Indonesia Company Guide

Matahari Department Store

Version 5 | Bloomberg: LPPF IJ | Reuters: LPPF.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 9 Feb 2017

HOLD No ray of hope yet

Last Traded Price ( 8 Feb 2017): Rp15,325 (JCI : 5,361.10)
Price Target 12-mth: Rp16,200 (6% upside) (Prev Rp20,300) Cut TP to Rp16,200; HOLD call unchanged. LPPF’s share price
has de-rated sharply to near its record low PE since 2013 due to
the concerns of slower SSSG and rising capex after the company
Potential Catalyst: Strong pick-up in same-store sales growth
announced its plan to increase stakes in MatahariMall.com. It
Where we differ: Generally in line with consensus
now trades at 19x FY17F PE, -2.5SD below its historical mean PE
of 25x. Nevertheless, we see limited catalysts for the share price,
Analyst
Tiesha PUTRI +6221 30034931 tiesha.narandha@id.dbsvickers.com with household discretionary spending yet to show signs of
Andy SIM CFA +65 6682 3718 andysim@dbs.com bottoming.
Recovering SSSG to double-digit level would be a challenging
task. Excluding the impact of Lebaran seasonality shift in 1H16,
What’s New cumulative SSSG has consistently hovered at single-digit levels
• Lowering SSSG and earnings forecasts; maintain over the past one year. Management reiterated that the decline
HOLD with a lower TP of Rp16,200
in SSSG has nothing to do with competition, while the
• Share price has de-rated sharply; our DDM deterioration in 3Q16 was caused by the inventory assortment
valuation analysis suggests that it is fairly valued issue that management failed to address surrounding the
• Lack of catalysts, with discretionary spending yet Lebaran peak season. It is confident that this assortment issue
to show signs of bottoming has been addressed. However, we have yet to see a strong
recovery in discretionary spending. We expect LPPF’s SSSG to
only improve slightly to 7.1% in FY17F from 6.1% in FY16F.
Price Relative E-commerce foray – a long game. Following recent equity
raising for MatahariMall.com led by Mitsui & Co, LPPF is going
to inject Rp590bn cash into MatahariMall.com to avoid
ownership dilution. E-commerce in Indonesia only represents
c.2% of total retail sales but has grown at a spectacular pace.
The intensifying competition has caused customer acquisition
costs to remain elevated, hence funding is crucial to stay in the
game. A question remains on what step LPPF is going to take if
MatahariMall.com requires further equity injection in the future
to remain in the game. While management has announced the
Forecasts and Valuation plan to maintain its stakes in MatahariMall.com below 20%, the
FY Dec (Rp m) 2015A 2016F 2017F 2018F risk of LPPF having to inject more cash to avoid or limit
Revenue 9,007 9,949 11,033 12,304 ownership dilution still prevails should MatahariMall.com carry
EBITDA 2,564 2,906 3,286 3,682 out further capital raising in the future.
Pre-tax Profit 2,245 2,641 2,971 3,317
Net Profit 1,781 2,095 2,357 2,631 Valuation:
Net Pft (Pre Ex.) 1,781 2,095 2,357 2,631
Net Pft Gth (Pre-ex) (%) 25.5 17.6 12.5 11.6 We value LPPF at Rp16,200, based on 20x PE 17F (-2SD below
EPS (Rp) 610 718 808 902 its mean PE since 2013), on par with regional retailers.
EPS Pre Ex. (Rp) 610 718 808 902
EPS Gth Pre Ex (%) 25 18 13 12 Key Risks to Our View:
Diluted EPS (Rp) 610 718 808 902
Net DPS (Rp) 427 503 565 631
Slower-than-expected economic growth. LPPF’s target
BV Per Share (Rp) 379 670 975 1,311 segment makes up c.60% of the country’s population. A
PE (X) 25.1 21.3 19.0 17.0 further slowdown in the economy would impact this
PE Pre Ex. (X) 25.1 21.3 19.0 17.0 segment’s revenue growth, which would hurt its earnings.
P/Cash Flow (X) 20.6 18.7 16.2 14.4
EV/EBITDA (X) 17.1 14.9 13.1 11.4
Net Div Yield (%) 2.8 3.3 3.7 4.1 At A Glance
P/Book Value (X) 40.4 22.9 15.7 11.7 Issued Capital (m shrs) 2,918
Net Debt/Equity (X) CASH CASH CASH CASH Mkt. Cap (Rpbn/US$m) 44,717 / 3,353
ROAE (%) 161.0 107.2 82.9 68.8 Major Shareholders (%)
Earnings Rev (%): (2) (3) (6) Multipolar 20.5
Consensus EPS (Rp): 735 844 941 Asia Color 2.0
Other Broker Recs: B: 27 S: 2 H: 3 Free Float (%) 79.5
Source of all data on this page: Company, DBS Vickers, Bloomberg 3m Avg. Daily Val (US$m) 7.7
Finance L.P ICB Industry : Consumer Services / General Retailers

