jan 14, 2014 matahari department store - trimegah · that they offered lower prices compared to...

COMPANY FOCUS PT Trimegah Securities Tbk - www.trimegah.com 1

1) Better product mix. According to our survey, there are three main reasons that make the customers continue shopping at Matahari: product variances (34%), price of products (28%), and promotions (22%). We also found that customers are loyal, and would continue shopping at Matahari even if they get a 20% salary hike. It is also important to note that Matahari changes its product mix based on market segmentation in each location, something that we believe the company is doing better than its competitors.

2) Own brand is stronger than expected. Based on our open-ended question, Nevada (LPPF’s private label) is the most favorite brand with men-tions by 65% an open-ended question to 35 respondents, followed by The Executive (consignment) and Conexxion (also LPPF’s private label). We were aware that LPPF’s own brand is quite popular (Markplus’ 2012 survey men-tioned Nevada as the number 1 brand unaided by marketing) but we did not expect 65% of our respondents to mention the Nevada brand (clearly beat-

ing all the consignment brands).

3) Best loyalty program. LPPF offers member card to represent the com-pany’s loyalty program to maintain its existing customers, called Matahari Club Card (MCC). Based on our survey, LPPF’s member card offers the most

benefits compared to others. MCC offers several promotion programs based on the card’s type, whilst mainly of the others offer voucher-based-point only. The promotion programs are including insurance program, merchant discounts, special promotion for cosmetic products, etc.

4) Proxy for outside Java growth. We see that there is a potential grow in outside Java area, proven by the improvement in GDP per capita growth at ~6% in 2010-13 vs ~5% in 2006-09. In 9M14, LPPF’s stores are dominated in Java area (63%). LPPF has identified 74 potential sites in its new stores pipeline for 2015F onwards, which 50% portion will be in outside Java. We expect 11-12 new stores per year to be opened for the next three years.

5) Strong EPS growth. We expect EPS to grow by 21% CAGR 2015-18F, on the back of 18% gross sales CAGR (assuming 9-10% SSSG which have factored inflation expectation) and a gross margin expansion to 35% in 2016F, as DP (Direct Purchase), which is a higher margin business, increas-es in contribution to sales.

Valuation: DCF-based target price of Rp17,900.- (23% upside)

We initiate LPPF and use DCF valuation method with a 15% WACC to arrive at Rp17,900 target price. LPPF currently trades at 22x PE 2015F. Although our target price implies a 1.3x PEG, we believe this is warranted due to LPPF’s more stable business versus most other retailers and closer to the likes of ACES (also 1.3x PEG) although still lower than a consumer counter such as ICBP (2x PEG). BUY

PT Matahari Department Store Tbk en-gages in the retail business for several types of products such as clothes, acces-sories, bags, shoes, cosmetics, house-hold appliances, and management con-sulting services.

Share Price Rp14.600

Sector Retail

Price Target Rp17.900 (+23%)

Year end Dec 2012 2013 2014F 2015F 2016F

Sales 10,887 12,739 14,952 17,604 20,962

Core Net Profit 764 1,125 1,441 1,968 2,483

Core EPS (Rp) 262 386 494 675 851

Core EPS Growth (%) 61.0% 47.2% 28.1% 36.6% 26.2%

DPS (Rp) n/a n/a 158 219 304

BVPS (Rp) (662) (268) 60 518 1,065

P/E (x) 55.2 37.0 30.1 21.6 17.2

Div Yield (%) n/m n/m 1.1% 1.5% 2.1%

Matahari Department Store Company Focus

BUY Rp17.900

Dian Octiana

([email protected])

Jan 14, 2014

Reuters Code LPPF.JK

Bloomberg Code LPPF.IJ

Issued Shares (m) 2,918

Mkt Cap (Rpbn) 42,602

Avg. Value Daily 6 month (Rpbn)

59.8

52-Wk range (Rp) 18000 / 11000

Asia Color Company Ltd. 25.7%

PT Multipolar Tbk 20.5%

Public 53.8%

EPS 14F 15F

Consensus (Rp) 507 676

TRIM vs Cons. (%) -2.6% -0.1%

5 reasons it is a Buy

Company Update

Stock Data

Major Shareholders

Consensus

Stock Price

Companies Data

-

5

10

15

20

25

30

35

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14

(mn)

Mill

ions

(Rp)Volume (RHS) Price (LHS)

PT Trimegah Securities Tbk - www.trimegah.com COMPANY FOCUS 2

Source: TRIM Research

On the ground visit takeaways: 5 department stores in the year-end sale period

We visited 5 department stores in South Jakarta (Centro in Plaza Semanggi, Matahari in Blok M Plaza, Metro in

Plaza Senayan, Ramayana in Terminal Blok M, and Sogo in Plaza Senayan), during the 2014 year-end sale sea-

son in Indonesia, when shopper traffic should be peaked. Matahari and Ramayana were the most crowded given

that they offered lower prices compared to others which were aligned with their respective target market. Sogo

department store that we visited was the most luxurious compared to other department stores given that they

have medium-high income segment as their target market.

