Mitra Adiperkasa, Mounting cost pressure, CLSA

Despite strong 4Q11 result, we believe Mitra Adiperkasa (MAPI IJ) might
face near-term potential operating risk from mounting cost pressure and
higher working capital requirement this year. Its plan to open two new
department stores paired with rising salary and rental cost should
translate to lower Ebit margin of 9.4% (vs 2011’s 10.6%). Armed with
these facts, we slightly cut our earnings estimate by 4% for FY12-13CL
and downgrade our recommendation to O-PF, from Buy.


Strong 4Q11 result
The company released very strong 4Q11 numbers, with revenue hit Rp5.9tn
(+25% y/y, +8% q/q) and bottom-line of Rp360bn (+79% y/y, +51% q/q),
forming 107% of ours and 110% of consensus. Robust top-line growth was
mainly driven by its 42k sqm store expansion and 13% same-store-sales
growth (Sssg). On top of margin expansion, much lower loss on disposal of
property (due to Harvey Nichols’ close down in 2010) has also driven its
stellar earnings growth.

Mounting cost pressure
Despite its stellar performance last year, we see that Ebit margin might
contract to 9.4% in 2012 (from 10.6% in 2011), given its plan to open two
new department stores as well as rising rental and salary cost. Its renewal
rental cost will likely to increase by 20-30% for 5-yrs contract (from 10-20%
historically). Paired with aggressive expansion, we estimate rental cost to
jump by 26% y/y or ~13% of sales (from 12.2-12.7% in 2010/11). We also
expect salary expense to increase by c.20% factoring huge store expansion
as well as higher minimum wage in Jakarta (73% of company’s revenue).

Higher working capital requirement
We think its inventory days might slightly pick up to 160 days (from an
average of 155 days last year), given its continued aggressive expansion in
outer Java areas (15% of planned new stores vs 10% last year), hence
greater working capital requirement this year. Coupled with capex plan of
Rp550-600bn, we forecast company’s net gearing to stay at 0.4x level.

Downgrade to O-PF
Despite near-term potential operating risks, hence our rating downgrade,
MAPI’s mid-to-long term growth remains intact. Its well-executed expansion
could sustain its earnings growth of 24% 3-yrs Cagr, second highest growth in
the sector. We set our TP at Rp7,700/sh, now pegged at 1x PE/G.

Download file : Indonesia MAPI 290312