Mitra Adiperkasa MAPI Conviction Buy - Trimegah Securities

Good 2010 Execution
MAP scintillating performance recorded in 2010 with 46% YoY growth in operatingprofit, followed by growth in net profit which grew 23% YoY. Excluding Harvey Nicholesand other assets writeoffs of Rp57bn, Net profit should have been Rp258bn,translating to 58% YoY growth.

Department Store Overhaul
MAPI's department stores has historically been a smaller contriutor to sales (27% of sales) while contributing 57% of total floor space operated by MAPI. The good newsis that the worst should be over for Dept Store business unit. MAPI had renovatedtheir department stores in 2010 to implement a new zoning and product mix strategy,leading to a higher per sqm productivity sales. Past experiments have shown 20%improved productivity. This potentially adds Rp300bn of topline for MAPI.

F&B Drives Margin Expansion
Management is targeting 20% sales growth driven by 35% increase or 300 new stores.MAPI plans to open 200 specialty stores in 2011, 150 of which are shoes (KIDSStation, Payless, etc) and another 80 F&B stores (Starbucks, Burger King, DominoPizza). The F&B expansion will drive F&B floor space area for total MAPI portfoliofrom 7% in 2010 to 10% in 2011, driving margins up as F&B contributes 60%-65%GPM, higher than MAPI portfolio average of 50%. Increased in economics of scalefor the F&B business will drive fix cost per unit down. Our channel checks confirmthat MAPI's F&B unit is still running loss at the net level. This turnaround in profitabilitywill contribute to significant bottom line contribution for MAPI.

Preying on Credit Card Partnerships
MAPI is famous for its bargaining position with retail space owners, able to squeezeanother 50bps of savings on a per sqm rental for its portfolio of floor space from2009 to 2010. MAPI is next monetizing its barganing power with bank credit carddivisions, as MAPI come to find out 70% of credit card users who shops in MAPIleaves behind outstanding credit which gives banks profit. MAPI is monetizing itsbargaining power with banks, and is successful in reducing marekting expense from>1.5% to sales to 1.0% to sales in 2010. However, company continue to guide 1.5%to sales marketing expense going forward to, of which 0.5% will be used for a moretargetting brand awareness campaigns in the hope to sustain 20% topline growth.

Spectacular Capital Management
Apart from sales and margins mix, the company has improved its capital managementas well. MAPI has engaged consultants and implemented a more streamlined inventorystrategy, leading to a significant decline in inventory days, from 200days in 2009 to168days in 2010. This has freed up 170bn in cash for 2010, and potentially anotherRp40bn for working cap expansion every year going forward. This is driving fasterdeleveraging for MAPI, turning it into a net cash company in the next 2 years (by2012). Net gearing continue to improve towards 0.2x in a few years. Interestexpense for 2010 is Rp123bn, making up >3% of sales and >50% of net profit

Valuation & Recommendation
We adjusted our SSG, GPM margins and capital management assumptions in ourmodel, rasing our TP for MAPI from Rp2850/shr to Rp3278/shr, representing 23%upside. The TP also reflects 16.3x 2011 PE, in the back of 66% EPSg vs, retaileraverage 15.8x 2011 PE in the back of 27% EPSg. Currently, MAPI is our convictionBUY for the retail & consumer space.