Mitra Adiperkasa (MAPI IJ; CP: IDR4,325; BUY) Target Price: IDR4,800 - BNP Paribas

Key issues
ƒ Recent results show that their strategy of targeting the middle to upper middle class is paying off. With the EBIT margin already achieving 10%, partly due to completed brand consolidation with pruning underperforming brands last year (especially the high-end brands), by year-end management expect margins to further improve by 20bp. In the next couple of years, margins are expected to improve by 50bp due to continued operating leverage gains.
ƒ Management will continue its strategy of growing its sports segment and F&B brands in the 2nd and 3rd tier cities, but will for now focus their fashion specialty stores in Jakarta due to higher purchasing power.
ƒ Best performing brands are Sports Station, Reebok and Converse for sports. Zara, Marks and Spencer, Topman and Topshop for fashion. Starbucks, Burger King and Domino’s Pizza for F&B.

Questions raised
ƒ Given that the in the 1H the company only opened 77 stores covering 14,000 sqm, can it achieve the projected 40,000 sqm this year? No, management believes that this year they can only expand its retail area by 30,000 sqm. This is due to the fact they have just consolidated their contractors to one, and execution takes time. Management believes that they should have no problem in achieving the 18-20 percent sales growth.
ƒ What is your biggest concern at the moment? Execution – how to execute the plan. We believe that the economy is doing well and competition is still under control despite the two new recent entrants: lotte shopping and Parksons. These will still need to partially stock their stores with MAPI's brands.

Current view
ƒ We remain a believer that MAPI is one of the biggest beneficiaries of the so-called “demographic dividend” where Indonesia's growing middle class is starting to be able to buy non-staple goods and demanding quality. BUY, TP IDR4,800.