Reinitiating Coverage:
Matahari Department Store (LPPF IJ, Neutral, TP: IDR16,000)
No More Leverage
Matahari Department Store (LPPF IJ, Neutral, TP: IDR16,000)
No More Leverage
Matahari’s profit posted impressive CAGR of
32% in 2013-2015, thanks to deleveraging, but its operating profit posted only
modest CAGR of 14% during the same period. With no more debt in its books, we
forecast slower profit CAGR of 13% in 2016-2018F. Matahari is currently trading
at relatively low multiples compared to its historical range, and we believe
this is justified given our expectations of a slower growth profile, with
further competition risk from online shops. We reinitiate coverage with NEUTRAL
and DCF-derived TP of IDR16,000 (5% upside).This report marks the transfer of
coverage to Stifanus Sulistyo.
¨ No more growth
leverage.
Financial deleveraging was Matahari Department Store’s (Matahari) biggest
source of profit growth in 2013-2015.At that time, revenue and EBIT posted CAGR
of only 14%, while profit posted much faster CAGR of 32%. Without financial
deleveraging, it would have only posted low- to mid-teens earnings growth over
the last four years. As it had paid down all debts in 4Q15, we expect slower
profit CAGR of 13% in 2016-2018F.
¨ Post deleveraging,
extra cash for dividends or investments? Post deleveraging, it has extra
cashflows that can be allocated for more dividends or new investments. New
investments would signal its confidence in the sector’s prospects while higher
dividends would suggest the contrary. We believe that the most lucrative
opportunities are in online shops, which appear to offer mouth-watering
long-term promise but hazy economics in the foreseeable future. With its cash
flow muscle, we believe Matahari can still afford to invest in its e-commerce
platform, mataharimall, which would strengthen its longer-term strategic
positional though returns appear vague at this point – this is a strategic
business decision with a different investment horizon from public investors.
We forecast IDR1.8-2.5trn free cashflows and
IDR1.2-1.8trn dividends in 2016-2018F.Thissuggests that Matahari would have
IDR400-500bn extra cashflows pa after a 70-80% payout, which Matahari could use
to explore new opportunities or simply increase its payout ratio further, in
our view.
¨ Online battle ground.
Our
analysis of various data points suggest that Matahari’s key target market is
also a battle ground with online channels – particularly in “middle-middle I”
and “middle-low II” segments. Based on our estimates, digital buyer penetration
rate ranges around 15-23%,mostly from higher segments in the “upper” to
“middle-middle I” segments. Upcoming digital buyers over the next few years
will likely come more from the “middle-middle I” and “middle-low II” segments,
which are Matahari’s key target segments.
¨ Reinitiate coverage with NEUTRAL. We reinitiate
coverage with a NEUTRAL rating and IDR16,000TP derived from 10-year DCF with
12.5% WACC and 3% terminal growth. The stock is trading at relatively low
multiples compared to its historical range and may potentially benefit from
rising commodity prices. Nevertheless, we believe the lower multiples are
justified given the company’s slower projected growth profile, with further
competition risk from e-commerce. The stock trades at 2017F/2018F P/Es of
19/17x,with 11%/11% earnings growth and 3.7%/4.2% dividend yield in 2017F/2018F
respectively.
Kindly click the following link for the full report: Matahari Department Store : No More Leverage
Stifanus Sulistyo
Vice President
Research Analyst –
Retail
PT. RHB Securities
Indonesia
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