Figure 1. Centro, Matahari, Metro, Ramayana, and Sogo’s entrances


Rampant promotions. During our visit, we saw that all of the department stores offered some discounts

and promotions. We found that Matahari had the most attractive promotions by offering several types of

promotion programs, while mostly of the others give discounts only. The promotion programs were including

10-70% level of discounts, buy 2 get 1 additional item, cash back vouchers, additional discount for MCC

holders, etc. We also found that Centro, Matahari, Metro, and Ramayana have maximized their space alloca-

tion by putting their promotional items in the middle of store’s area to be more eye-catching. Sogo was the

one which had bigger space allocation, given that most of its promotions were managed in each brand’s

areas. Based on our survey, all of the department stores offered wide range of discount level at 10-70%

(excluding the other promotion programs).


Figure 2. Centro, Matahari, Metro, Ramayana, and Sogo’s promotion programs


Direct beneficiary from own brand merchandises. Centro, Matahari, and Ramayana tailors their mer-

chandises mix between private brand (DP) and consignment brand (CV) products. Yet, Centro only has 2

private label brands. As we know, Matahari designs its merchandise mix on a store-by-store basis, based on

customer’s demand in each locations and its judgment of appropriate price points for the related market.

Having own brand merchandises gives the companies some flexibilities to create more attractive promotion

program during a certain periods, in our view. We compare the selling price offered by Matahari and Ramaya-

na for some general products. Our survey suggests that Matahari has higher selling price compared to Rama-

yana, which is aligned with each target market. Generally, both of private label’s products have lower price

than consignment products.

Loyalty card could be counted as one of stimulating programs to shop. We see that member cards as

one of interesting points to attract more customers to shop in particular department stores, given that most

of the member cards offer significant benefits, e.g.: special discounts, merchandise gifts, vouchers, etc. All of

the department stores we have visited had member card as one of their loyalty programs. We found that

each company has offered different benefits for their customers. Matahari has three types of member cards,

while the others only have one type of card. Matahari also offers more benefits compared to the others.

Figure 3. Matahari offers higher price compared to Ramayana, align with each target segment


Figure 4. Matahari offers the most attractive benefits in its member card

Centro Matahari Metro Ramayana Sogo

Type of card

1 type (Privilege)

3 types (Beauty, Premium, and Regular)

1 type (Metro Yours Card)

1 type (Ramayana Member Card)

1 type (Premier)

Reward point

1 point for every Rp25,000.- of pur-chase

- 2 points for every Rp20,000.- of purchase (Beauty and Premium) - 1 point for every Rp20,000.- of purchase (Regular)

1 point for every Rp100,000.- of purchase



Direct discounts

Discount promotion Discount promotion Special occasion Discount pro-motion

Special occasion

Merchant benefits

No discount - Special discounts (Beauty and Pre-mium) - No discounts (Regular)

No discount Special dis-count

No discount

Free in-surance

No insurance - Free personal accident insurance up to Rp30mn for one year (Beauty) - Free personal accident insurance up to Rp20mn for one year (Premium) - No insurance (regular)

No insurance No insurance No insurance

Cosmetic offers

No promotions - Special promotions (Beauty) - No promotions (Premium and Regular)

No promotions No promotions No promotions

How to get the card

Customer that spend at least Rp300,000 in a single receipt and on the same day can fill the applica-tion form to get the card without any registration fee

Pay member fees: - Rp100.000 for Beauty - Rp 75.000 for Premium - Rp 20.000 for Regular

Customer that spend at least Rp500,000 in a single receipt and on the same day can fill the applica-tion form to get the card without any registration fee

Free Customer that spend at least Rp500,000 in a single receipt and on the same day can fill the applica-tion form to get the card without any registration fee

Expiration date

Unlimited - 1 year (Beauty and Premium) - Unlimited (Regular)

