ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> hosted a business initiatives update for analysts last week, which provided some interesting updates on performance and fresh strategies, as we approach the end of the year. Apart from an update on sales, store closures and discontinued brands, the key initiatives discussed included the launch of a brand new Matahari.com and the collaboration with <a href="https://www.smartkarma.com/entities/bank-nationalnobu-tbk-pt" target="_blank" data-smartkarma-citation="entities:17016:1" rel="noopener">Bank Nationalnobu (NOBU IJ)</a> to provide branchless banking. 
There has been a choppy sales recovery since the end of 3Q2020 partly due to the fact that 42 out of 153 stores are still under transition from the last set of PSBB measures.
There has been a mixed performance across different departments with casual wear and children's wear performing well but formalwear, travel, and cosmetics underperforming. 
<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> has discontinued seven direct-purchase (DP) brands and intends to write down the stock in these brands by the end of the year. 
<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener"></a>The company intends to close a further six stores this year bringing the total number by the end of the year to 147 stores. There is a freeze on any new store openings next year with 23 stores under observation. 
<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> only last week has launched its brand new Matahari.com, which is at its early stages and will be ramped up slowly as part of the company's omnichannel strategy.  
A key discussion point and the subject of a large portion of the questions in the recent analyst call was regarding the strategy behind the company's tie-up with <a href="https://www.smartkarma.com/entities/bank-nationalnobu-tbk-pt" target="_blank" data-smartkarma-citation="entities:17016:1" rel="noopener">Bank Nationalnobu (NOBU IJ)</a> to provide branchless banking services within Matahari stores. <a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> has taken a 16.41% direct stake in <a href="https://www.smartkarma.com/entities/bank-nationalnobu-tbk-pt" target="_blank" data-smartkarma-citation="entities:17016:1" rel="noopener">Bank Nationalnobu (NOBU IJ)</a>.
No doubt <a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> is cheap trading on 7.5x FY21E PER and 3.2x FY21E EV/EBITDA but there is still some uncertainty ahead, as it has a good number of underperforming stores still being monitored and its initiatives, appealing though they may be, will take time to gain traction.

Matahari Department Store (LPPF IJ) hosted a business initiatives update for analysts last week, which provided some interesting updates on performance and fresh strategies, as we approach the end of the year. Apart from an update on sales, store closures and discontinued brands, the key initiatives discussed included the launch of a brand new Matahari.com and the collaboration with Bank Nationalnobu (NOBU IJ) to provide branchless banking. 
There has been a choppy sales recovery since the end of 3Q2020 partly due to the fact that 42 out of 153 stores are still under transition from the last set of PSBB measures.
There has been a mixed performance across different departments with casual wear and children's wear performing well but formalwear, travel, and cosmetics underperforming. 
Matahari Department Store (LPPF IJ) has discontinued seven direct-purchase (DP) brands and intends to write down the stock in these brands by the end of the year. 
The company intends to close a further six stores this year bringing the total number by the end of the year to 147 stores. There is a freeze on any new store openings next year with 23 stores under observation. 
Matahari Department Store (LPPF IJ) only last week has launched its brand new Matahari.com, which is at its early stages and will be ramped up slowly as part of the company's omnichannel strategy.  
A key discussion point and the subject of a large portion of the questions in the recent analyst call was regarding the strategy behind the company's tie-up with Bank Nationalnobu (NOBU IJ) to provide branchless banking services within Matahari stores. Matahari Department Store (LPPF IJ) has taken a 16.41% direct stake in Bank Nationalnobu (NOBU IJ).
No doubt Matahari Department Store (LPPF IJ) is cheap trading on 7.5x FY21E PER and 3.2x FY21E EV/EBITDA but there is still some uncertainty ahead, as it has a good number of underperforming stores still being monitored and its initiatives, appealing though they may be, will take time to gain traction.