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ed: CK / sa:MA, PY
Company Guide
Matahari Department Store

WHAT’S NEW

Fairly valued; lack of substantial positive catalysts ahead

SSSG had consistently hovered at single-digit levels, reflecting
the economic cycle. Following weaker-than-expected SSSG in
3Q16, management has lowered its SSSG guidance for FY16
to 5%-6.5% vs. its initial guidance of 7%-7.5%.
Management claimed that the reason behind the weak 3Q16
sales was the misstep in inventory assortment surrounding
the Lebaran peak season, particularly for women’s apparels,
rather than competition from online or specialty retailers. On
top of that, discretionary spending had remained muted in
3Q16, which we believe also contributed to the decline in
SSSG.
The subsequent chart shows that LPPF’s SSSG has broadly
moved in line with nominal household consumption growth.
We expect the demand recovery momentum to continue in
2017 but only at a gradual pace. While demand for
necessities had generally improved in 3Q16, discretionary
household spending growth has yet to show signs of
bottoming as it further eased to 4.3% y-o-y in 4Q16, still
lagging behind non-discretionary household spending. We do
not see a strong reason to expect a surge in nominal
household consumption growth in the near future, which in
the past year hovered between 7% and 8%. For this reason,
restoring SSSG to double-digit levels would be a challenging
task for LPPF, in our view. We now project LPPF’s same-store
sales to grow by 6.1% in 2016F and 7.1% in 2017F (from
7.6%/8.4% for FY16F/FY17F initially). We therefore lower our
net profit forecasts by 2%/3% for FY16F/FY17F. We expect
LPPF net profit to grow by 18% in FY16F and 13% in FY17F.
A change in strategy? LPPF has committed Rp590bn cash to
be injected in stages into Lippo Group’s e-commerce arm
MatahariMall.com from the end of 2016 to 3Q17. The
additional investment is made to avoid LPPF’s ownership
dilution in MatahariMall.com, which recently raised equity of
USD100m – led by Japan’s Mitsui & Co. Prior to this, LPPF
owned a minority stake of 9.47% in MatahariMall.com.
There appears to be a change in management’s strategy with
regard to LPPF’s investment in MatahariMall.com as it
previously guided for no further investment in
MatahariMall.com. Looking ahead, the company aims to
maintain its stake in MatahariMall.com below 20%.
In a statement release to the public, management stated that
it had not planned to participate in any further funding
initiatives by MatahariMall.com, but the question remains on
how far LPPF would let its stake in MatahariMall.com being
diluted should MatahariMall.com require further equity
raising after 3Q17. Not letting its stakes being diluted would
mean that LPPF has to top up its investment in
MatahariMall.com, possibly at a higher price. We note that in
7M16, MatahariMall.com booked a significant loss of
Rp490bn.
PE multiple has de-rated sharply to 2.5SD below historical
mean. LPPF now trades at 19x PE 17F, -2.5SD below its
historical mean since April 2013. The sharp de-rating in the
past month has brought down LPPF’s PE multiple to a level
that is on par with regional peers despite having the highest
ROE. We believe most of the negatives, including the increase
of investment in MatahariMall.com, are already reflected in
the share price.
The company generates more than enough operating cash
flow to cover its capex annually and even if we are to assume
an increase in inventory days by 10 days in 2017 and 2018
due to a persistently weak demand environment or
management’s push toward direct purchase sales, our
calculation shows that LPPF can still generate Rp2.4tr/Rp2.6tr
operating cash flow in 2017F/2018F. If the company
maintains a dividend payout ratio of 70% in the same period
and double its capex budget to Rp1tr per year, it can still fund
the expansion using internal cash.
Our DDM valuation analysis suggests limited downside to
current share price. We ran a three-stage DDM valuation
analysis to estimate the level of reduction in potential future
dividends that the current share price has priced in. Currently,
LPPF maintains a dividend payout ratio of 70% despite its
ability to raise it to 100%. Our DDM model assumes LPPF will
grow its dividend at 13% CAGR over the next 10 years on
the back of: 1) 11% net profit and dividend CAGR in the first
five years, 2) 7% net profit CAGR in the subsequent five years
and a linear increase in dividend payout ratio (DPR) from 70%
in year-5 to 100% in year-10, and 3) stable growth rate of
6% from year-11 onwards. We assume SSSG of 6%-7% in
our model
Based on our calculation, LPPF’s current share price range of
Rp14,800-Rp15,700 implies a scenario of 32%-37% of
annual operating cash flow or roughly Rp1.2tr-Rp1.5tr being
retained to fund capex or working capital needs over the next
10 years. As a comparison, LPPF only allocates Rp450bn
capex budget for FY16 (excluding investment in
MatahariMall.com). This affirms our view that the current
valuation has largely priced in a slowing SSSG and more
importantly the risk of significant rise in capex or investment
as the company works to achieve its goal to become an
omnichannel retailer. Our key assumptions and sensitivity
analysis on the DDM valuation are presented on the
subsequent page.

