MAPI is the country’s leading upscale retailer holding exclusive rights for 92 international brands and presence in 24 cities. Our analyst Swati and research associate Jessica looked at the consensus and believed that the number is too conservative.
Consensus is expecting EBITDA of Rp648bn. In July alone, MAPI registered EBITDA of Rp90bn. Annualizing this figure (and ignoring stronger sales during Hari Raya and Christmas), we arrive at EBITDA of Rp850bn for 2010. This translates into net income of about Rp370bn. This suggests that MAPI is trading at 7.6x 10PER. We believe such a steep discount is unwarranted and the stock should re-rate as it continues to deliver over next two quarters. While annualizing the July figure is probably too aggressive, MAPI should do better in 2H10 (seasonality, historically 60% of profits are booked in 2H10).
Other key points from the report:
· MAPI 2Q10 operating profit increased by 152% qoq in 2Q10 and 69% yoy. 2Q10 makes up about 22% of full year profits in the past.
· Risk: corporate governance concerns.
· We expect MAPI to surprise on the upside over the next few quarters as it is gradually regaining investor confidence after posting lackluster results since IPO in 2004. The last five year net income CAGR was only 7.4%.
· MAPI has also reduced exposure to the Yen loan from 18.28bn Yen to 4.8bn Yen. This will reduce volatility in earnings due to changes in fair value of the derivative instrument taken to hedge Yen loan.
· Deleveraging story. MAPI looks to reduce gearing from 70% to 20% over next five years and will fund capex through internal cash flow.
· There is tremendous scale advantage and operational leverage as it rolls out more stores. This will support margins improvement.
· Inventory days is a concern at 200 days+ but we expect this to improve for next few quarters as the company continues to deliver.
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