Unlimited Unlimited with confirmation every year

Unlimited

Source: Companies, TRIM Research

Matahari (Rp) Brand Ramayana (Rp) Brand

Shirts 189,900 Connexion (private) 89,900 Private label

T-shirts 99,900 Nevada (private) 59,900 Private label

Jeans 219,000 Nevada (private) 189,900 Private label

Shoes 289,000 Fladeo (consignment) 289,900 Homyped (consignment)


Potential customers from inside food court area. Metro and Sogo have food court area, directly below

the stores, even Sogo has coffee shop in its store’s area (Starbucks, which managed by MAPI). We see that

people who come to eat to the food court area in Metro and Sogo could be the potential buyer for the respec-

tive department stores. As per our discussion with MAPI, one of their main consideration to add food and

beverage stores is whether that F&B stores could attract more customers to their specialty and department

stores or not. Hence, we think Matahari can attract more customers by adding food court area or canteens in

its stores.

Market Survey Takeaways: We see Matahari gains benefits from its own brand merchandises

Beside on the ground visit to some department stores in South Jakarta, we also conducted a particular survey to

Matahari Department Store by distributing questionnaires and visiting some stores. We did a market survey by

distributing 40 questionnaires to LPPF’s customer and got 35 respondents. Based on our survey, we find that

customers who come to Matahari are aligned with the company’s targeted segment, given that 60% of our re-

spondents have <Rp10,000,000.– monthly household income, followed by 34% in Rp10-20mn, and 6% in Rp20-

30mn. We have built some questions to find the main reasons that attract customer to go shopping to Matahari,

and to measure the loyalty level of Matahari’s customers.

Benefiting from selling private label goods. According to our survey, we find that our respondents are

quite loyal to shop in Matahari Department Stores, mostly due to product variances and competitive prices

offered by Matahari. One of Matahari’s strategies is to arrange its merchandise mix between DP and CV prod-

ucts, which enables the company to adjust its customer’s demand based on the store’s locations. Also, it

facilitates the company to construct attractive programs to push its sales performances, in our view. As we

mentioned before, Matahari offered several promotion programs during our visit. Based on our survey, there

are three main reasons that make the customers to continue shopping at Matahari; product variances (34%),

price of products (28%), and promotions (22%).

Regarding with the promotion programs, we see that Matahari has several interesting programs that can

persuade the customers to increase their transaction value. For example, Matahari will give Rp50,000 vouch-

er directly, for every Rp150,000 transaction value on selected items. That vouchers can only be used for

selection items, on the same day. Also, there is a “buy two get one additional item” program which stimu-

lates most customers to buy 2 items rather than 1 item only.


Figure 5. Our respondents’ profiles match the targeted segment of Matahari

< Rp1mn

51%

Rp1-2mn

43%

Rp2-3mn

3%

Rp3-4mn

3%

Rp4-5mn

0%> Rp5mn

0%

Monthly Expenditure

< Rp10mn

60%

Rp10-20mn

34%

Rp20-30mn

6%> Rp30mn

0%

Monthly Household Income


Nevada is the most favorite brands. We also examined about the most favorite brand in Matahari by

asking an open-ended question to our respondents. Our survey suggests that Nevada - one of LPPF’s private

labels - is the most favorite brand in Matahari. Nevada makes 65% of our brand lists mentioned by the re-

spondents, followed by The Executive (consignment), and Connexion (also LPPF’s private label), at 12% and

8%, respectively. Our result on brand recognition is inline with MarkPlus Insight’s customer survey conducted

in 2012, which said that Nevada was ranked as number one brand for unaided brand awareness. In 2013,

LPPF’ private label brands generated 79.4% of DP sales, including Nevada, Cole, Little M and Connexion.

These private label brands enable the company to differentiate itself from other players, given that the prod-

ucts are sold exclusively in LPPF only.


Figure 7. Matahari has several promotion program to increase the transaction value


Figure 6. Main reasons to shop at Matahari

Price28%

Promotions22%

Product quality2%

Product variances34%

Fashionable2% Location

0%Service

0%

Others12%


Customer loyalty amid potential salary hikes. We see that our respondents are quite loyal to continue

shopping at Matahari. It is mostly due to shopping experiences that they have ever had in Matahari. Most of

our respondent feel comfortable with the price and variance of products that offered by Matahari. Moreover,

our respondents also agree with our statement to recommend Matahari for their shopping destination, and

would continue shopping at Matahari even if they get a 20% salary hike.


