indonesia company guide matahari department store matahari department store we see limited positive...

ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:MA, PY

HOLD Last Traded Price ( 8 Feb 2017): Rp15,325 (JCI : 5,361.10) Price Target 12-mth: Rp16,200 (6% upside) (Prev Rp20,300) Potential Catalyst: Strong pick-up in same-store sales growth Where we differ: Generally in line with consensus Analyst Tiesha PUTRI +6221 30034931 [email protected] Andy SIM CFA +65 6682 3718 [email protected]

What’s New • Lowering SSSG and earnings forecasts; maintain

HOLD with a lower TP of Rp16,200 • Share price has de-rated sharply; our DDM

valuation analysis suggests that it is fairly valued • Lack of catalysts, with discretionary spending yet

to show signs of bottoming

Price Relative

Forecasts and Valuation FY Dec (Rp m) 2015A 2016F 2017F 2018F Revenue 9,007 9,949 11,033 12,304 EBITDA 2,564 2,906 3,286 3,682 Pre-tax Profit 2,245 2,641 2,971 3,317 Net Profit 1,781 2,095 2,357 2,631 Net Pft (Pre Ex.) 1,781 2,095 2,357 2,631 Net Pft Gth (Pre-ex) (%) 25.5 17.6 12.5 11.6 EPS (Rp) 610 718 808 902 EPS Pre Ex. (Rp) 610 718 808 902 EPS Gth Pre Ex (%) 25 18 13 12 Diluted EPS (Rp) 610 718 808 902 Net DPS (Rp) 427 503 565 631 BV Per Share (Rp) 379 670 975 1,311 PE (X) 25.1 21.3 19.0 17.0 PE Pre Ex. (X) 25.1 21.3 19.0 17.0 P/Cash Flow (X) 20.6 18.7 16.2 14.4 EV/EBITDA (X) 17.1 14.9 13.1 11.4 Net Div Yield (%) 2.8 3.3 3.7 4.1 P/Book Value (X) 40.4 22.9 15.7 11.7 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 161.0 107.2 82.9 68.8 Earnings Rev (%): (2) (3) (6) Consensus EPS (Rp): 735 844 941 Other Broker Recs: B: 27 S: 2 H: 3

Source of all data on this page: Company, DBS Vickers, Bloomberg Finance L.P

No ray of hope yet Cut TP to Rp16,200; HOLD call unchanged. LPPF’s share price has de-rated sharply to near its record low PE since 2013 due to the concerns of slower SSSG and rising capex after the company announced its plan to increase stakes in MatahariMall.com. It now trades at 19x FY17F PE, -2.5SD below its historical mean PE of 25x. Nevertheless, we see limited catalysts for the share price, with household discretionary spending yet to show signs of bottoming. Recovering SSSG to double-digit level would be a challenging task. Excluding the impact of Lebaran seasonality shift in 1H16, cumulative SSSG has consistently hovered at single-digit levels over the past one year. Management reiterated that the decline in SSSG has nothing to do with competition, while the deterioration in 3Q16 was caused by the inventory assortment issue that management failed to address surrounding the Lebaran peak season. It is confident that this assortment issue has been addressed. However, we have yet to see a strong recovery in discretionary spending. We expect LPPF’s SSSG to only improve slightly to 7.1% in FY17F from 6.1% in FY16F. E-commerce foray – a long game. Following recent equity raising for MatahariMall.com led by Mitsui & Co, LPPF is going to inject Rp590bn cash into MatahariMall.com to avoid ownership dilution. E-commerce in Indonesia only represents c.2% of total retail sales but has grown at a spectacular pace. The intensifying competition has caused customer acquisition costs to remain elevated, hence funding is crucial to stay in the game. A question remains on what step LPPF is going to take if MatahariMall.com requires further equity injection in the future to remain in the game. While management has announced the plan to maintain its stakes in MatahariMall.com below 20%, the risk of LPPF having to inject more cash to avoid or limit ownership dilution still prevails should MatahariMall.com carry out further capital raising in the future. Valuation: We value LPPF at Rp16,200, based on 20x PE 17F (-2SD below its mean PE since 2013), on par with regional retailers. Key Risks to Our View: Slower-than-expected economic growth. LPPF’s target segment makes up c.60% of the country’s population. A further slowdown in the economy would impact this segment’s revenue growth, which would hurt its earnings. At A Glance Issued Capital (m shrs) 2,918 Mkt. Cap (Rpbn/US$m) 44,717 / 3,353 Major Shareholders (%) Multipolar 20.5 Asia Color 2.0

