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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 15,2016 22:47:08

MPPA debuts Foodmart Primo in Denpasar, Bali

Matahari Putra Prima ($MPPA) opened its upscale supermarket, called “Foodmart Primo” at Level 21 Mall Denpasar Bali. The store has a gross selling space of 1,298m2 , and is surrounded by a café, boutique bakery and restaurant. The goal is to provide customers with a unique “onestop” shopping experience, catering to people who would like to eat & drink and get their daily/weekly groceries in one go, according to Dave Rao, the Director of Foodmart Operations. He further added that this is not the company’s first store in the Kuta area, and that the company was actively looking for the perfect location to venture into residential parts of Bali prior to finding Level 21 mall.

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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)

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P H
May 07,2016 13:18:06
Matahari Putra Prima (MPPA) - Below expectations

Matahari Putra Prima released very weak 1Q16 results (ie Net Loss), the second consecutive quarter with Net Loss.
 
Note: MPPA is the largest Hypermart stores in Indonesia, owned by the conglomerate Lippo Group.
 
The chronology of why MPPA has Net Losses for the last two consecutive quarters, 4Q15 and 1Q16:
 
¨ In early FY15, MPPA planned to open 12 Hypermart stores, hence they ordered inventory to supply the planned 12 new Hypermart stores.

¨ However, they managed to deliver only 7 new Hypermart stores in FY15, hence the excess inventory.

¨ Unfortunately, they also refurbished its top ten volume stores between 2Q15-3Q15.

¨ To reduce the excess inventory, MPPA has been doing inventory clearance since 4Q15 (resulting Net Losses in both 4Q15 and 1Q16).

¨ The inventory clearance is still going in 2Q16 and MPPA confirms that 2Q16 will be another Net Loss.

¨ The management expects positive net income only in 3Q16 onwards.

¨ We are reviewing our call on MPPA. We will have more information post the first analyst meeting held by MPPA next week.

$MPPA

Bear
P H
Mar 23,2016 13:50:08
Matahari Putra Prima ($MPPA)
Leaner Inventory Days At The Expense Of Margins


We see an improvement in Matahari’s inventory days at end-2015 while its balance sheet remains strong. Maintain BUY as the company focuses on the middle-income segment and we see lessening margin pressure from its inventory clearance in 2Q16. However, we revise down our TP to IDR2,000 TP (22% upside) as we cut FY16F-17F net income by 38%/41% respectively to reflect lower marketing income and margins amid its ongoing clearance sales.

¨ Healthier inventory days. Helped by its inventory clearance of non-foods and electronic items in 4Q15, Matahari Putra Prima (Matahari) managed to reduce its inventory days to 80 days in FY15 (compared with 96 days in 9M15). The company aims to reduce its inventory days further to 70 days within the next few years (we project 70 inventory days by 2018).
¨ Balance sheet remains healthy. Despite margin pressure from its inventory clearance in 4Q15, Matahari’s balance sheet remains healthy with net gearing of 0.1x in FY15 and we expect net cash in FY16.

¨ Remain BUY with reduced TP. We remain BUY on Matahari with our TP revised down to IDR2,000 (from IDR2,900, 22% upside), as we cut FY16F-17F net income by 38%/43% respectively to reflect lower marketing income and margins. Our TP is based on DCF valuation with WACC of 13.5% and 3% TG.
4Q15 earnings: below expectations

¨ -6.5% same-store sales growth (SSSG) in 4Q15. We were caught off guard by the -6.5% SSSG in 4Q15 (FY15: -1.9% SSSG) and a 60bps QoQ decline in gross margin, driven by its aggressive inventory clearance during the quarter. As Matahari purchased less from its suppliers in 4Q15, marketing income also plunged. This resulted in 4Q15 EBIT margin declining 450bps QoQ to -1.5%. Key downside risk to our call is continued aggressive inventory clearance in 1Q16, which might result in another unprofitable quarter.

Bear
P H
Mar 22,2016 11:24:09
MPPA FY15 results

· Revenue of IDR13.9t (+2.5% YoY) and gross profit of IDR2.4t (+0.1% YoY) is in line with our numbers, but FY15 net profit of IDR183b (-67% YoY) came below our expectations.

· Total operating expense increased by 21.5% to IDR2.07t. Inventories built up lead to worse than expected discounting. Trend may continue for the next 2 quarters, but bad news is already priced in.

· Retain LT BUY with TP of IDR2,200.
Bear
P H
Mar 16,2016 12:26:00
Jual dulu (Gagal Breakout)

$MPPA

Bear
P H
Mar 02,2016 16:30:06
Watch List MPPA Breakout Level 1,900

Bull
P H
Jun 05,2015 09:54:15

§ Commitment to continuous improvements and efficiencies: In line with its plan to open 10-12 outlets in 2015 by focusing mostly outside Greater Jakarta, MPPA opened 3 outlets in 1Q15 outside the Java region. Also,MPPAsuccessfully transformed 3 of its G6 outlets in Greater Jakarta and Java to the G7 concept, and has plans to upgrade one more outlet outside Java. We believe the G7 concept will allow the company to save electricity costs (using LED lights and environmentally friendly cooling), create a better shopping experience and more interesting product categories. With these store upgrades, we see MPPA improving its operating margins in the medium-term.
§ Recovery from temporary hiccups in the offing: A recent Central Bank (BI) survey showed that quarterly growth in F&B sales gained traction in 1Q15 with growth further improving to reach 29.6% y-y in April 2015. Exhibit 6 shows that F&B sales growth had historically high correlations to MPPA’s quarterly performance, except in 1Q15 when the company’s growth dropped to 7.1% (1Q14: 18.4%) due to temporary closures (2-3 months) of three outlets for the G7 concept remodelling. On the back of improved F&B retail sales growth forecast y-y and reopening of outlets, MPPA is on target to achieve our 2015F y-y top line growth of 15%.
§ Strong management team to develop new retail formats: MPPA is developing two new growth engines: Foodmart Primo and SmartClub (wholesale). For the later, Dapudu Rao, with more than 30 years’ experience, will be the Director in charge of Foodmart operations while Emi Nuel, Director of wholesale operations with more than 10 years’ experience, is responsible for developing SmartClub. Additionally, MPPA will expand its Boston Health & Beauty format in tandem with its Hypermart’s expansion plans and penetrate into the hospital business by capitalizing on the openings of Siloam Hospitals, owned by the Lippo Group. To help with the brand building of Boston Health & Beauty will be Kyutae Park as Operation Director, who has 20 years’ of industry experience and was the country head of Watson Indonesia.

Outlook : Strategic expansion and new shopping access for customers
At this stage, we expect the recovery to unfold ahead as MPPA’s 1Q15 slower growth was temporary due to its transformation phase and the unfavourable macro environment. Hence, we maintain our 2015 y-y top line growth of 15%, backed by strategic expansion into under-penetrated cities ex Java and an expected solid contribution from mobile and online shopping.

Recommendation: Upgrade to BUY with unchanged TP of IDR4,150
With the right management team in place, we continue to like MPPA’s proactive stance in developing (Foodmart primo and Wholesale/ SmartClub) and strengthening (G7 concept) its retail business. Following its 9.1% market underperformance in the past month (exhibit 4), we now upgrade MPPA to BUY (from HOLD) as investors have priced in the company’s soft 1Q15 performance while our unchanged 12-month TP of IDR4,150 (based on a 2015F P/sales of 1.4x) reflects 13% upside potential. The key risk to our call is a greater-than-expected economic downturn, lower-than-expected store expansion and SSSG.

Bull