Figure 8. 65% of our respondents mentioned Nevada for their favorite brand in Matahari

Figure 9. Market survey results related with the customer’s loyalties


Executive12%

Nevada65%

CS74%

Mint2% Accent

4%Super T

6%

Connexion8%

Yes83%

No17%

Recommend Matahari as Destination for Shopping

Yes54%

No46%

Matahari as Main Destination for Shopping Clothes

Yes86%

No14%

Will Continue Shopping at Matahari after a 20% Salary Hike


Market Leader in the Middle Class Segment

According to Euromonitor, the mixed retail segment in Indonesia is dominated by department stores which ac-

counted 98.7% of Indonesian mixed retailer sales in 2011. It is expected to be one of the fastest growing retail-

ing formats in the non-grocery segment with 7.6% CAGR 2011-16. In 2011, Indonesia only had 2.7 department

stores per million people, compared to an average of 4.8 in Thailand, Philippines, Singapore, Malaysia and China,

based on Euromonitor. We can say that Indonesia is one of the world’s most attractive market for department

stores, with a rapid growing middle income segment.

LPPF focuses its market in the fast growing middle income segment which has the average expenditure in the

range of Rp0,7-4,5mn/month, accounted 52.4% of the total population in 2010. Going forward, this segment is

expected to get wider, considering the salary increase which mostly happens every year.

According to Euromonitor, LPPF is a market leader in the department store segment in Indonesia, based on retail

sales, with a 32.8% market share in 2012 (vs 25.9% in 2008). We believe that LPPF doesn’t have any direct

competitor, until this time. MAPI targets upper-middle class while RALS focuses on the lower end of the income

hierarchy.

Source: Company’s Presentation, TRIM Research

Figure 10. LPPF’s segment accounts 52.4% to Indonesian population in 2010

High income segment; 3%

Middle income segment; 52%

Low income segment; 45%


Figure 11. LPPF has a competitive market share (2012)

32.8%

22.4%

7.7%

4.3% 3.7% 3.3%

00%

05%

10%

15%

20%

25%

30%

35%

LPPF RALS MAPI Yogya Metro Centro


Comprehensive Department Store Network, with Proxy for Outside Java Growth

Indonesia’s GDP has grown consistently by 5-6% annually for the last 4 years. We see the prospect of mid-sized

cities outgrowing Jakarta, especially outside Java area, proven by the improvement in GDP per capita growth at

~6% in 2010-13 vs ~5% in 2006-09. LPPF has comprehensive department store network in Indonesia through

its 126 stores in 62 cities across Indonesia, up to 9M14. The total store space area is ~826.000sqm, translating

to ~6.500 sqm/store on average. We see that there is a potential grow in outside Java area for LPPF, given that

its stores are dominated in Java area. In 9M14, 62.7% of its total stores or 79 stores were located in Java, where

60% of Indonesian population resided there. Furthermore, Java’s stores generated 62.8% of total merchandise

sales amounting ~Rp6,9tn.

For 2015F onwards, the management has identified 74 potential sites for new store openings in its pipeline. In

2015F, we expect LPPF to open 12 new stores vs 8 new stores in 2014 with ~6.500sqm sqm area per store,

similar with the management’s guidance of 12-14 new stores. Approximately 50% of the company’s pipelines for

2015F onwards are going to be opened in outside Java, compared to 2013’s store openings realization in outside

Java which only accounted 37% of total stores.

The company guides that out of 12-14 new stores to be opened in 2015F, 10 new stores have MOUs already, and

2 new stores are under construction. Each store opening requires approximately Rp2,5mn/sqm which will be

funded by its internal cash. LPPF generally enters into long term lease agreement, and has 2 types of lease

agreements: 1) Fixed rental rate, based on expenses per sqm and needs to be escalated following periodic con-

tract periods (10-5-5 years). 2) Variable rental rate (only with LPPF’s affiliated parties), based on respective

percentage of the store’s gross sales. According to offering circular issued by the company in 2013, LPPF’s stores

were typically leased from: 1) Lippo Group companies (Matahari Putra Prima and Lippo Karawaci) - 20%, 2)

Lippo Malls Indonesia Retail Trust (LMIR REIT) - 16%, and 3) various parties not affiliated with the company -

64%. Regarding with the 12 new stores in 2015F, the company does not disclose any information to whom they

made the MOUs.


Figure 12. LPPF’s market share continues to expand (2008-2012)

25.9%

29.0%30.2%

31.6%32.8%

24.3%

22.8% 23.1%22.5% 22.4%

20%

22%

24%

26%

28%

30%

32%

34%

2008 2009 2010 2011 2012

LPPF RALS


Source: Company, TRIM Research

Figure 14. Java still dominates the LPPF’s performance (9M14)

Jabodetabek

(Greater

Jakarta)

29%

Java (Exc .