Free Float (%) 79.5 3m Avg. Daily Val (US$m) 7.7 ICB Industry : Consumer Services / General Retailers

DBS Group Research . Equity

9 Feb 2017

Indonesia Company Guide

Matahari Department Store Version 5 | Bloomberg: LPPF IJ | Reuters: LPPF.JK Refer to important disclosures at the end of this report

ASIAN INSIGHTS VICKERS SECURITIES

Company Guide

Matahari Department Store

WHAT’S NEW

Fairly valued; lack of substantial positive catalysts ahead SSSG had consistently hovered at single-digit levels, reflecting the economic cycle. Following weaker-than-expected SSSG in 3Q16, management has lowered its SSSG guidance for FY16 to 5%-6.5% vs. its initial guidance of 7%-7.5%. Management claimed that the reason behind the weak 3Q16 sales was the misstep in inventory assortment surrounding the Lebaran peak season, particularly for women’s apparels, rather than competition from online or specialty retailers. On top of that, discretionary spending had remained muted in 3Q16, which we believe also contributed to the decline in SSSG.

The subsequent chart shows that LPPF’s SSSG has broadly moved in line with nominal household consumption growth. We expect the demand recovery momentum to continue in 2017 but only at a gradual pace. While demand for necessities had generally improved in 3Q16, discretionary household spending growth has yet to show signs of bottoming as it further eased to 4.3% y-o-y in 4Q16, still lagging behind non-discretionary household spending. We do not see a strong reason to expect a surge in nominal household consumption growth in the near future, which in the past year hovered between 7% and 8%. For this reason, restoring SSSG to double-digit levels would be a challenging task for LPPF, in our view. We now project LPPF’s same-store sales to grow by 6.1% in 2016F and 7.1% in 2017F (from 7.6%/8.4% for FY16F/FY17F initially). We therefore lower our net profit forecasts by 2%/3% for FY16F/FY17F. We expect LPPF net profit to grow by 18% in FY16F and 13% in FY17F.

A change in strategy? LPPF has committed Rp590bn cash to be injected in stages into Lippo Group’s e-commerce arm MatahariMall.com from the end of 2016 to 3Q17. The additional investment is made to avoid LPPF’s ownership dilution in MatahariMall.com, which recently raised equity of USD100m – led by Japan’s Mitsui & Co. Prior to this, LPPF owned a minority stake of 9.47% in MatahariMall.com.

There appears to be a change in management’s strategy with regard to LPPF’s investment in MatahariMall.com as it previously guided for no further investment in MatahariMall.com. Looking ahead, the company aims to maintain its stake in MatahariMall.com below 20%.

In a statement release to the public, management stated that it had not planned to participate in any further funding initiatives by MatahariMall.com, but the question remains on how far LPPF would let its stake in MatahariMall.com being diluted should MatahariMall.com require further equity raising after 3Q17. Not letting its stakes being diluted would mean that LPPF has to top up its investment in

MatahariMall.com, possibly at a higher price. We note that in 7M16, MatahariMall.com booked a significant loss of Rp490bn.

PE multiple has de-rated sharply to 2.5SD below historical mean. LPPF now trades at 19x PE 17F, -2.5SD below its historical mean since April 2013. The sharp de-rating in the past month has brought down LPPF’s PE multiple to a level that is on par with regional peers despite having the highest ROE. We believe most of the negatives, including the increase of investment in MatahariMall.com, are already reflected in the share price.