ASIAN INSIGHTS VICKERS SECURITIES

Page 2

We see limited positive catalysts, especially since the demand
environment (particularly for discretionary spending) has yet
to show signs of an encouraging pick-up. What can surprise
on the upside would be if LPPF manages to improve its
profitability, be it from further opex efficiency or
improvement in sales mix (toward more direct purchase), and
if there is further increase in its dividend payout ratio from
the current level of 70%.
The company has continued to roll out initiatives to increase
profitability, among which is to improve its sales mix. The
company recently opens its first specialty store in Jakarta,
called Nevada Store, to test the market. Nevada Store sells
LPPF’s private label apparels and shoes i.e. Nevada,
Connexion, Details, and Cole, which command higher
margins compared to consigned merchandise. In 9M16, the
higher-margin direct purchase (DP) accounted for 36.7% of
LPPF’s gross sales (vs. 35.3% in 9M15). There is also room to
improve its sales mix if LPPF can increase sales of women’s
apparels, which command higher margins and currently only
contribute 8%-9% of total sales.
Indonesia’s Internet retailing landscape in brief. Indonesia’s
retail landscape is still dominated by brick-and-mortar shops
while Internet retailing only makes up a small fragment with a
share of less than 2% of total retail sales. It nonetheless has
grown at a spectacular pace with a CAGR of 45% in 2011-
2016, driven by the strong penetration of smart phones.
Apparel and footware Internet retailing is the fastest growing
category with a CAGR of 152% in 2011-2016. It represented
24% of total Internet retailing revenue.
Indonesia’s Internet retailing is still in the early stages, which
means gaining market share remains the main objective of
the key players for the time being rather than turning the
business into a profitable venture. This keeps customer
acquisition costs elevated given the tight competition among
existing and new players to attract traffic. Two key challenges
faced by online retailers in Indonesia are high unbanked
population (over 70% of population does not have a bank
account) and poor infrastructure.
LPPF’s SSSG vs. private consumption expenditure growth
30.0
1H16 SSSG was
expectionally high due
25.0 to a shift in Lebaran
peak season.
20.0
15.0
10.0
5.0
SSSG, % (LHS) Private consumption GDP (current price), %
Source: Company, DBS Vickers, Bloomberg Finance L.P
ASIAN INSIGHTS
Company Guide
Matahari Department Store
Competition against online fashion retailers should not be
overlooked. We visited some major online retailers’ websites
to get the on-the-ground perspective on how intense the
competition is among the players. We focus our observation
on key players in fashion retailing, an area where we see that
LPPF has an edge over the competitors given its long
experience in the field. We limit our observation to
blouse/shirt and t-shirt categories for both women and men.