Matahari Department Store (LPPF IJ) - Slow Transition to Newness

<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> released its 3Q2020 results, which saw some improvement in 3Q2020, with a -41.0% decline in gross sales versus a -57.6% decline for 9M2020.
The 9M2020 results were impacted by the fact that most of the company's stores were closed for a six week period during 2Q2020, with 3Q2020 only seeing minimal closures from the second round of PSBB measures, which have now been relaxed.
SSSG fell by a similar -40.9% during 3Q2020 versus a -57.7% decline for 9M2020, again reflecting the pandemic situation.
<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> booked a negative EBITDA of (IDR37bn) for 3Q2020 and (IDR99bn) for 9M2020, with a net income loss of IDR259bn, with a negative net income margin -13.4% versus +0.8%  for 3Q19.
We do expect a gradual improvement going into 4Q2020, with the company putting a number of positive initiatives in place to help underpin the recovery, including collaboration with a number of market places. 
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<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> valuations look attractive on the face of it, with the company trading on 5.4x and 3.5x PER for FY21E and FY22E respectively, with the company's earnings forecast to recover sharply over the next two years. We would however wait to see a significant pick up in SSSG before becoming more bullish on the outlook. 
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Matahari Department Store (LPPF IJ) released its 3Q2020 results, which saw some improvement in 3Q2020, with a -41.0% decline in gross sales versus a -57.6% decline for 9M2020.
The 9M2020 results were impacted by the fact that most of the company's stores were closed for a six week period during 2Q2020, with 3Q2020 only seeing minimal closures from the second round of PSBB measures, which have now been relaxed.
SSSG fell by a similar -40.9% during 3Q2020 versus a -57.7% decline for 9M2020, again reflecting the pandemic situation.
Matahari Department Store (LPPF IJ) booked a negative EBITDA of (IDR37bn) for 3Q2020 and (IDR99bn) for 9M2020, with a net income loss of IDR259bn, with a negative net income margin -13.4% versus +0.8%  for 3Q19.
We do expect a gradual improvement going into 4Q2020, with the company putting a number of positive initiatives in place to help underpin the recovery, including collaboration with a number of market places. 

Matahari Department Store (LPPF IJ) valuations look attractive on the face of it, with the company trading on 5.4x and 3.5x PER for FY21E and FY22E respectively, with the company's earnings forecast to recover sharply over the next two years. We would however wait to see a significant pick up in SSSG before becoming more bullish on the outlook. 


Matahari Department Store (LPPF IJ) - Too Early to Be Early

<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> just released its 1Q2020 results, which already reflected the onset on COVID-19 in mid-March, as PSBB measures took hold.
1Q2020 SSSG fell by -18.2% over but March alone saw a -92% decline in SSSG given PSBB measures. The company closed all of its stores temporarily by the end of March.
The full extent of the fallout will be reflected in the company's 2Q2020 numbers. Along the way, the company has ensured that it has the financial ability to withstand the pressure of this period by building a cash pile of IDR1.5tn at the end of March by drawing down debt. 
The company has used this period to close down five underperforming large format stores, as well as fully closing all of its 12 speciality stores plus halting sales of 107 underperforming brands.
In an effort to continue to do business, the company has shifted emphasis to online channels both through its own matahari.com but also more significantly through Shopee, which is its first online store on a 3rd party online marketplace. 
Management has pushed through a number of cost-saving measures including salary cuts, a halt to marketing activity in 2Q20, cutting non-essential costs such as travel, and halting all uncommitted capex. 
With the company trading on 4.7x FY21E PER, there is not much recovery built into valuations. The question is have the new management team done enough to convince investors, after a catalogue of disappointments under previous leadership.

Matahari Department Store (LPPF IJ) just released its 1Q2020 results, which already reflected the onset on COVID-19 in mid-March, as PSBB measures took hold.
1Q2020 SSSG fell by -18.2% over but March alone saw a -92% decline in SSSG given PSBB measures. The company closed all of its stores temporarily by the end of March.
The full extent of the fallout will be reflected in the company's 2Q2020 numbers. Along the way, the company has ensured that it has the financial ability to withstand the pressure of this period by building a cash pile of IDR1.5tn at the end of March by drawing down debt. 
The company has used this period to close down five underperforming large format stores, as well as fully closing all of its 12 speciality stores plus halting sales of 107 underperforming brands.
In an effort to continue to do business, the company has shifted emphasis to online channels both through its own matahari.com but also more significantly through Shopee, which is its first online store on a 3rd party online marketplace. 
Management has pushed through a number of cost-saving measures including salary cuts, a halt to marketing activity in 2Q20, cutting non-essential costs such as travel, and halting all uncommitted capex. 
With the company trading on 4.7x FY21E PER, there is not much recovery built into valuations. The question is have the new management team done enough to convince investors, after a catalogue of disappointments under previous leadership. 

Matahari Department Store (LPPF IJ) - Opportunity Knocks?