The company generates more than enough operating cash flow to cover its capex annually and even if we are to assume an increase in inventory days by 10 days in 2017 and 2018 due to a persistently weak demand environment or management’s push toward direct purchase sales, our calculation shows that LPPF can still generate Rp2.4tr/Rp2.6tr operating cash flow in 2017F/2018F. If the company maintains a dividend payout ratio of 70% in the same period and double its capex budget to Rp1tr per year, it can still fund the expansion using internal cash.

Our DDM valuation analysis suggests limited downside to current share price. We ran a three-stage DDM valuation analysis to estimate the level of reduction in potential future dividends that the current share price has priced in. Currently, LPPF maintains a dividend payout ratio of 70% despite its ability to raise it to 100%. Our DDM model assumes LPPF will grow its dividend at 13% CAGR over the next 10 years on the back of: 1) 11% net profit and dividend CAGR in the first five years, 2) 7% net profit CAGR in the subsequent five years and a linear increase in dividend payout ratio (DPR) from 70% in year-5 to 100% in year-10, and 3) stable growth rate of 6% from year-11 onwards. We assume SSSG of 6%-7% in our model

Based on our calculation, LPPF’s current share price range of Rp14,800-Rp15,700 implies a scenario of 32%-37% of annual operating cash flow or roughly Rp1.2tr-Rp1.5tr being retained to fund capex or working capital needs over the next 10 years. As a comparison, LPPF only allocates Rp450bn capex budget for FY16 (excluding investment in MatahariMall.com). This affirms our view that the current valuation has largely priced in a slowing SSSG and more importantly the risk of significant rise in capex or investment as the company works to achieve its goal to become an omnichannel retailer. Our key assumptions and sensitivity analysis on the DDM valuation are presented on the subsequent page.


Company Guide


We see limited positive catalysts, especially since the demand environment (particularly for discretionary spending) has yet to show signs of an encouraging pick-up. What can surprise on the upside would be if LPPF manages to improve its profitability, be it from further opex efficiency or improvement in sales mix (toward more direct purchase), and if there is further increase in its dividend payout ratio from the current level of 70%.

The company has continued to roll out initiatives to increase profitability, among which is to improve its sales mix. The company recently opens its first specialty store in Jakarta, called Nevada Store, to test the market. Nevada Store sells LPPF’s private label apparels and shoes i.e. Nevada, Connexion, Details, and Cole, which command higher margins compared to consigned merchandise. In 9M16, the higher-margin direct purchase (DP) accounted for 36.7% of LPPF’s gross sales (vs. 35.3% in 9M15). There is also room to improve its sales mix if LPPF can increase sales of women’s apparels, which command higher margins and currently only contribute 8%-9% of total sales.

Indonesia’s Internet retailing landscape in brief. Indonesia’s retail landscape is still dominated by brick-and-mortar shops while Internet retailing only makes up a small fragment with a share of less than 2% of total retail sales. It nonetheless has grown at a spectacular pace with a CAGR of 45% in 2011-2016, driven by the strong penetration of smart phones. Apparel and footware Internet retailing is the fastest growing category with a CAGR of 152% in 2011-2016. It represented 24% of total Internet retailing revenue.

Indonesia’s Internet retailing is still in the early stages, which means gaining market share remains the main objective of the key players for the time being rather than turning the business into a profitable venture. This keeps customer acquisition costs elevated given the tight competition among existing and new players to attract traffic. Two key challenges faced by online retailers in Indonesia are high unbanked population (over 70% of population does not have a bank account) and poor infrastructure.

Competition against online fashion retailers should not be overlooked. We visited some major online retailers’ websites to get the on-the-ground perspective on how intense the competition is among the players. We focus our observation on key players in fashion retailing, an area where we see that LPPF has an edge over the competitors given its long experience in the field. We limit our observation to blouse/shirt and t-shirt categories for both women and men. We also visited LPPF’s first Nevada Store in Jakarta to compare the price offerings against online fashion retailers.

