Matahari Department Store in a growing market

Matahari Department Store: Unrivalled Dominance (LPPF, Buy, Rp13,200, TP: Rp15,600)

With US$4bn market cap, LPPF is one of a few companies that still offers a remarkable 38% EPS CAGR and combined 14% free-cash flow yield in FY13F-15F. We use DCF in valuing LPPF with 10.1% WACC and 4.5% terminal growth. Our TP implies 28.5x FY14F PE or 0.7-0.8x PEG versus current 24.1x FY14F PE. Premium is justified by its sizeable market cap (US$4bn) and superior financial and operational performance (see Exhibit below: 38% EPS growth, >14% EBIT margin, >25% ROA) Stripping out the non-tax deductible interest expenses, LPPF trades at 22.6x FY14F PE.

LPPF is currently Indonesia’s largest department store with >32% market share and 118 nationwide stores. In a growing market, LPPF as the biggest player still outpaced the industry by growing 3.1x faster, with market share rose from 24% in 2006 to 32% in 2011. We expect LPPF to continue growing fast as it aggressively opens 13-15 stores p.a. over the next three years, while the industry is also still underpenetrated particularly outside Jakarta. LPPF benefits from its strong positioning in the fast-growing Indonesian middle class (53% of total population).

LPPF has the highest ROA among peers, given its most profitable and least-capital intensive business model. LPPF also has unrivaled working capital management with 25 days negative cash conversion cycle, which means that its operational needs are more than self-funded. Strong cash generation enables LPPF to meet its expansion plans and accelerated debt repayment, while servicing a 40% dividend payout starting FY14F.

Accelerated debt repayment would make LPPF debt-free by FY15F. This gives substantial 38.4% EPS CAGR in FY12-15F, as the non-tax deductible interest expenses gradually diminish.  By 4Q13, we also expect LPPF to earn the 5ppt tax reduction assuming that it maintains the current >40% free-float.

for Indonesia Market Summaries 28 May 2013

Positive Sentiment of Global and Regional lift IHSG to 4972.39

The positive sentiment from the global and regional push the Indeks Harga Saham Gabungan ( IHSG / JCI ) today, Wednesday (04/03/2013). The index at opening rose 15.14 points, or 0.31% to 4972.39.

At 9:22 am, JCI gained 19.552 points, or 0.39%, to level 4976.80. This is the new high level. So far the index has been moving in a bullish trend in the range of 4968.31 to 4985.85

Top Gainers Are:

• PT Indo Tambangraya Megah Tbk (ITMG) +Rp450 to Rp36.450
• PT Japfa Comfeed Indonesia Tbk (JPFA) +Rp250 to Rp9.600
• PT Mitra Adiperkasa Tbk (MAPI) +Rp200 to Rp8.650

Top Losers Are:

• PT Indocement Tunggal Prakarsa Tbk (INTP) –Rp250 to Rp23.000
• PT Matahari Department Store Tbk (LPPF) –Rp200 to Rp11.800
• PT Astra Agro Lestari Tbk (AALI) –Rp50 to Rp18.250

Matahari Divestment - Asia Color Sell 24.9% Stake to Multipolar

Asia Color Company Ltd has sold 726.56 million shares or 24.9% stake of PT Matahari Department Store Tbk to PT Multipolar Tbk.

Director Asia Color Company Wai Hoong Fock said that the sale of stake of Matahari Department Store to Multipolar held on March 8, 2013.

"The purpose of the transaction is in the framework of the implementation of the internal reorganization," he said in a disclosure on Wednesday (13/03/2013).

He said that the purchase transaction was conducted at Rp1.216 per share by the number of shares as 726.56 million or equivalent to 24.9% of the total shares issued and it will be paid in full.

Asia Color is an indirect subsidiary of CVC Capital Partners through Meadow Asia Co. Ltd.. Based on the Stock Exchange, shareholding of Asia Color in Matahari reaches 98.15%.

Later widely reported about CVC's plans to dump its stake in old supermarket owner with Matahari brand. At least 15 foreign investors, including Temasek Holdings is rumored to participate in the bidding divestment Matahari.

Divestment of Matahari has the potential to be the largest ever in Indonesia since the rights issue U.S. $ 4.4 billion by PT Bakrie & Brothers Tbk in April 2008.