Greater

Jakarta)

34%

O uts ide Java

37%

% Gross Sales

Jabodetabek

(Greater

Jakarta)

29%

Java (Exc .

Greater

Jakarta)

34%

O uts ide

Java

37%

% Number of Stores


Figure 15. LPPF continues to expand its network

Figure 13. LPPF has comprehensive department store network


103116 125 131

143 154

9

13

98

1211

0

2

4

6

8

10

12

14

0

20

40

60

80

100

120

140

160

180

2011 2012 2013 2014F 2015F 2016F

Number of stores Additional stores


Strong Business Model Underpins Solid Sales Growth

LPPF tailors its merchandise mix between direct purchase (DP) and consignment (CV) goods for every store in

accordance with the store’s target market, or adjusted on a store-by-store basis, and its judgment of appropriate

price points for the related market. It is resulting to a strong growth of gross sales at 17.5% CAGR 2011-13

through consistent level of strong SSSG at 11-14%. LPPF’s strategy is to provide its customers with good value,

by offering a large selection of fashionable and quality merchandises at affordable prices. As of December 2013,

LPPF offered >90,000 SKUs for DP goods and >200,000 SKUs for CV goods. The price range was Rp79,000-

200,000, and Rp150,000-400,000, respectively.

In 2013, LPPF’ private label brands generated 79.4% of DP sales, including Nevada, Cole, Little M and Connexion.

These private label brands enable the company to differentiate itself from other players, given that the products

are sold exclusively in LPPF. According to a customer survey conducted by MarkPlus Insight in 2012, all of the

brands were among the top ten most popular “fashionable affordable clothing brands” in Indonesia, with Nevada

was ranked as number one for unaided brand awareness. Meanwhile, the CV products sold in LPPF include premi-

um image brands, namely Polo, Clinique, Revlon, Fladeo, Levi’s, Cardinal, Logo and Executive which have also

played an important role in attracting customers to come to the stores. The company can restrict its exposure to

the risks associated with importing goods, given that almost of LPPF’ merchandises are locally sourced.

Figure 16. LPPF’s new stores pipeline in 2015F onwards


Figure 17. LPPF’s merchandise mix between private and consignment brands


Balance

# of stores % mix # of stores % mix # of stores # of stores % mix

1 Jabodetabek (Greater Jakarta) 35 28.0% 36 28.6% 1 16 21.6%

2 Java (Exc. Greater Jakarta) 44 35.2% 43 34.1% (1) 21 28.4%

3 Outide Java 46 36.8% 47 37.3% 1 37 50.0%

Total 125 126 74

As at 31 Dec 2013 Future pipeline for 2015F onwardsGeographic areaNo.

As at 30 Sept 2014


In 2011-13, DP sales grew strongly at 24.8% CAGR, higher than CV sales at 14.5% CAGR. It made the DP sales’

portion expanded gradually from 28.1% in 2011 to 31.7% in 2013 (even to 34.0% in 9M14), reflecting growing

demand in DP goods. The extensive growths in DP sales were backed by the company’s initiatives, such as an

improvement in the product space allocation, implementation of high impact key item presentation. Although the

company doesn’t guide about the company’s further target on the composition between DP and CV goods, we

expect continuous grow in DP sales as a result of further improvements in product offerings, with DP’s portion at

~35.0% in 2016F. In addition, DP gross margins have gradually improved from 39.1% in 2011 to 41.2% in

2013, whilst CV gross margin have stood at the same level of approximately 31.0%. The improvement in DP’s

margin was due to the product mix improvement done by the company and bigger purchase volume of DP goods.

For 2015-18F, we expect its gross sales will grow by 17.8% CAGR, by assuming a 9-10% SSSG. We assume our

SSSG by factoring the expectation on further inflation level, and the deviation between quarterly historical infla-

tion and the company’s SSSG. We use two-years average deviation of 5.2% and add to the expectation of further

inflation level. Our calculation suggest that SSSG might reach 10.2% in 2015F and 9.7% in 2016F, respectively.

We forecast overall gross margin will expand to 35.2% in 2016F as we expect higher portion of DP goods by that

time.