We also visited LPPF’s first Nevada Store in Jakarta to compare
the price offerings against online fashion retailers.
The highlights from our observation are:
i. Key players are crowding into middle-class apparel
market. The Alibaba-backed Lazada, Zalora and
BerryBenka on average have 90% of SKU with final
price (after discount) ranging between Rp100,000-
300,000 (USD8-22). As a comparison, the average
basket size of LPPF’s offline stores is c.USD20.
Increasing competition against online retailers
should not be overlooked, especially since LPPF
caters to the middle-class segment, which could
turn increasingly price sensitive when the economy
slows.
ii. For LPPF’s private label items, discount on online
store nearly doubled that given on onffline stores.
Discounts given on MatahariMall.com are generally
higher than those in Nevada Store (offline). We
observed that a 20% promotional discount is given
on apparels sold in Nevada Store. The similar items
are sold at a 36% discount on MatahariMall.com. It
is worth noting that any promotional discount given
for purchases made through MatahariMall.com is
borne by LPPF. The impact of heavy online
promotion is not significant for now as online sales
contribution is still small, at less than 1% of LPPF’s
total sales.
Cash flow and FCFF trend and forecasts
Rp bn
3,500
3,000
2,500
2,000
1,500
1,000
500
0
(500) 2014A 2015A 2016F 2017F 2018F
(1,000)
(1,500)
Operating cash flow Cash flow from investing act. FCFF
Source: DBS Vickers
VICKERS SECURITIES
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Company Guide
Matahari Department Store

LPPF’s investment in MatahariMall.com

LPPF's
LPPF stakes in
Date investment in
GEI
GEI (Rp bn)
Feb-15 LPPF signed agreement to buy share purchase option of GEI
Aug-15 LPPF exercised option to buy 2.5% stakes 2.5% 32
Sep-15 LPPF's stakes in GEI was diluted after IDV purchased GEI's new shares 2.3% 32
Dec-15 LPPF's stakes in GEI was diluted after IDV purchased GEI's new shares 2.0% 32
Dec-15 LPPF exercised option to buy 4,404,700 shares in GEI 5.2% 85
Jan-16 LPPF exercised option to buy 7,864,075 stakes in GEI 9.5% 180
LPPF announced a plan to increase stakes to a max of 20% in GEI by
Nov-16
injecting Rp590bn in stages
LPPF issue public disclosure on its plan to acquire 7,326,495 shares in
Dec-16 GEI for Rp165bn (part of the investment plan announced in Nov-16)
before end of Jan-17
*GEI is the parent company of MatahariMall.com
Source: Company, DBS Vickers

Key assumptions for DDM valuation analysis Sensitivity matrix for DDM valuation
A ( ba s e ) B Risk-free rate
Cost of equity Avg. DPR in 7.5% 8.0% 8.5% 9.0%
High growth period (17F-22F) 14.5% 14.5% transition 85% 15,800 15,200 14,800 14,300
Transition period (23F-27F) 11.0% 11.0% period 100% 16,800 16,200 15,700 15,200
Stable growth period (28F onward) 6.0% 6.0%
NPV of dividends in high growth period (Rp bn) 8,235 8,235 Risk-free rate*
CAGR 11% 11% 7.5% 8.0% 8.5% 9.0%
Terminal growth*

