Strong 2010 performance to continue in 2011 - Mandiri Sekuritas

Mitra Adiperkasa indicated better-than-estimate 2010 operating profit. We are estimating an EBIT of Rp278bn, while MAPI indicated Rp450bn, which included Harvey Nichols operating loss of Rp40bn. The result compelled us to change our FY11F and FY12F forecasts. MAPI expects revenues in FY11 to grow 20% yoy and focusing more on higher-margin specialty stores, food and beverages outlets. We adjusted our forecasts for FY11F and FY12F net profits by 4.0% and 7.6%, respectively and upgraded our target price from Rp2,940 to Rp3,200. Our recommendation is upgraded from Neutral to Buy.

Strong 2010 results. MAPI estimated they can close 2010 performance with revenue of Rp4.7tn, with EBITDA increasing 30%yoy at Rp720bn despite incurring extraordinary loss of Rp30bn from Harvey Nichols closure. EBIT is estimated to reach Rp450bn. The achievement was above our estimate of FY10 EBITDA and EBIT of Rp610bn, and Rp378bn, respectively. Total floor space in 2010 was 422,347sqm with presence in 25 cities.

Stay focus in 2011. MAPI will sharpen its expansion focus to its specialty stores (sports, fashion, kids) and food and beverage outlets (Starbucks, Burger King, and Domino’s Pizza). They expect to expand by another 40,00sqm with Rp350bn capex allocated. MAPI will also start its new brand, Payless, by opening 10-15 stores with 200sqm average store space per store. Specialty stores had an operating margin of 12.6% in 9M10, while F&B’s margin for the same period 5.5%. As 2011 might see a tougher environment from higher living costs on rising basic food prices and the reduction of fuel subsidy, the st rategy t aken will help ease margin pressure.

Upgrade to Buy. MAPI has stated its intentions to continue reducing its debt exposure and working capital requirement. Gradual steps will be taken to reduce its cash cycle by lowering inventory days. It’s already tasked a consultant and will start to apply the improvements at its sports division as the first target. The first half 2011 will be important to asses its resiliency, hence we see share price could have its sustainable path in 2H 2011.