KI: MPPA - Time to Buy Groceries

MATAHARI PUTRA PRIMA – TP: 3,740/sh (BUY)

Time to Buy Groceries



Looking up with customer’s trend, MPPA is going to revamp its Hypermart concept

In order to capture Indonesia’s growing consumer demand, MPPA has prepared to improve its Hypermarket chain with a new store concept called Generation 7 (G7). G7 is a newly updated retail concept that conforms to the fast growing and changing Indonesian consumer trend in which each retail store will consist of wider aisles, vertically organized products on shelves with better display of the products to aid efficiency and improve the overall store productivity. MPPA had been continuously updating its retail concept since 2004, starting from Generation 1. The company currently organizes the location of their retail stores based on 2 segments such as; the primary segment which comprised of large populous cities; for instance, Jakarta and Surabaya; conversely, the second category consists of less populous yet equally demanding cities. The company plans to renovate its current retail approach of G6 to G7 for the entire primary segment’s stores where there are strong competitors while they will only revamp half of the second segment’s stores to G7. The 1st flagship store to be opened would be in Karawaci by Dec-2014. Furthermore, MPPA is also planning to focus on its healthy food brand to cater the growing health awareness in the country. We think, MPPA’s plan is inline with its goal to be the number one in FMCG retailer, as a true market leader will not just meet current customer needs but also anticipate future needs and trends.



Highest recorded Same-Store-Sales-Growth (SSSG) in 1H14

MPPA booked the highest SSSG ever since 2010 of 9.2% in 1H14 as Indonesia’s emerging middle class has triggered consumption and spurred economic activities in the pre-election day. Going forward, middle class expansion will be powered by labor-market and policy initiatives that push wages up, which should create more middle income classes. In addition, we believe the accelerated infrastructure spending could give a positive effect to financial reforms which would stimulate employment and income growth that should encourage productivity and help more income accrue to households. We increase our SSSG assumption from 5% to 7% in 2014F onwards as we believe MPPA’s plan on expanding more to the outside Java generates higher margins and sales growth as there is less competition and the stores are still under penetrated. Moreover, the average SSSG stood at 7.5% over the past 6 years therefore, we think it will stay resilient in the future.



Store expansions next year remain intact

We believe the quickest way to grow business and expand market share is to stay focused on customers which MPPA is currently doing by focusing on renovating the existing stores to stay as the market leader, thereby reducing their store expansion target in 2014. Thus, we revised down our expansion stores target for this year to 10 stores from 20 stores, where 60% of those new stores will be opened in outer Java; nevertheless, we believe the long term outlook of MPPA’s business will remain solid and the company will get back on track to 20 stores expansion per year starting 2015. As such, we raise our long term expansion store assumption to 20 from 10 previously.



Net cash balance sheet

Currently, MPPA does not incur any long term debt as of 1H14 as the company has successfully repaid approximately Rp188 bn bond which had matured in April-14. The reduced debt will eventually cut MPPA’s interest expenses in the next quarters, which should help elevate the earnings in 2014F onwards.



Reiterate BUY with TP Rp 3,740/share

We reiterate our BUY rating on MPPA with DCF-based TP of Rp3,740/share which implies 30.4 FY15F PER. We see MPPA has a good prospect ahead given its well established business, spurred on partly by the possibility of ever-greater bargaining power with suppliers due to its highest market share and partly on its strategic expansion on outside Java where there is less competition. In addition, MPPA has a better pricing power than non-grocery items as well as limited foreign exchange exposure.

*Source Ciptadana Research Department