Matahari Putra Prima Straight Talk With The Strongest Hypermart Operator
Revealed that despite margin pressure from 4Q15’s clearance sales, Matahari managed to improve its inventory days by end-FY15 and targets to reach 70 inventory days within the next few years. It also aims to keep its costs manageable by improving labour productivity per store and closing two unprofitable hypermart stores this year. We noticed its efforts and remain BUY on the stock with an unchanged IDR2,900 TP (62% upside), implying 34x/30x 2016F/2017F P/Es.
We met with the company management and appreciated its candor; several things are worth highlighting:
Inventory days improved at end-FY15. Matahari Putra Prima’s (Matahari) inventory days shot up to 96 days in 9M15 (vs FY14’s 75 days) as it was too optimistic about its initial plan to open 10-12 hypermarket (hypermart) stores in the beginning of FY15 by ordering inventory in advance for the new stores. As it only managed to deliver seven new hypermart stores in FY15, its inventory days lengthened to 96 in 9M15, but improved by end-FY15 due to the company’s clearance sales in 4Q15.
Serious efforts to keep costs manageable
Matahari plans to improve labour productivity by employing 130 employees per store from 180 employees per store currently. Management would also close down its two unprofitable hypermart stores in 2016.
Supplier channel check
We spoke with the suppliers of one of it private brand, Value Plus, and learned that Matahari is good and reliable with regard to its account payable days; thus, while the Indonesian supermarket industry faced a challenging 2015, Matahari is in good standing with its suppliers.
Expansion plan in 2016
Matahari has expanded the number of its G7-format hypermart stores to 12 by end-2015 from just one in the beginning of 2015. It plans to open six hypermart stores and three Smart Club stores this year. It already opened the first new hypermart store this year in Kuala Kapuas, Central Kalimantan on 26 Jan.
Attractive valuation vs Alfamart minimarket chain
At current price of IDR1,785, Matahari is trading at 21x/18x 2016F/2017F P/Es, at c.50% discount to Sumber Alfaria Trijaya’s (Alfamart) (AMRT IJ, NEUTRAL, TP: IDR570) current 2016F/2017F P/Es of 39x/27x, based on its current price of IDR545.
Remain BUY as we note Matahari’s efforts to go back on track
As Matahari would continue its clearance sales until 1H16, we trim 2016F/2017F earnings by 6%/7%, but keep the same IDR2,900 TP after accounting for better inventory days from FY16F onwards. Our DCF-based TP of IDR2,900 implies 34x/30x 2016F/2017F P/Es, with 12.6% WACC and 3% TG.
Inventory days improved at end-FY15
Matahari’s inventory days shot up to 96 days in 9M15 (vs FY14’s 75 days) as it was too optimistic about its initial plan to open 10-12 hypermarket (hypermart) stores in the beginning of FY15 by ordering inventory in advance for the new stores. As it only managed to deliver seven new hypermart stores in FY15, its inventory days lengthened to 96 in 9M15, but improved by end-FY15 due to the company’s clearance sales in 4Q15
Serious efforts to keep costs manageable
Matahari plans to improve labour productivity by employing 130 employees per store from 180 employees per store currently. Management would also close down its two unprofitable hypermart stores in 2016.
Conservative expansion plan in 2016
Matahari has expanded the number of its G7-format hypermart stores to 12 by end-2015 from just one in the beginning of 2015. It plans to open six hypermart stores and three Smart Club stores this year. It already opened the first new hypermart store this year in Kuala Kapuas, Central Kalimantan on 26 Jan.
Revising our FY16F and FY17F earnings
As Matahari would continue its clearance sales until 1H16, we trim 2016F/2017F earnings by 6%/7%, but keep the same IDR2,900 TP after accounting for better inventory days from FY16F onwards. Our DCF-based TP of IDR2,900 implies 34x/30x 2016F/2017F P/Es, with 12.6% WACC and 3% TG.