The highlights from our observation are:

i. Key players are crowding into middle-class apparel market. The Alibaba-backed Lazada, Zalora and BerryBenka on average have 90% of SKU with final price (after discount) ranging between Rp100,000- 300,000 (USD8-22). As a comparison, the average basket size of LPPF’s offline stores is c.USD20. Increasing competition against online retailers should not be overlooked, especially since LPPF caters to the middle-class segment, which could turn increasingly price sensitive when the economy slows.

ii. For LPPF’s private label items, discount on online store nearly doubled that given on onffline stores. Discounts given on MatahariMall.com are generally higher than those in Nevada Store (offline). We observed that a 20% promotional discount is given on apparels sold in Nevada Store. The similar items are sold at a 36% discount on MatahariMall.com. It is worth noting that any promotional discount given for purchases made through MatahariMall.com is borne by LPPF. The impact of heavy online promotion is not significant for now as online sales contribution is still small, at less than 1% of LPPF’s total sales.

LPPF’s SSSG vs. private consumption expenditure growth

Source: Company, DBS Vickers, Bloomberg Finance L.P

Cash flow and FCFF trend and forecasts

Source: DBS Vickers

5.0

10.0

15.0

20.0

25.0

30.0

SSSG, % (LHS) Private consumption GDP (current price), %

1H16 SSSG was expectionally high due to a shift in Lebaran peak season.

(1,500)(1,000)

(500)0

500 1,000 1,500 2,000 2,500 3,000 3,500

2014A 2015A 2016F 2017F 2018F

Rp bn

Operating cash flow Cash flow from investing act. FCFF


Company Guide


LPPF’s investment in MatahariMall.com

Date LPPF stakes in GEI

LPPF's investment in GEI (Rp bn)

Feb-15 LPPF signed agreement to buy share purchase option of GEI Aug-15 LPPF exercised option to buy 2.5% stakes 2.5% 32

Sep-15 LPPF's stakes in GEI was diluted after IDV purchased GEI's new shares 2.3% 32

Dec-15 LPPF's stakes in GEI was diluted after IDV purchased GEI's new shares 2.0% 32

Dec-15 LPPF exercised option to buy 4,404,700 shares in GEI 5.2% 85

Jan-16 LPPF exercised option to buy 7,864,075 stakes in GEI 9.5% 180

Nov-16 LPPF announced a plan to increase stakes to a max of 20% in GEI by injecting Rp590bn in stages

Dec-16 LPPF issue public disclosure on its plan to acquire 7,326,495 shares in GEI for Rp165bn (part of the investment plan announced in Nov-16) before end of Jan-17

*GEI is the parent company of MatahariMall.com Source: Company, DBS Vickers Key assumptions for DDM valuation analysis

Source: DBS Vickers

Sensitivity matrix for DDM valuation

*Based on the assumption of 85% avg. DPR in transition period

Source: DBS Vickers

LPPF launched its first Nevada Store in Jakarta to test the market

Source: DBS Vickers

A (bas e ) BCost of equity

High growth period (17F-22F) 14.5% 14.5%Transition period (23F-27F) 11.0% 11.0%Stable growth period (28F onward) 6.0% 6.0%

NPV of dividends in high growth period (Rp bn) 8,235 8,235 CAGR 11% 11% DPR 70% 70%

NPV of dividend in transition period (Rp bn) 7,456 8,773 CAGR 15% 16% Avg. DPR 85% 100%

NPV of dividends in stable growth period (Rp bn) 27,353 28,792 DPR 100% 100%

NPV (Rp bn) 43,044 45,799 NPV/s hare (Rp) 14,800 15,700

7.5% 8.0% 8.5% 9.0% 85% 15,800 15,200 14,800 14,300 100% 16,800 16,200 15,700 15,200

Risk-free rateAvg. DPR in transition

period

7.5% 8.0% 8.5% 9.0% 4.0% 12,400 12,100 11,700 11,400 4.5% 13,100 12,700 12,300 11,900 5.0% 13,800 13,400 13,000 12,600 5.5% 14,700 14,200 13,800 13,400 6.0% 15,800 15,200 14,800 14,300 6.5% 17,000 16,500 15,900 15,400 Te

