rakyat Indonesia (Persero) Tbk PT)
$ISAT (Indosat Tbk PT)
$PGAS (Perusahaan Gas Negara (Persero) Tbk PT)

SEPTEMBER

Sep 13, 2016
$SMCB (Holcim Indonesia)

hide
P H
Jun 15,2016 10:18:16
Oil at US$50/bbl – Sweet Spot for Indonesia; Tax Amnesty – On Schedule for June 2016 Implementation

- Higher oil price will reduce fiscal deficit — The Indonesian government now expects incremental revenue from the recent bounce in oil price to ~US$50/bbl. Despite Indonesia is a net importer of oil & gas, fiscal deficit could decline by Rp0.1- 0.9trn based on government’s calculation for every US$1/bbl of oil price increase. The government is currently using an oil price of US$35/bbl in their 2016 proposed budget and thus with higher oil prices, they should receive additional revenue from the oil & gas sector.

- Gasoline being sold at c.US$50/bbl equivalent after taking into account the distribution margins of Pertamina — The current price of gasoline at Rp6,550/litre translates to c.US$48-50/bbl of oil prices. Thus the government is already at a comfortable level in terms of the selling prices of gasoline, and should see no pressure to increase the prices unless the oil prices were to increase to a higher level, say US$55-60/bbl. At Rp6,550/litre, Pertamina is making a distribution margin of Rp1,010/litre, as per government calculations (see Fig 1 for government’s detailed calculation of fuel prices).

- Non-subsidized fuel (RON97) in Malaysia is cheaper vs that in Indonesia — RON95 gasoline price in Indonesia (Rp8,250/litre) is +22% higher than RON97 price in Malaysia (Rp6,715/litre). The RON97 in Malaysia is a non-subsidize fuel while the RON95 is still being subsidized and sold at Rp5,575/litre.

- Tax amnesty is still on schedule to be passed in June 2016 — We see such an outcome as not being priced in by the market (see our recent Indonesian strategy note - Still Positive: Spotlight on Five Key Issues for Market). The parliament head of commission XI, Ahmadi Noor Supi, mentioned that tax amnesty bill will not get delayed since it is a critical part of the government’s 2016 budget revision. As per the government, they have included proceeds amounting to ~Rp103trn (US$7-8bn) from the tax amnesty bill in the 2016 revised budget.

- Maintain our positive view on the market — At a 1-year forward PER of 15.1x, the JCI is not cheap but nor does it look overly expensive, and we maintain our 5,700 target (+16%) set last October. Sector-wise, we continue to like property, construction and infra. $ASII rejoins our top picks and we see more value in banks as gainers from the expected passage of a tax amnesty bill. Top picks: $BBNI, $BBTN, $LPPF, $TLKM, $ASII, $MIKA, $PTPP, $ADHI, $BSDE, $CTRA, $PWON and $JSMR.

- Key market catalysts and risks — 1) Tax amnesty; 2) Lower personal income tax which would lift purchasing power. Risks: 1) Fed rate hikes; 2) Delay in passage of tax amnesty; 3) Heavy-handed policy intervention

 
Bull
P H
Apr 29,2016 09:42:41
Indonesia: 12th stimulus policy – Further Streamlining in Various Permits
 
The government released the details of its 12th stimulus policy, which mostly aim to further simplify various permits in doing business. While the latest policy appears to be an accentuation of previous stimulus to streamlines business process, in our view the government continues to show its focus to attract more investment into domestic economy, especially given sizeable contribution from Gross Fixed Capital Formation (GFCF) to overall Indonesia’s economy.
 
Efforts to lure more investment
President Joko Widodo through several cabinet meetings has emphasized his means to increase the rating of the country’s Ease of Doing Business (EODB) to the 40th rank. The World Bank surveyed that Indonesia stood at rank 109th from a total of 189 surveyed countries. Other ASEAN countries such as Singapore and Malaysia stand at the 1st and 18th rank of the list. Currently, there are 10 indicators that measure the EODB rank for a country. The indicators are business starting process, construction permit dealing process, tax payment, credit accessibility, contract enforcement, electricity supply, across border trading, insolvency settlement, and minority investors protection. To comply with the indicators, the Indonesian Economic Ministry along with the Investment Coordinating Board formed deregulations through the 12th Economic Stimulus.
 
