CLSA Indo : Mitra Adiperkasa (MAPI IJ) Rec/TP: BUY/Rp3,300 (48% upside)

Mitra Adiperkasa (MAPI IJ) December sales and 4Q10 performance sneak peek: GOOD NEWS

• December ’10 sales came out to be very strong, growing by 19% YoY and 43% MoM to Rp730bn. SSG remains at the 10% level for FY10. 2010 gross sale is expected to be Rp6.26tn: in line with our forecast of Rp6.22tn. Net sales 2010 is expected to be at Rp4.7tn, in line with our forecast and consensus.

• Management stated that EBIT is growing by more than 50% this year, beating all consensus numbers. We are the highest on the street, forecasting 44% YoY EBIT growth. Assuming 50% EBIT growth implies that MAPI's EBIT margin for 2010 is reaching 10%, the highest level since 2004. 4Q10 margins are estimated to be at around 12-13%.

• Contribution to bottom line might be hampered by Harvey Nichol's one time write-off and higher tax booking. Management gave an indicative number of Rp35bn Harvey write-off vs our expectation of Rp25bn, and 30% tax rate versus our expectation of 28%. Accounting for write-off and higher tax rate, we are seeing similar net profit level with our forecast, ranging about Rp205-215bn. This is also in line with consensus expectations.

• Balance sheet continues to improve. As per December ’10, net gearing is stated to be at 51% levels versus 64% in our forecast. No details as to the disparity yet, but will closely follow up with the management.

• The strong momentum should continue through this year. MAPI expects 18-20% revenue growth in 2011, higher our forecast of 16%. There will be no significant mall openings in Jakarta this year, hence most store expansions this year will be in outer Java region. Outer Java stores usually returns higher margins because they have less competition, cheaper rents, cheaper staff costs, but more expensive logistics. In our forecast, we remain conservative and expect no margin improvements this year. Any margin improvements resulting from higher outer region margins should be an upside surprise.

• We remain a buyer of MAPI, given its extensive portfolio of brands and relatively resilient target market. Share price weaknesses caused by net income disappointment serves as buying opportunity.