rmin

al g

row

th*

Risk-free rate*


Company Guide


CRITICAL DATA POINTS TO WATCH Earnings Drivers: Stable SSSG and new store openings. We assume 6.1%/7.1% SSSG, and the opening of 8/7 new stores in FY16F/17F. LPPF saw weaker SSSG in FY15 (i.e. 6.8%) because of generally weaker consumer spending and slower economy, especially in ex-Java islands such as Kalimantan where incomes have been affected by low commodity prices and several closures of commodity-related businesses. Kalimantan’s economy is dependent on the commodity industry, such as coal-mining and oil palm cultivation. LPPF opened 10-11 new stores annually in the past two years. For 2017, we assume that LPPF will open 7seven new stores, in line with management’s guidance. Recovery of consumer sentiment. LPPF’s target market is mid-low/middle income consumers, which make up about 60% of the country’s population. A pick-up in the consumer sentiment, represented by the Consumer Confidence Index, would help lift sales growth. Larger share of retail sales to lift margins. LPPF operates two main business segments: consignment sales and retail sales. Gross margins from retail sales (or direct purchase) are higher than from consignment sales, at c.44% vs. c.31%. Going forward, we expect retail sales to outpace consignment sales, which would expand margins as the revenue mix shifts. Expect net profit to grow at 12% CAGR (FY16F-18F). Our earnings projection is premised on: (1) margin expansion arising from a shift in revenue mix (we expect the higher-margin retail sales to contribute 39% to LPPF’s gross revenue in FY18 vs. 36% in FY15), (2) new stores openings, and (3) an uptick in same-store sales growth as the economy recovers, supported by a debt-free balance sheet and strong cash flow generation. Low exposure to USD/IDR volatility. More than 80% of LPPF’s products are sourced locally, so margins are virtually unaffected by the volatile rupiah. Currently, the rupiah is hovering around Rp13,300 to the US dollar. Our in-house forecast for the rupiah is Rp13,876 by the end of 2017, implying 4% depreciation, assuming four 25bps fed rate hikes in 2017. We like LPPF for its minimal exposure to the USD and relatively stable earnings throughout our forecast period.

Quarterly SSSG Trend

Direct Purchase vs. Consignment Sales

New Stores

Same-Store Sales Growth (%)

Source: Company, DBS Vickers

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

SSSG Same-store sales volume growth

68% 66% 64% 63% 62% 61%

32% 34% 36% 37% 38% 39%

33%

34%

35%

36%

37%

0%

20%

40%

60%

80%

100%

2013 2014 2015A 2016F 2017F 2018F

Consignment sales Retail sales (direct purchase)

Service fees Gross margin (RHS)


Company Guide


Balance Sheet: An asset-light, debt-free company. At the end of 2015, LPPF has paid off its outstanding debt, in line with its objective in being debt-free by end of last year. The other positive aspect is the company’s asset-light business model. We like that 100% of LPPF’s stores are leased – 70% on 10-year fixed rent contracts and 30% on revenue sharing contracts with the space operator. LPPF also does not rely heavily on distribution centres as its effective supply chain allows for just-in-time inventory system; its goods are shipped to its stores nationwide within 48 hours of arriving at the distribution centre. This business model has allowed the company to improve its operating efficiency, and its store and marketing initiatives have expanded net margins over the past few years. Share Price Drivers: Better-than-expected same store growth. A recovery in the domestic economy and a pick-up in consumer spending will be reflected in better-than-expected SSSG for LPPF. In FY15, LPPF stores recorded 6.8% SSSG, which was weak but relatively better than peers’ amid the slow economy. Key Risks: Slower demand because of higher price of subsidised fuel Increase in fuel price could reduce middle-low/middle income consumers’ disposable income, subsequently reducing discretionary spending. Limited available space for expansion LPPF’s store expansion could be slowed down if space becomes more limited. This could lead to a slower-than-expected revenue growth for the firm. Company Background PT Matahari Department Store Tbk engages in the retail business for several types of products such as clothes, accessories, bags, shoes, cosmetics, and household appliances.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

EV/EBITDA Band (x)


17

19

21

23

25

27

29

31

33

Apr-13 Apr-14 Apr-15 Apr-16 Apr-17

+2sd

+1sd

-1sd

-2sd

Avg.