Figure 18. DP’s portion is expected to reach 35% in 206F


71.9% 70.8% 68.3% 66.0% 65.0% 65.0%

28.1% 29.2% 31.7% 34.0% 35.0% 35.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014F 2015F 2016F

CV sales DP sales

Figure 19. Quarterly SSSG vs inflation rate


4%4%

4% 4%

5%5%

8% 8%7%

7%

5%

12%13%

9%

12%13%

15%

9%

13% 13%

15%

10%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

CPI SSSG


Figure 22. Improvement in DP margin that lift overall margin


Figure 21. SSSG to reach 10.2% in 2015F, and 9.7% in 2016F


39.1%

40.4%41.2% 41.3% 41.6% 41.9%

31.4% 31.2%30.7%

31.2% 31.2% 31.2%

33.7% 34.0% 34.3%34.8% 35.0% 35.2%

30%

32%

34%

36%

38%

40%

42%

44%

2011 2012 2013 2014F 2015F 2016F

DP margin CV margin Overall margin


Figure 20. Strong business model underpins topline performances

9,225 10,887

12,739

14,952

17,604

20,962

-

5,000

10,000

15,000

20,000

25,000

2011 2012 2013 2014F 2015F 2016F

13.6%

11.1%

12.1%

9.5%10.2%

9.7%

4%

6%

8%

10%

12%

14%

16%

2011 2012 2013 2014F 2015F 2016F


Manageable Inventory Level

LPPF had bigger consignment sales portion in the range of 66%-72% of gross sales, over its ~850 consignment

vendors. Consignment vendors have the responsibilities to maintain their own inventory and bear all of the pur-

chasing, distribution, warehousing, payroll, working capital, etc. Having larger consignment sales offers some

benefits for LPPF, and allows them to avoid problems related with meeting high level of working capital require-

ments and reaching positive cash flows. Thus, the company can manage its costs and risks related to operational

businesses which typically happens to retailers, especially to maintain its inventory level.

Ample Financial Strength to Support Zero Debt Position in 2015F

Taking into account that retailers are identical with high level of working capital, making some of them to have

high gearing level. Hence, some retailers are potentially be pressured by having higher interest expenses, but

not LPPF. In 2011-2013, LPPF consistently had positive operating cash flow, brought the balance sheet to sustain

at a healthy position. It was due to the company’s ability to make good performance in operating level. For 2015-

18F, we forecast the company to have strong cash flow position with 21.2% CAGR of free cash flow. LPPF aims to

have debt free position by end of 2015F. The company’s strong financial position will allow them to pay down its

outstanding loans. Since 2011, the company had allocated c. Rp1tn/year to pay off its debts. In 9M14, total

outstanding debt was at Rp1,3tn, or declined by –20.7% YTD from Rp1,6tn at the end of 2013.


Figure 23. Superior cash conversion cycle

4 5 4 3 3 3

97 92 94 90 86 86

188 191173 165

152 154

(87) (94) (76) (72) (63) (64) (100.00)

(50.00)

-

50.00

100.00

150.00

200.00

2011 2012 2013 2014F 2015F 2016F

Days sales outstanding Days of inventory on hand Days payables Cash conversion cycle


Figure 24. Interest expenses to go down and to reach zero debt position in 2015F

3,437

2,959

1,596

966

0 0

537 452309 222 101 0

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2011 2012 2013F 2014F 2015F 2016F

Debt Interest expenses


Ability to maintain existing customers

LPPF offers member card as the company’s loyalty program to maintain its existing customers, called Matahari

Club Card (MCC). MCC was re-launched in 2012 after the CVC acquisition, with 2,9mn active members as of

9M14. Through MCC, all the members’ profiles and trading histories are stored in the company's database which

can be used to analyze the needs of its customers, as well as creating a platform to make some initiatives and

innovation in their stores. Furthermore, the MCCs also help the company to obtain value in respect of strategic

decisions to arrange its merchandise mix of products, price, space allocations, new stores opportunities

(locations, store’s area), advertising and promotion programs. Approximately 40% of total gross sales was gen-

erated from the card members, who had a higher average transaction value than non MCC card members. More-

over, LPPF offers many benefits to its customer through the MCCs, depending on type of the card that they have.