<a href="https://www.smartkarma.com/entities/mitra-adiperkasa-tbk-pt" target="_blank" data-smartkarma-citation="entities:18684:1" rel="noopener">Mitra Adiperkasa (MAPI IJ)</a> recently released a strong set of FY19 numbers, with net revenues up by 14% and net profit up by +43% YoY. No doubt that COVID-19 has had a significant negative impact since early March, with management admitting they cannot reliably predict the impact on sales at this time, given the constantly evolving situation. As a result, the company will not release any 2020 guidance but are gearing up for a recovery in 4Q2020. 
The company's sales and marketing strategies bore fruit in 4Q19 with SSSG of +8% and headline revenue growth of +21.0% and net profit growth of +55%. SSSG for FY19 was in line with guidance at +4.0% for the year.
Management mentioned that the strong demand increase in 4Q19 did result in some supply chain shortages of fast-selling items but this did mean that inventory levels fortuitously fell to the most efficient level ever by the end of 2019.
<a href="https://www.smartkarma.com/entities/mitra-adiperkasa-tbk-pt" target="_blank" data-smartkarma-citation="entities:18684:1" rel="noopener">Mitra Adiperkasa (MAPI IJ)</a> has opened five more stores in Vietnam and also set up MAP Active Philippines. It also registered more than 100% growth in its various digital channels last year with online sales accounting for 4% of the total last year but probably more now.
2020 has seen especially strong growth in sales through digital channels as might be expected, with a strong response to marketing campaigns to its 3m MAP members.
The company has quickly imposed a number of measures to save costs in an attempt to alleviate the impact of the virus including a freeze on Capex, negotiations with landlords on rentals, and various measures to protect its staff. 
<a href="https://www.smartkarma.com/entities/mitra-adiperkasa-tbk-pt" target="_blank" data-smartkarma-citation="entities:18684:1" rel="noopener">Mitra Adiperkasa (MAPI IJ)</a> is a long-term core holding facing COVID-19 head-on, given its predominantly retail exposure but it will survive the current onslaught to be a strong 2H20 recovery story. Consensus forecasts have been adjusted down quite significantly already, with earnings expected to fall 35% for FY2020E but to see a strong rebound in EPS in FY21E of +82% to an EPS level significantly above that of FY19. According to consensus, it is now trading on 9.4x FY21E versus its 10-year average of 21x forward PER and average over the last year of 15.8x, making it look attractive for long-term investors.

Mitra Adiperkasa (MAPI IJ) recently released a strong set of FY19 numbers, with net revenues up by 14% and net profit up by +43% YoY. No doubt that COVID-19 has had a significant negative impact since early March, with management admitting they cannot reliably predict the impact on sales at this time, given the constantly evolving situation. As a result, the company will not release any 2020 guidance but are gearing up for a recovery in 4Q2020. 
The company's sales and marketing strategies bore fruit in 4Q19 with SSSG of +8% and headline revenue growth of +21.0% and net profit growth of +55%. SSSG for FY19 was in line with guidance at +4.0% for the year.
Management mentioned that the strong demand increase in 4Q19 did result in some supply chain shortages of fast-selling items but this did mean that inventory levels fortuitously fell to the most efficient level ever by the end of 2019.
Mitra Adiperkasa (MAPI IJ) has opened five more stores in Vietnam and also set up MAP Active Philippines. It also registered more than 100% growth in its various digital channels last year with online sales accounting for 4% of the total last year but probably more now.
2020 has seen especially strong growth in sales through digital channels as might be expected, with a strong response to marketing campaigns to its 3m MAP members.
The company has quickly imposed a number of measures to save costs in an attempt to alleviate the impact of the virus including a freeze on Capex, negotiations with landlords on rentals, and various measures to protect its staff. 
Mitra Adiperkasa (MAPI IJ) is a long-term core holding facing COVID-19 head-on, given its predominantly retail exposure but it will survive the current onslaught to be a strong 2H20 recovery story. Consensus forecasts have been adjusted down quite significantly already, with earnings expected to fall 35% for FY2020E but to see a strong rebound in EPS in FY21E of +82% to an EPS level significantly above that of FY19. According to consensus, it is now trading on 9.4x FY21E versus its 10-year average of 21x forward PER and average over the last year of 15.8x, making it look attractive for long-term investors.

