Mandiri Sekuritas MAPI: We liked what we saw

We saw MAPI reducing its debt from Rp1.4bn in FY08 to Rp1,1bn by end-FY09. This was done while MAPI expanded from 349k sqm by end-FY08 to 382k sqm at end-FY09. MAPI also reduced its derivative position and paid down its tranche B syndicated forex loan. This was the catalyst that we have waited for, and we liked it. The next step would be an improvement in operating margin, which did not happen in FY09 (Op Margin : 7.5% vs 8.7% in FY08). However, asset turnover improved (1.2x vs 0.9x in FY08). If it! keeps im proving, we could expect a re-rating on MAPI’s valuation which currently is trading at 0.8x FY10F P/BV.

Lower debt. MAPI paid its tranche B (US$16.5mn and JPY2.7bn by end FY08), and replaced it with Rp364bn IDR bond. Despite argument that MAPI imports products in US$, we do not think the company needs significant US$ loan as most of the volatility can be passed through to its customers. MAPI still has Tranche A loan (US$9.2mn and JPY1.9bn by end FY09). As MAPI paid 12.25% p.a. interest on its IDR bonds, and annual return on its capital (Asset turnover x Operating margin) was just 9%, MAPI should continue to reduce its geari! ng. The o ther alternative is to raise return on its capital.

Continuing expansion, but we prefer to see more intensification. In FY09, MAPI expanded 9.4% from 348,949sqm by end FY08 to 381,753 sqm by end FY09. Department stores which comprised 65% of total space expanded 11.2% with Sogo and Debenhams as the engines. We doubt Debenhams’ success, and after the acquisition of Matahari to CVC (Debenham Plc majority shareholders), we are hoping MAPI could gradually retreat from the brand or find better! effectiv e use of Debenhams’ 24,286sqm areas. MAPI is planning to add another 50,000sqm in 2010, 50% for department stores, 25% each to specialty stores and F&B. Total capex to be spent in 2010 is Rp300-350bn which will be funded internally.

We upgrade our forecast and target price. We think MAPI deserves valuation of FY10F 1.0x P/BV or Rp880/share. Our previous target price was Rp 775/share. At our TP, MAPI is traded at 7.6x PER10F, a discount of 53% to current market PER10F of 16.3x. ROAE FY10F of 13.9% is less than Mandiri universe ROAE FY10F of 21% but not justified by the deep discount in PER and P/BV. With improvements in MAPI, we believe ‘reversion to the mean’ will result in MAPI’s valuation closing to the greater bourse.