Source: Company

Figure 26. Three types of Matahari Club Card

Figure 25. Matahari Club Card’s benefits


Beauty Premium Regular

Reward point 2 points for every Rp20,000.- of purchase

2 points for every Rp20,000.- of purchase


Direct discounts Discount promotion Discount promotion Discount promotion

Merchant benefits Special discounts Special discounts No discounts

Free insurance Free personal accident insur-ance up to Rp30mn for one year

Free personal accident in-surance up to Rp20mn for one year

No insurance

Cosmetic offers Special promotions No promotions No promotions

New member fees Rp100,000.- Rp75,000.- Rp20,000.-

Expiration date 1 year 1 year Unlimited


Valuation and Price Target

We initiate coverage BUY on LPPF with Rp17.900,- price target, implying 23% upside. We apply a DCF model

based up to 2025F and a WACC of 14.6%. Our BUY stance due to its: 1) Position as Indonesian largest depart-

ment store in the middle class segment with 32.8% market share in 2012. 2) Strong business model which

brings solid growth in topline performances. 4) Potential growth in outside Java area. 4) Having merchandises

which mostly are locally sourced. 5) Ample financial strength to generate zero debt position in 2015F

Risk free rate 8.1%

Market premium 5.0%

Beta 1.30

Debt proportion 0.0%

Tax rate 20.0%

Equity cost of capital 14.6%

Debt cost of capital 10.4%

WACC 14.6%

LT growth rate 3.5%

Description 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F

EBIT x (1 - tax) 2,034 2,463 2,894 3,381 3,916 4,523 5,210 5,986 6,863 7,852 8,967

Less: Capital Expenditure (351) (322) (322) (292) (292) (292) (292) (292) (292) (292) (292)

Changes in Working Capital 121 128 145 164 180 204 231 261 295 333 376

Add: Depreciation & Amortiza-tion

246 292 343 401 465 537 618 711 815 932 1,065

FCFF 2,050 2,561 3,060 3,653 4,269 4,972 5,767 6,665 7,680 8,825 10,115

LT Growth 93,845

Discounted FCFF 2,050 2,235 2,330 2,427 2,475 2,515 2,546 2,568 2,582 2,588 26,608

Total discounted FCFF 50,924

Net debt / (Net cash) (1,414)

Minority Interest 0

NAV 52,339

# of shares (bn) 2.9

NAV / share 17,900

Figure 27. WACC and DCF Calculations


Figure 28. 2-years Forward P/E

Fw-PER Avrg

Fw-PER + 2 STD

Fw-PER + 1 STD

Fw-PER - 1 STD

Fw-PER - 2 STD

2.00

12.00

22.00

32.00

04/0

1/2

013

25/0

1/2

013

15/0

2/2

013

08/0

3/2

013

29/0

3/2

013

19/0

4/2

013

10/0

5/2

013

31/0

5/2

013

21/0

6/2

013

12/0

7/2

013

02/0

8/2

013

23/0

8/2

013

13/0

9/2

013

04/1

0/2

013

25/1

0/2

013

15/1

1/2

013

06/1

2/2

013

27/1

2/2

013

17/0

1/2

014

07/0

2/2

014

28/0

2/2

014

21/0

3/2

014

11/0

4/2

014

02/0

5/2

014

23/0

5/2

014

13/0

6/2

014

04/0

7/2

014

25/0

7/2

014

15/0

8/2

014

05/0

9/2

014

26/0

9/2

014

17/1

0/2

014

07/1

1/2

014

28/1

1/2

014

19/1

2/2

014

Fw-PER Fw-PER Avrg Fw-PER + 2 STD Fw-PER + 1 STD Fw-PER - 1 STD Fw-PER - 2 STD



Income Statement (Rpbn)

Year end Dec 2012 2013 2014F 2015F 2016F

Revenue 10,887 12,739 14,952 17,604 20,962

Revenue Growth (%) 18.0% 17.0% 17.4% 17.7% 19.1%

Gross Profit 3,706 4,363 5,209 6,167 7,370

Opr. Profit 1,574 1,781 2,099 2,543 3,078

EBITDA 1,750 1,988 2,321 2,788 3,371

EBITDA Growth (%) 23.9% 13.6% 16.8% 20.1% 20.9%

Net Int Inc/(Exp) (425) (291) (204) (83) 25

Gain/(loss) Forex 0 0 0 0 0

Other Inc/(Exp) 10 34 (31) 6 0

Pre-tax Profit 1,159 1,524 1,864 2,466 3,103

Tax (388) (373) (447) (493) (621)

Minority Int. 0 0 0 0 0

Extra. Items 0 0 0 0 0

Reported Net Profit 771 1,150 1,417 1,973 2,483

Core Net Profit 764 1,125 1,441 1,968 2,483

Growth (%) 61.0% 47.2% 28.1% 36.6% 26.2%

Dividend per share n/a n/a 158 219 304

growth (%) n/m n/m n/m 38.6% 39.2%

Dividend payout ratio n/m n/m 40.0% 45.0% 45.0%

Balance Sheet (Rpbn)

