Mitra Adiperkasa Early Indicators Of A Turn Around

Despite 1Q15 earnings below our/consensus estimates on continued discounting at Mitra’s specialty stores division to reduce excess inventory, we observed early indicators that it might be turning around. Maintain NEUTRAL and IDR5,750 TP (3% upside). Department stores/F&B’s QoQ EBIT margins have increased 360bps/90bps, and inventory days stood at 163 days, similar to FY12.

1Q15 earnings was below our and consensus’ estimates
Mitra Adiperkasa’s (Mitra) 1Q15 earnings made up only 3.6% of our and 3.4% of consensus FY15F earnings as Mitra kept discounting during the quarter under review to reduce excess inventory at its specialty stores. Historically, 1Q earnings represent c.15% of the company’s total full-year sales. Due to the continued discounting, specialty stores’ EBIT margin declined 2.2% YoY.

1Q15 inventory days already on target
The good news is 1Q15’s inventory days stands at 163, ie similar to FY12’s 161 days. This might indicate that discounting pressure might lessen in the coming quarters.

Good performance from department stores and food & beverage (F&B) divisions
In 1Q15, Mitra’s department stores’ EBIT margin increased 360bps QoQ to 0.9%. Similarly, its F&B division performed well, as its EBIT margin rose 90bps QoQ to 5.5%.

Weakness in same-store sales growth (SSSG) In 1Q15
SSSG for Mitra’s specialty and department stores in FY10-FY14, on average, were at c.14% and c.9% respectively. In 1Q15, the SSSG for specialty and department stores were only 5% and 2% respectively. This was due to the weak consumer purchasing power and a weaker IDR against the USD.

Maintain NEUTRAL
Considering the early indicators of the good inventory days, and the performance of Mitra’s department stores and F&B divisions – despite the weak 1Q15 earnings – we maintain our NEUTRAL call and IDR5,750 TP based on DCF valuation (WACC: 10.4% and TG: 5%).