Matahari Department Store, Positive SSSG Due To Middle Income Segment

Despite declining 1Q15 consumer consumption, MDS’ SSSG managed to grow 5.4% YoY, which points to the resilient spending power of its target middle-income segment. Maintain BUY and DCF-based IDR22,000 TP (29% upside). Its 1Q15 numbers, consistent with its historical performance, were in line with our/consensus estimates. It is also on track to open 12 new stores and plans to repay debts by end-2015.

1Q15 results in line
In FY12-14, Matahari Department Store’s (MDS) 1Q net sales accounted for c.18% of its full-year net sales. In the same period, its 1Q net income on average also made up c.7% of full-year net income. In 1Q15, MDS’ net sales were at 16.9%/17.4% of our/consensus estimates respectively. At the same time, its net income accounted for 9.4%/9.5% of our/consensus forecasts respectively. As such, MDS’ 1Q15 results were in line with expectations.

Positive same-store sales growth (SSSG)
Despite declining consumer consumption in 1Q15, MDS still booked 5.4% YoY SSSG. Its closest peer, Ramayana Lestari Sentosa (RALS IJ, SELL, TP: IDR640), which mostly targets the low-income segment, recorded a negative 3.3% SSSG in the same period. Thus, MDS’ customers, who are largely in the middle-income segment, are indeed more resilient against an economic downturn.

Expansion is still on track
YTD (April), MDS has opened four new stores and plans to open nine more before the Eid al-Fitr (Idul Fitri) holiday in July.

Debt-free by end-2015 and minimal exposure to USD
The company plans to pay all its debts in 4Q15
Furthermore, with a network of more than 1,200 local suppliers, which account for 90% of its merchandise, MDS has minimal exposure to the risks associated with importing goods.

Still a BUY
We maintain our BUY call and IDR22,000 TP on MDS. This is based on DCF valuation (WACC: 12.4%, TG: 5%). Our TP also reflects 32.6x FY15F P/E.