12.0

13.0

14.0

15.0

16.0

17.0

18.0

19.0

20.0

21.0

22.0

Apr-13 Apr-14 Apr-15 Apr-16

+2sd

+1sd

-1sd

-2sd

Avg.


Company Guide


Key Assumptions

FY Dec 2014A 2015A 2016F 2017F 2018F New Stores 6.00 11.0 8.00 7.00 8.00 Same-Store Sales Growth

10.7 6.80 6.10 7.10 7.60

Segmental Breakdown FY Dec 2014A 2015A 2016F 2017F 2018F Gross Revenues (Rpbn) Consignment sales 9,552 10,354 11,109 11,966 12,961 Retail sales (direct

4,899 5,729 6,420 7,219 8,159

Service fees 45.4 50.2 54.7 59.9 65.9 Total 14,496 16,133 17,584 19,246 21,185 Gross Profit (Rpbn) Consignment sales 2,981 3,228 3,474 3,754 4,079 Retail sales (direct

2,038 2,412 2,735 3,111 3,516

Service fees 28.7 31.8 35.6 38.9 42.9 Total 5,048 5,671 6,245 6,905 7,638 Gross Profit Margins (%) Consignment sales 31.2 31.2 31.3 31.4 31.5 Retail sales (direct

41.6 42.1 42.6 43.1 43.1

Service fees 63.3 63.4 65.0 65.0 65.0 Total 34.8 35.2 35.5 35.9 36.1

Income Statement (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F Revenue 7,926 9,007 9,949 11,033 12,304 Cost of Goods Sold (2,878) (3,336) (3,704) (4,129) (4,666) Gross Profit 5,048 5,671 6,245 6,905 7,638 Other Opng (Exp)/Inc (2,937) (3,342) (3,636) (3,977) (4,374) Operating Profit 2,111 2,330 2,609 2,928 3,264 Other Non Opg (Exp)/Inc (27.1) 8.10 8.10 8.10 8.10 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (233) (92.8) 23.7 34.8 44.9 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 1,851 2,245 2,641 2,971 3,317 Tax (431) (464) (546) (614) (686) Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 1,419 1,781 2,095 2,357 2,631 Net Profit before Except. 1,419 1,781 2,095 2,357 2,631 EBITDA 2,318 2,564 2,906 3,286 3,682 Growth Revenue Gth (%) 17.3 13.6 10.5 10.9 11.5 EBITDA Gth (%) 17.2 10.6 13.3 13.1 12.1 Opg Profit Gth (%) 18.5 10.3 12.0 12.2 11.5 Net Profit Gth (Pre-ex) (%) 23.4 25.5 17.6 12.5 11.6 Margins & Ratio Gross Margins (%) 34.8 35.2 35.5 35.9 36.1 Opg Profit Margin (%) 14.6 14.4 14.8 15.2 15.4 Net Profit Margin (%) 9.8 11.0 11.9 12.2 12.4 ROAE (%) 891.1 161.0 107.2 82.9 68.8 ROA (%) 41.6 45.8 43.4 39.9 36.9 ROCE (%) 122.9 118.4 85.9 70.4 60.5 Div Payout Ratio (%) 60.0 70.0 70.0 70.0 70.0 Net Interest Cover (x) 9.0 25.1 NM NM NM


We forecast 9% growth in gross revenue in FY17F


Company Guide


Quarterly / Interim Income Statement (Rpbn)

FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 Revenue 2,892 2,194 1,862 3,318 2,343 Cost of Goods Sold (1,080) (816) (700) (1,196) (874) Gross Profit 1,812 1,378 1,162 2,122 1,468 Other Oper. (Exp)/Inc (887) (832) (856) (967) (909) Operating Profit 925 547 307 1,155 560 Other Non Opg (Exp)/Inc 2.50 5.60 1.70 (3.7) 0.40 Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (13.3) (48.5) 0.60 (2.4) 4.40 Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 914 504 309 1,149 565 Tax (178) (107) (65.2) (235) (112) Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Profit 736 397 244 913 453 Net profit bef Except. 736 397 244 913 453 EBITDA 988 615 367 1,219 627 Growth Revenue Gth (%) 25.6 (24.1) (15.1) 78.2 (29.4) EBITDA Gth (%) 49.7 (37.8) (40.3) 232.1 (48.5) Opg Profit Gth (%) 53.6 (40.9) (43.9) 276.6 (51.5) Net Profit Gth (Pre-ex) (%) 59.1 (46.1) (38.6) 274.7 (50.4) Margins Gross Margins (%) 34.4 35.3 35.3 36.6 35.0 Opg Profit Margins (%) 17.6 14.0 9.3 19.9 13.3 Net Profit Margins (%) 14.0 10.2 7.4 15.8 10.8