Key points of the 12th stimulus policy
The 12th stimulus introduced a new deregulation scheme that will cut 94 procedures into only 49 procedures and 9 permits to only 6 permits. Furthermore, the stimulus package is followed by the release of 16 new regulations.
¨ For the business starting process, the initial regulation requires investors to go through 13 procedures that will take 47 days and IDR6.8m-7.8m to obtain Business Permit (SIUP), Company Registration (TDP), Deed of Establishment, location permit, and nuisance permit. With the deregulation, investors will only need 7-10 days procedure with IDR2.7m fee. Moreover, the government will only require 3 permits for micro, small and medium enterprises (MSME), which are SIUP, TDP, and deed of establishment.
¨ The government also released a new regulation through regulation no 7/2016 on changes in authorised capital for limited company. With the new regulation, MSME’s authorised capital will be determined by mutual agreement of the founders as outlined in the deed of establishment. However, the regulation will keep enacting the minimum requirement of IDR50m for limited company.
¨ As for building construction permit, the government will cut the process into 14 procedures within 52 days from initial of 17 procedures and 210 days of processing time. Moreover, the building construction permit fee will be reduced to IDR70m from the initial fee of IDR86m.
¨ Tax payment process will be cut into 10x payments with online system from an initial of 54x payments. While property registration will be cut into 3 procedures in 7 days with a fee of 8.3% from the value of property. The government previously imposed 5 procedures with 25 processing days and 10.8% fee for the property registration.
¨ The government also decreases the simple lawsuit settlement process to only 8 procedures in 28 days. Any disagreement on the verdict will be able to appeal with additional 3 procedures and maximum of 10 days of settlement.
 
Follow-up measure to reduce overall execution risk

Before the release of the 12th stimulus package, the government has released a total of 195 regulations from September 2015- April 2016. The government stated that as of 18 April, it has successfully completed 169 regulations or 87% from the total regulation released. There are 16 (8%) regulations that are still in the discussion process, while the remaining 10 regulations that will be taken out from the Economic Stimulus Package. The government stated that each packages received positive responses from investors and citizens. However, the government will increase its socialisation and evaluate the implementation through dissemination and business clinics. The business clinics aimed to further discuss the stimulus packages with stakeholders to ensure the on the ground efficiency of the packages. Moreover, the business clinic will also serve as the communication facility between investors and government to resolve any problems, including the export increment issues. The clinics and dissemination will be implemented in 3 regions, such as Palembang, Balikpapan, and Lombok.
 
The near term catalyst is the tax amnesty approval
We continue to believe that tax amnesty approval could serve as one of major catalyst in the near term. Post the Parliament’s recess session, the long-awaited tax amnesty bill is finally being discussed under the Commission XI, which has been holding hearing sessions with experts, business leaders and other stakeholders. Given its importance on the overall budget and the progress of infrastructure development, the Government is mulling over the fact that the bill could take effect in June. We believe the initial approval of the tax amnesty could be an important catalyst for the near term, as well as a major step taken in the right direction to finally foster the compliance of taxpayers – which could help solidify the Government’s overall budget composition going forward. As such, we expect further foreign fund inflows to support the market post the approval of the tax amnesty although we acknowledge that execution risks still remain at this juncture. Our top pick in the market are $BBCA, $BBTN, $ICBP, $INDF, $ADHI, $LPPF, $MIKA, $TLKM, $BSDE and $LSIP.


Bull
P H
Apr 19,2016 12:46:47
LPPF: Sunny with chance of sunshine
 
Analyst Robert Pranata initiates coverage on LPPF this morning, Indonesia’s largest department store with 43% market share and rising. He expects same-store-sales-growth (SSSG) to improve this year as government programs and infrastructure projects start to trickle in, inflation remains muted, and the rupiah continues to stabilise. LPPF is a strong cash flow generator and we see upside to its dividends pay-out. Ecommerce is our main concern and there is cannibalisation risk in the future, but the market is still underpenetrated. We initiate coverage of with an O-PF rating and target price of Rp19,500 implying a 24x 17CL PE.
 
- Matahari Department Store (LPPF IJ) is Indonesia’s largest department store. The company has consistently outperformed its peers as seen by its rising market share.
 
- We believe consumer demand is recovering and SSSG will improve this year as government programs and infrastructure projects begin to trickle in, inflation remains muted, and the rupiah continues to stabilise. However, the company is guiding for only 6-8 store openings this year as it expects delays from property developers.
 
- LPPF is a strong cash flow generator due to its asset light business model and strong consignment merchandising. The company had net debt of Rp2.5tn (US$192m) in 2011 but has turned into a net cash position since 2014.
 