Mitra Adiperkasa (MAPI IJ) - In the Eye of the Storm

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<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a>'s new CEO Terry O'Connor hosted a conference call for the company's FY19 results yesterday afternoon. The surprise did not come in the numbers but in his forthright and adamant statements that he was making big changes to the company's future strategy and addressing past missteps immediately. There is a full strategic review underway. Is this the catalyst investors have been waiting for to return to the stock? 
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Firstly, the company will continue to address the company's lingering inventory issues, which although improving will take another two quarters to put straight, as it streamlines its assortment and depth of products and flushes out products that should not be there.
Secondly, the company will abandon its speciality store strategy with no more speciality store openings. It will close its <a href="https://www.smartkarma.com/entities/361-degrees-international" target="_blank" data-smartkarma-citation="entities:20744:1" rel="noopener">361 Degrees International (1361 HK)</a> stores, whilst monitoring its OVS stores. He stressed that this was not the brands they were abandoning but the format, which was not working for those brands.
Thirdly, the company would reassess its omnichannel approach to online sales, which remain slow but this would not happen immediately with the immediate focus on getting the core department store business right. 
<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> will continue to expand and will open 4-6 new large-format stores in 2020, all to be opened before Lebaran. It will also focus on improving existing store design. 
Corona Virus has started to impact sales but mainly in areas such as Batam and Bali, which are impacted by falling tourism. The supply chain may be impacted by "a single-digit percentage" if manufacturing gets delayed much longer. 
This is a company with no debt and a forecast ROE of 55% for FY20E, trading on a forward PER of 6.2x and with a forecast dividend yield of 8.7%. Now that we have a number of positive catalysts for change, investors should now revisit the company's fundamentals.


Matahari Department Store (LPPF IJ)'s new CEO Terry O'Connor hosted a conference call for the company's FY19 results yesterday afternoon. The surprise did not come in the numbers but in his forthright and adamant statements that he was making big changes to the company's future strategy and addressing past missteps immediately. There is a full strategic review underway. Is this the catalyst investors have been waiting for to return to the stock? 

Firstly, the company will continue to address the company's lingering inventory issues, which although improving will take another two quarters to put straight, as it streamlines its assortment and depth of products and flushes out products that should not be there.
Secondly, the company will abandon its speciality store strategy with no more speciality store openings. It will close its 361 Degrees International (1361 HK) stores, whilst monitoring its OVS stores. He stressed that this was not the brands they were abandoning but the format, which was not working for those brands.
Thirdly, the company would reassess its omnichannel approach to online sales, which remain slow but this would not happen immediately with the immediate focus on getting the core department store business right. 
Matahari Department Store (LPPF IJ) will continue to expand and will open 4-6 new large-format stores in 2020, all to be opened before Lebaran. It will also focus on improving existing store design. 
Corona Virus has started to impact sales but mainly in areas such as Batam and Bali, which are impacted by falling tourism. The supply chain may be impacted by "a single-digit percentage" if manufacturing gets delayed much longer. 
This is a company with no debt and a forecast ROE of 55% for FY20E, trading on a forward PER of 6.2x and with a forecast dividend yield of 8.7%. Now that we have a number of positive catalysts for change, investors should now revisit the company's fundamentals. 

Matahari Department Store (LPPF IJ) - About Turn and Back to the Core

Indonesia

PT MDS Retailing Tbk is an Indonesian retail company that operates department store chains and online channels under the Matahari brand. It offers a diverse range of products including clothing, fashion apparel, accessories, bags, shoes, cosmetics, beauty products, and household appliances. The company also provides management consulting services. PT MDS Retailing Tbk was founded in 1958 and is headquartered in Tangerang, Indonesia.

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MDS Retailing (LPPF IJ)

Matahari Department Store (LPPF IJ) - Slow Transition to Newness

Matahari Department Store's latest strategies such as the relaunch of Matahari.com and its collaboration with Bank Nobu seem sensible but it may...

Angus Mackintosh

Matahari Department Store (LPPF IJ) - Too Early to Be Early

Matahari Department Store has one of the most interesting retail franchises in Indonesia but has been impacted by COVID-19 whilst in the midst of a...

Angus Mackintosh

Matahari Department Store (LPPF IJ) - Opportunity Knocks?

Matahari Department Store (LPPF IJ) just released its 1Q2020 results, which already reflected the onset on COVID-19 in mid-March, as PSBB measures...

Angus Mackintosh

Mitra Adiperkasa (MAPI IJ) - In the Eye of the Storm

Mitra Adiperkasa (MAPI IJ) recently released a strong set of FY19 numbers, with net revenues up by 14% and net profit up by +43% YoY. No doubt that...

Angus Mackintosh

Matahari Department Store (LPPF IJ) - About Turn and Back to the Core

Matahari Department Store (LPPF IJ)'s new CEO Terry O'Connor hosted a conference call for the company's FY19 results yesterday afternoon. The...

Angus Mackintosh

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