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Wednesday, December 14, 2011

Mitra Adiperkasa.Tbk - Kingdom Growing Bigger

by Trimegah Securities

Strong Earnings Growth to Continue.,

As we estimate FY11 earnings increase of 59%, we expect MAPI to forge ahead on this high growth trend over the next few years. For 2012, our forecast indicates earnings growth to reach 33%, supported by 17% top line growth and margin improvement. Bear in mind that we use a conservative forecast in comparison to management’s estimates, which provide target revenue growth of 20- 23% for the next year. In 2012, MAPI plans to add a maximum of 60,000sqm new retail space with total allocated capex of Rp550bn. We assumed a 55,000sqm expansion using Rp550bn capex and 10% SSG that would drive top line. Approximately 70% of the new expansion space, or equivalent to about 30,000sqm is located in two department stores in Jakarta. Mall moratorium that had been imposed by Jakarta’s regional government would not hinder the expansion plan since there are currently 13 new malls that have obtained required building permits.

Store Maturity and Pricing Power to Sustain Margin Improvement.

Margin improvement will remain to be the key catalyst for this stock. We forecast next year’s GPM to grow 70bps to 51.7% and 30bps in 2013 as more stores (particularly specialty and F&B) come to maturity. Moreover, the company’s good pricing power will allow it to maintain current margins by passing on increases in input costs to consumers. We have seen this approach successfully implemented this year when MAPI raised Starbucks prices by 7% to 8% due to higher coffee prices. Such pricing power will ease the risk of a weak(ening) IDR to a more manageable level for MAPI, since middle-up consumers can afford to accept price hikes without having to alter their lifestyle.

Deleveraging put on hold with the Expansion Mode.

We have seen MAPI deleverage its debt from Rp1.4tr in 2008 to Rp1tr in 3Q11 using its strong operational cash flow. Management will, however, abandon this strategy as MAPI shifts focus on aggressive expansion next year. As of Dec’12, MAPI will also need to refinance maturing bonds amounting Rp295(bn); hence, we expect the company to take up additional debt of equal amount in the middle of the year and incurring higher interest expense of Rp16bn in the next year compared to FY11.

Maintain BUY, higher TP of Rp5,650/shr.

We maintain our buy recommendation for MAPI with a higher DCF based target price of Rp5,650/shr (from Rp5,500/shr previously) on the back of higher margin expectation and revision for 5,000sqm additional expansion to our current assumption to 55,000sqm. Our valuation uses 13.2% WACC with 6% LT growth.

Trading at 20.6x Fy12 PE, MAPI’s demanding valuation becomes the main concern for investors. In our view, 43% CAGR earnings growth from 2010 to 2013 (0.5x PEG) still renders MAPI an attractive stock to invest in. Any deep correction is a good opportunity to buy.

Key Risks:

Losing principal relationship (weakening relationship with principals), new strong competitor(s), changes in purchasing power and weakening IDR are the risks for consideration with respect to investing in MAPI.

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