Year end Dec 2012 2013 2014F 2015F 2016F

Cash and equivalents 1,039 798 1,055 1,440 3,133

Other curr asset 705 905 1,149 1,326 1,518

Net fixed asset 694 727 739 844 874

Other asset 492 507 551 551 551

Total asset 2,930 2,937 3,494 4,161 6,076

ST debt 484 29 501 0 0

Other curr liab 1,686 1,861 2,051 2,349 2,668

LT debt 2,475 1,567 465 0 0

Other LT Liab 216 262 302 302 302

Minority interest 0 0 0 0 0

Total Liabilities 4,861 3,718 3,318 2,651 2,970

Shareholders Equity (1,932) (781) 176 1,511 3,106

Net (debt) / cash (1,920) (798) 89 1,440 3,133

Total cap employed 760 1,047 942 1,812 3,407

Net Working capital (981) (956) (902) (1,023) (1,150)

Debt 2,959 1,596 966 0 0

Cash Flow (Rpbn)

Year end Dec 2012 2013 2014F 2015F 2016F

Net Profit 771 1,150 1,417 1,973 2,483

Depr / Amort 176 207 222 246 292

Chg in Working Cap 653 314 16 121 128

Others 791 313 0 0 0

CF's from oprs 1,600 1,671 1,655 2,339 2,903

Capex (162) (162) (234) (351) (322)

Others (351) (76) (74) 0 0

CF's from investing (513) (238) (308) (351) (322)

Net change in debt (679) (1,400) (630) (966) 0

Others (325) (274) (460) (638) (888)

CF's from financing (1,004) (1,674) (1,090) (1,604) (888)

Net cash flow 83 (241) 257 385 1,693

Cash at BoY 956 1,039 798 1,055 1,440

Cash at EoY 1,000 772 1,030 1,414 3,108

Free Cashflow 1,714 1,703 1,600 2,050 2,561

Key Ratio Analysis

Year end Dec 2012 2013 2014F 2015F 2016F

Profitability Gross Margin (%) 34.0% 34.3% 34.8% 35.0% 35.2%

Opr Margin (%) 14.5% 14.0% 14.0% 14.4% 14.7%

EBITDA Margin (%) 16.1% 15.6% 15.5% 15.8% 16.1%

Core Net Margin (%) 7.0% 8.8% 9.6% 11.2% 11.8%

ROAE (%) n/m n/m n/m n/m n/m

ROAA (%) 28.8% 39.2% 44.1% 51.5% 48.5%

Stability

Current ratio (x) 0.8 0.9 0.9 1.2 1.7

Net Debt to Equity (x) (1.0) (1.0) (0.5) (1.0) (1.0)

Net Debt to EBITDA

(x)

1.1 0.4 (0.0) (0.5) (0.9)

Interest Coverage (x) 3.7 6.1 10.3 30.7 n/m

Efficiency

A/P (days) 191 173 165 152 154

A/R (days) 5 4 3 3 3

Inventory (days) 92 94 90 86 86

Interim Result (Rpbn)

3Q13 4Q13 1Q14 2Q14 3Q14

Sales 4,478 3,085 2,687 3,304 5,008

Gross Profit 1,521 1,078 924 1,184 1,718

Opr. Profit 816 396 263 444 920

Net profit 635 251 123 239 699

Gross Margins (%) 34.0% 35.0% 34.4% 35.8% 34.3%

Opr Margins (%) 18.2% 12.8% 9.8% 13.4% 18.4%

Net Margins (%) 14.2% 8.1% 4.6% 7.2% 14.0%

Capital History

Date

IPO@xxxxx

PT Trimegah Securities Tbk

Gedung Artha Graha 18th Floor

Jl. Jend. Sudirman Kav. 52-53

Jakarta 12190, Indonesia

t. +62-21 2924 9088

f. +62-21 2924 9150

www.trimegah.com

DISCLAIMER

This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affiliated companies and is provided for information

purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report has

been produced independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities.

While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication,

Trimegah Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is

provided solely for the information of clients of Trimegah Securities who are expected to make their own investment decisions without reliance

on this report. Neither Trimegah Securities nor any officer or employee of Trimegah Securities accept any liability whatsoever for any direct or

consequential loss arising from any use of this report or its contents. Trimegah Securities and/or persons connected with it may have acted

upon or used the information herein contained, or the research or analysis on which it is based, before publication. Trimegah Securities may in

future participate in an offering of the company’s equity securities.

jan 14, 2014 matahari department store - trimegah · that they offered lower prices compared to...

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