- LPPF plans to raise its dividends pay-out ratio from 70% this year and we believe it could increase to 90% in 17CL without slowing its expansion.
 
- Online sales will no doubt grow at a much faster rate compared to offline retailers, especially for apparel and shoes. However, given the retail market is still underpenetrated we believe there is a fair chance offline retail will continue to grow. The contribution from MatahariMall.com will likely remain small in the near future, but there may be cannibalization risk down the road.
 
- We initiate coverage of LPPF with an Outperform recommendation and target price of Rp19,500/share based on a 24x 17CL PE. This is just slightly below the company’s three-year average. We believe the premium is justified given LPPF’s growing target segment, minimal competition offline, and strong FCF generation. However, we believe most of this is priced in and do not see much upside for the stock.
 
$LPPF
hide
P H
Mar 08,2016 08:39:23
Matahari Department Store ($LPPF): Improving margins & SSSG

- Fine-tuning 2016F top line on less-agressive expansion: Despite an in-line 2015 results (exhibit 5), we fine-tune our 2016F sales by 4.5% (+15.3% y-y) on: 1) More conservative guidance this year (6-8 openings), despite 9 stores planned at malls under construction. As LPPF’s expansion depends on mall developers, we are comfortable with 7 openings on a sluggish property recovery. 2) LPPF’s continued expansion outside Java (c.50%), as the biggest contributor might be restrained by weak commodities. 3) Mataharimall.com sales are likely to be insignificant this year. Nevertheless, we believe LPPF’s plan should bode well for existing store sales to catch up with operational leverage, leading to improved 2016F SSSG of 7.5% (2015: 6.8%) and margin expansion. This report marks a transfer of coverage.

- Decent 4Q15 results, lower inventory days: LPPF booked 4Q15 net sales of IDR2.2tn (+16.3% y-y, -24.1% q-q), sustained by solid DP sales (+22.1% y-y) as it lowered dependencies on consignments (+7.9% y-y) allowing for 10bps y-y GPM expansion, while EBIT contracted 70bps y-y in net terms (gross EBIT flat; exhibit 5) due to heavy promotions for new DP products and fixed opex on newer stores. However, heavy discounting lowered inventory days, supporting LPPF’s just-in-time inventory ahead. The NPM contracted 10bps y-y on higher financial charges related to the IDR1tn WC revolver facility’s upfront fee. In total, LPPF saw 2015 net sales of IDR9tn (+13.6% y-y) with in-line earnings of IDR1.8tn (+25.5% y-y) aided by interest savings.

Outlook: Margin expansion; market share should remain strong
In 2016, we expect the main story to be margin expansion rather than growth. We like LPPF’s focus on increasing the DP sales contribution (exhibit 9), which has a higher GPM (exhibit 6) and can mitigate the cannibalization effect from Mataharimall.com (LPPF has 100% control over its DP brands but not on consignors). We also like LPPF’s current pipeline to improve inventory and its O2O distribution system by bringing in experts. Thus, we expect inventory days to fall and GPM to expand 30bps y-y. Additionally, we favor LPPF’s technical efficiency measures through its LED lighting conversion (67 outlets as of 2015; 2016F: 30 stores), which can be rolled out easily across networks and maintain customer experience, providing energy savings of c.10% (utilities accounts for 11.3%-10.4% of 2014-15 opex, exhibit 12). All in, FCF should improve ahead and NPM to expand by 80bps y-y, helped by LPPF’s debt free status. Whereas, we are not overly concerned on fewer store openings, as LPPF benefits from the shopping appetite of its target demographic to ensure strong market share.

Recommendation: Maintain BUY and raise TP to IDR20,500
LPPF’s 12M outperformance (exhibit 4) affirms our call. We expect this to persist despite our slight 2016F earnings reduction of c.2% (exhibit 5). Thus, we retain our BUY on LPPF and raise our 12M TP to IDR20,500 (27.5x 2016F PE, 15% discount to its 3-y 3M MVA), as we expect its YTD underperformance to reverse, particularly if GDP growth picks up in 2H16. Our Target PE represents a 10% sector premium on a healthier balance sheet, strong supply chain system, a higher dividend yield, the highest ROE in the sector and the biggest beneficiary from upticks in discretionary spending given the lack of direct competition. Risks: inability to secure same pricing power of LPPF’s products both offline and online, an ineffective O2O strategy and weaker GDP.
Source: Daiwa Research
Bull