Balance Sheet (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F Net Fixed Assets 726 877 1,030 1,122 1,150 Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other LT Assets 570 740 982 1,425 1,425 Cash & ST Invts 786 947 1,393 1,794 2,807 Inventory 955 1,008 1,100 1,238 1,411 Debtors 45.1 39.3 46.6 51.7 57.6 Other Current Assets 331 279 279 279 279 Total Assets 3,413 3,889 4,831 5,909 7,129 ST Debt

423 110 110 110 110 Creditor 1,411 1,552 1,645 1,833 2,072 Other Current Liab 685 777 777 777 777 LT Debt 410 0.0 0.0 0.0 0.0 Other LT Liabilities 325 344 344 344 344 Shareholder’s Equity 159 1,106 1,954 2,844 3,826 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Cap. & Liab. 3,413 3,889 4,831 5,909 7,129 Non-Cash Wkg. Capital (764) (1,002) (996) (1,042) (1,101) Net Cash/(Debt) (46.8) 836 1,283 1,684 2,696 Debtors Turn (avg days) 2.1 1.6 1.7 1.7 1.7 Creditors Turn (avg days) 192.8 182.6 176.2 177.5 178.0 Inventory Turn (avg days) 130.5 118.6 117.9 119.8 121.3 Asset Turnover (x) 2.3 2.3 2.1 1.9 1.7 Current Ratio (x) 0.8 0.9 1.1 1.2 1.5 Quick Ratio (x) 0.3 0.4 0.6 0.7 1.0 Net Debt/Equity (X) 0.3 CASH CASH CASH CASH Net Debt/Equity ex MI (X) 0.3 CASH CASH CASH CASH Capex to Debt (%) 32.5 343.0 407.8 407.8 404.0 Z-Score (X) 12.0 13.7 13.2 12.7 12.2


Margins based on gross revenue


Company Guide


Cash Flow Statement (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F Pre-Tax Profit 1,851 2,245 2,641 2,971 3,317 Dep. & Amort. 207 234 297 358 418 Tax Paid (431) (464) (546) (614) (686) Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (87.0) 240 (6.3) 46.0 58.7 Other Operating CF 167 (79.5) 0.0 0.0 0.0 Net Operating CF 1,705 2,175 2,386 2,761 3,108 Capital Exp.(net) (271) (379) (450) (450) (446) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF 1.70 (84.6) (242) (443) 0.0 Net Investing CF (269) (463) (692) (893) (446) Div Paid (460) (851) (1,247) (1,467) (1,650) Chg in Gross Debt (988) (700) 0.0 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF (1,448) (1,551) (1,247) (1,467) (1,650) Currency Adjustments 25.6 0.0 0.0 0.0 0.0 Chg in Cash 13.7 161 446 402 1,012 Opg CFPS (Rp) 614 663 820 930 1,045 Free CFPS (Rp) 492 616 663 792 912


Target Price & Ratings History

Source: DBS Vickers

Analyst: Tiesha PUTRI Andy SIM CFA

We have factored in Rp590bn investment in MatahariMall.com with 25% of total investment being disbursed in FY16F.


Company Guide


DBS Vickers recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends Completed Date: 9 Feb 2017 07:55:21 (WIB) Dissemination Date: 9 Feb 2017 14:49:43 (WIB)

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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

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department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction

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Company Guide


ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 9 Feb 2017, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. PT DBS Vickers Sekuritas Indonesia (''DBSVI'') have a proprietary position in Matahari Department Store recommended in this report as of 8

Feb 2017.

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manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

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Company Guide


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