Equity Research

PT MITRA ADIPERKASA TBK 

Stronger Than Ever

MAPI booked a total sales of Rp18.92 trillion in FY18, in line with our expectation (formed 99.3% of our FY18F of Rp19.06 trillion) on the back of 8% SSSG (vs 4% in prior year). On the bottomline, net profit rocketed by 119.9% YoY to Rp735.8 billion (vs Rp334.7 billion in 2017) thanks to one-time gain on sale of fixed asset in 1Q18 and forex gain of Rp35.6 billion. Even better, company’s net operating cycle reached the all-time low level to only 79 days (vs 3yr average of 112 days). We made a slight uptick in our projection to reflect stellar FY18 result and favorable outlook and come up with new higher TP of Rp1,300/ share. Maintain BUY.

EBIT Margin Expanded by 110bps

In line with lower sales contribution from higher-margin dept store from 16.6% to 14.1%, MAPI’s GPM slightly declined by 30bps YoY to 47.8%, as an impact from loss-making subsidiaries (Debenhams and Lotus) closures since 2H17. However, we highlighted the significant hike in EBIT margin by 110bps YoY from 6.9% in 2017 to 8.0% thanks tocontinuous internal improvements and the impact from restructuring and termination of non-performing brands last year. The net profit margin also expanded by 180bps to 3.9%, mainly derived from gain on sale of fixed asset amounted to Rp Rp238.78 bn in 1Q18, forex gain of Rp35.65 bn, coupled with lower effective tax rate to c.30.6% as a result from dept store closures in 2017 and non-deductible tax from amortization of zero coupon bond. However, the company posted a higher than expected finance cost of Rp536.11 billion, which mostly came from loss on derecognition of the original bond of Rp244.36 billion following the execution of convertible bond execution post-MAP Active (MAPA.IJ) IPO by CVC in Jun18. Segment-wise, all division yielded positively, particularly the department store that delivered EBIT margin of 7.59% (vs 1.23% in FY17), following the aforementioned dept store closures. The specialty stores and other segment’s EBIT margin also expanded to 8.2% and 1.9% (+15bps and +310bps YoY, respectively) while the F&B’s EBIT margin declined by 100bps YoY to 7.61% due to massive Starbucks store openings in 4Q18 (F&B EBIT margin in 4Q18 5.6% vs 8.6% in 3Q18).. 

2019: Add 60-75k sqm, Welcoming New Brand(s), and Expand Collaboration with Digital Payment Platforms

At the beginning of 2019, the company has just opened Starbucks Reserve Dewata store located in Bali, making it the 2^nd largest Starbucks store in the world, plus 2 stores at newly launched MRT Station in Jakarta. This year, the company targets a total of 60k-75k sqm addition to sales area (mostly allocated to specialty stores) and also ready to welcome new brands – which has not been done in the past 3 years since the company has been concentrating on overall business transformation. To support its business, the company has partnered with Go-Pay particularly on its F&B business, and looking forward to collaborate with other digital payment platforms that will attractbigger basket size in line with increasing trend of cashless and cardless payment alongside with their promotional program.

Maintain BUY with Higher TP of Rp1,300 (from Rp1,100/ share)

We made a slight uptick in our projection to reflect stellar FY18 result and favorable outlook and come up with new higher TP of Rp1,300/ share (from Rp1,100/share). This implies a valuation target of PER and EV/EBITDA 16.8x and 8.0x FY19F, respectively. Based on yesterday’s closing price of Rp995, the stock is trading at 13.5x and 5.7x PER and EV/EBITDA 2019F, respectively. Hencewe believe this is the right time to BUY the stock.

PT ACE HARDWARE INDONESIA TBK 

Too Alluring to Ignore

ACES’s 2018 performance was in line with our expectation, delivered a strong sales/NI growth of 21.9%/24.0% YoY, backed by solid 13.5% SSSG. This year, we do not see any sign of slowing down, as the company expects as many as 20-25 new store openings or equal to 35k sqm addition in sales area, while guided a conservative 6-7% SSSG. We believe the mid-up consumption will remain strong this year, particularly after the election where the economy will normalize in general. To reflect company’s bold moves in expansion, we believe the stock deserves an upgrade in TP to Rp2,000/ share (from prev Rp1,750/ share). Maintain BUY.

2018: An Exceptional Year

During 2018, the company continued to book a solid 13.5% SSSG, a 5yr-high, thanks to appealing assortments, successful promotional program and strong mid-up segment consumption (proven by the high double digit sales growth in higher-ASP products: lifestyle and consignment by 25.3% and 75.8% YoY, respectively). Geographical-wise, the commodity-based area, particularly outside Java area (28% to total sales) delivered the strongest SSSG of 16.5% in FY18, followed by Java (45.7% to total sales) by 13.3% and Jakarta (26.3% to total sales) 10.4%. In terms of profitability, GPM was maintained at47.6% from 47.7% in FY17, while operating margin slightly increased by 20bps, thanks to better store productivity (our rough calculation on annual sales/sqm increased by 4.6% YoY from Rp14.5 million in 2017 to Rp15.2 million) coupled with opex efficiencies in some posts i.e renovation cost (-21.8% YoY, due to 5-yearly renovation last year).In line with that, net profit margin improved by 20bps as well to 13.3%, mainly derived bymembership fee of Rp52.37 billion (+13.1% YoY) and forex gain Rp15.68bn (+134.86% YoY).

Shows No Sign of Slowing Down

As of FY18, the company owns a total of 176 Ace Hardware stores (+32 stores YoY from 144 stores in 2017), including 7 Ace Xpress (mini format of Ace Hardware, less than 1,000sqm sales area), exceeding the initial target of 5 Xpress store for FY18F. This year, the company shows no signs of slowing down, as the management targeted a 20-25 new store openings or equal to 35k sqm addition (from current total sales area of 453k sqm). Therefore, the company allocates a total capex of Rp240 billion. Aside of the aggressive expansion this year, in order to boost sales, the company has been adding new SKUs, developing new services, as well as continuous system improvement in ruparupa.com. While the company guided a conservative 6-7% SSSG and topline growth of 15% YoY, we believe the mid-up consumption will remain strong this year, particularly after the election where the economy will normalize in general. As of 2M19, the company booked an SSSG of 9.6% (lower than 11.7% in 2M18, but still higher than 3-yr average of 6.5%).

Maintain BUY withUpgraded TP to Rp2,000 per share

To reflect company’s bold moves in expansion, we believe the stock deserves an upgrade in TP to Rp2,000/ share (from prev Rp1,750/ share). Our TPimplies forecasted 29.0x PER and 23.5x EV/EBITDA 2019F, while at yesterday’s closing price, ACES was trading at 25.6xPER and 20.8xEV/EBITDA 2019F, offering 13.6% upside potential. Maintain BUY.