Starting out 7-11. MDRN through its subsidiary, MPRI obtained the rights and license to develop and operate “7-Eleven” brand convenience store outlets in Java island,Indonesia for twenty (20) years period and extension period for ten (10) years. MDRN currently has 6 7-11 stores, and plan to have 24 stores by end 2010. In 2011, MDRN planned to open another 36 stores. MDRN investments in infrastructures are to accommodate 300 stores. MDRN which currently managed 1,000 stores of Fuji Image Plaza (FIP) with 100 stores owned, plans to gradually launch 7-11 by converting feasible FIP stores,allowing faster deployments.
Progress so far, has been good. MDRN put a target of 1,000 transactions/store/day with average ticket of Rp 25,000- Rp30,000 with gross margin aimed at 28%. Results from t he 6 stores so far has been encouraging, with tickets averaging north of 1,000/day and gross margin of 30-35%. Around 75% of the revenue is coming from food and beverage. MDRN estimates its 7-11 stores to book net margin of 5%, better than current FIP stores of 3%. MDRN paid upfront fees of US$1.5mn and royalty fee from revenue at less than 1%.
Question: how to finance capex. MDRN has Rp250bn in debt, with Rp329bn in eguity and Rp10bn of cash by end FY09. Assuming Rp3bn capex/stores, MDRN has to provide Rp54bn capex in 2010, and Rp108bn in 2011. Asset turnover in 2009 was 1.1x and operating margin 1.7%. With other business pulling down the performance, capital rising is need as the operational performance is difficult to service interest payment even if the ratios improved. Assuming asset turnover of 1.5x and operating margin of 5%, the return on invested capital is just 7.5%.
Valuation: earnings has to catch up. MDRN made a profit of Rp12bn (EPS: Rp19), a 84.0% yoy increase, with operating income of Rp16bn (-66.1% yoy). At Rp740/share, MDRN is trading at 38.9x FY09 PER and 1.4x FY09 P/BV.
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