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Good morning,
Matahari Department
Store – Moving From Growth To Dividend Play
We upgrade Matahari
to BUY (from Neutral) with a revised DCF-derived TP of IDR10,950 (from
IDR16,000, 9% upside). At current levels, we believe the downside is limited
and that it offers decent risk-reward trade-offs, moving from growth to
dividend play. We are projecting profit growth of 4-7% (2012-2015: 23-49%)
and dividend yields of 4-5% during 2017-2019. The dividend yield and upside
to our revised TP give a total potential return of 13-14%, while the stock is
trading at much lower valuations vs its peers. Our lower-end valuation for
the stock is IDR9,850, derived from a dividend discount model, assuming a
100% payout ratio in 2020F from 70% during 2017F-2019F. We trim our
2017F-2019F profits by 3-8% to factor in lower SSSG on weakness across the
industry.
¨ Well
managed.
Matahari Department Store (Matahari) is one of the well-managed retailers in
Indonesia. We like its past 5-year track record, and efforts to increase
store productivity consistently since 2010. It now plans to utilise big data
analytics to continue raising productivity and better serve its customers. So
far, the plan has shown good progress as loyal members’ contribution has
increased to about half of total sales, from around two-fifths last year.
¨ From
growth to dividend play. Financial deleveraging was Matahari’s biggest source
of profit growth during 2013-2015. At that time, revenue and EBIT registered
CAGR of 14%, but profit posted a much stronger CAGR of 32%. Without financial
deleveraging, it would have only posted low to mid-teen earnings growth. As
Matahari had completed its debt repayment in 4Q15, we expect slower
single-digit profit growth during 2017F-2019F. Nevertheless, with the extra
cash flow, we expect Matahari to offer dividend yield of 4-5%.
¨ Merits
of investment in e-commerce business, Matahari-mall. Post financial
deleveraging, Matahari has extra cash flow that can be allocated for more
dividends or investments. We believe an allocation for investment signals
management’s confidence in the industry’s prospects, and the converse for
dividend allocations. The bulk of lucrative opportunities in the retail
sector can be found in the online channel, which has mouth-watering long-term
promise but hazy economic returns in the foreseeable future. Given the cash
flow muscle, we think Matahari can afford to venture into investments such as
Matahari-mall, to strengthen its longer-term strategic position.
On the flipside, we understand that
related-party transactions are not ideal, especially when one of the
businesses is still struggling. Yet, we do see some merits for its investment
in MatahariMall.com.
¨ Potential total
return is ahead of our JCI upside. At current levels, Matahari offers a total
potential return of 13-14%, which is above our expected JCI return of 6%
(based on index target of 6,150). Our lower-end valuation for the stock is
IDR9,850, derived from our 10-year dividend discount model, and assuming a
100% payout ratio in 2020F from 70% during 2017F-2019F. Upgrade to BUY given
the limited downside from current levels and relatively attractive potential
total return of the stock. Downside risk includes weaker-than-expected SSSG. (Stifanus Sulistyo)
Link
to report: Matahari Department Store : Moving From Growth To Dividend
Play
Link to daily
report: Indonesia Morning Cuppa 110917
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Company Update:
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Astra International
(ASII IJ, BUY, TP: IDR9,200), New Jombang-Mojokerto toll road section
commences operation
Yesterday, Astra’s
new 41km toll road section Jombang-Mojokerto (located in East Java) formally
started its full operation. Astra targets to have 500km of toll road by 2020
(from currently 353km). We see Astra’s long-term earnings diversification to
be better from having an additional income from toll roads - although it may
book losses in the beginning of operation.
We maintain BUY with
IDR9,200 TP, implying 17x FY18F P/E. (Andrey
Wijaya)
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Media Highlights:
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Corporate
Indonesia’s official
reserve assets continued to increase to USD128.8 Billion
Refined sugar
auction regulation kicks off in October
Adaro keeps
production production target amidst soaring coal price
Adhi Karya allocates
6,000 units in LRT City for low-income households
Sarana Menara
receives additional loan facility
Pakuwon Jati books
IDR1.37trn marketing sales in 7M17
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Our
Recent Publication:
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Company Update: Bukit Asam – Assesing PLN’s
Request On The Coal Price Formula
Link to report: Bukit
Asam : Assesing PLN’s Request On The Coal Price Formula
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Economics Update: July Loan Growth Picks
Up, M2 Growth Moderates
Link to report: July
Loan Growth Picks Up, M2 Growth Moderates
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Economics Update: August Inflation Remains
Moderate After Holiday Season
|
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Results Review: Perusahaan Gas Negara –
Another Downside Surprise On Distribution Margin
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Company Update: Astra International –
Rising Auto Competition, Promising Mining Units
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Sector Update: Coal Mining – Headwinds from
PLN
Link to report: Headwinds
From PLN
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Results Review: Adaro Energy – Strong 2Q17
Earnings
Link to report: Adaro
Energy : Strong 2Q17 Earnings
|
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Company Update: Ramayan Lestari – Closing
10 Supermarkets To Benefit Earnings
Link to report: Ramayana
Lestari : Closing 10 Supermarkets To Benefit Earnings
|
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Company Update: United Tractors – Increasing Growth
Of Mining Contracting Volume
Link to report: United
Tractors : Increasing Growth Of Mining Contracting Volume
|
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Results Review: Bekasi Fajar – Expect To Maintain Its
Performance In 2H17
Link to report: Bekasi
Fajar : Expect To Maintain Its Performance In 2H17
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Best regards,
Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT RHB Sekuritas Indonesia
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