DPR 70% 70% 4.0% 12,400 12,100 11,700 11,400

NPV of dividend in transition period (Rp bn) 7,456 8,773 4.5% 13,100 12,700 12,300 11,900
CAGR 15% 16% 5.0% 13,800 13,400 13,000 12,600
Avg. DPR 85% 100% 5.5% 14,700 14,200 13,800 13,400
NPV of dividends in stable growth period (Rp bn) 27,353 28,792 6.0% 15,800 15,200 14,800 14,300
DPR 100% 100% 6.5% 17,000 16,500 15,900 15,400
NPV ( Rp bn) 43, 044 45, 799
*Based on the assumption of 85% avg. DPR in transition period
NPV/s ha re ( Rp) 14, 800 15, 700
Source: DBS Vickers
Source: DBS Vickers

LPPF launched its first Nevada Store in Jakarta to test the market

Source: DBS Vickers

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 Company Guide
Matahari Department Store

Quarterly SSSG Trend

CRITICAL DATA POINTS TO WATCH
50%

40%
Earnings Drivers:
Stable SSSG and new store openings. We assume 6.1%/7.1% 30%

SSSG, and the opening of 8/7 new stores in FY16F/17F. LPPF 20%

saw weaker SSSG in FY15 (i.e. 6.8%) because of generally 10%

weaker consumer spending and slower economy, especially in 0%
ex-Java islands such as Kalimantan where incomes have been

1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
-10%
affected by low commodity prices and several closures of
-20%
commodity-related businesses. Kalimantan’s economy is
dependent on the commodity industry, such as coal-mining -30%

and oil palm cultivation. SSSG Same-store sales volume growth

Direct Purchase vs. Consignment Sales

LPPF opened 10-11 new stores annually in the past two years.
100% 37%
For 2017, we assume that LPPF will open 7seven new stores,
in line with management’s guidance. 80%
32% 34% 36% 37% 38% 39%
36%

60%
Recovery of consumer sentiment. LPPF’s target market is mid-
35%
low/middle income consumers, which make up about 60% of
40%
the country’s population. A pick-up in the consumer 68% 66% 64% 63% 62% 61%
34%
sentiment, represented by the Consumer Confidence Index, 20%

would help lift sales growth.

0% 33%
2013 2014 2015A 2016F 2017F 2018F
Larger share of retail sales to lift margins. LPPF operates two Consignment sales Retail sales (direct purchase)
main business segments: consignment sales and retail sales. Service fees Gross margin (RHS)

Gross margins from retail sales (or direct purchase) are higher
New Stores
than from consignment sales, at c.44% vs. c.31%. Going
forward, we expect retail sales to outpace consignment sales,
which would expand margins as the revenue mix shifts.

Expect net profit to grow at 12% CAGR (FY16F-18F). Our

earnings projection is premised on: (1) margin expansion
arising from a shift in revenue mix (we expect the higher-
margin retail sales to contribute 39% to LPPF’s gross revenue
in FY18 vs. 36% in FY15), (2) new stores openings, and (3) an
uptick in same-store sales growth as the economy recovers,
supported by a debt-free balance sheet and strong cash flow Same-Store Sales Growth (%)
generation.

Low exposure to USD/IDR volatility. More than 80% of LPPF’s

products are sourced locally, so margins are virtually
unaffected by the volatile rupiah. Currently, the rupiah is
hovering around Rp13,300 to the US dollar. Our in-house
forecast for the rupiah is Rp13,876 by the end of 2017,
implying 4% depreciation, assuming four 25bps fed rate hikes
in 2017. We like LPPF for its minimal exposure to the USD and
relatively stable earnings throughout our forecast period.
Source: Company, DBS Vickers

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Company Guide
Matahari Department Store

Leverage & Asset Turnover (x)

Balance Sheet:
An asset-light, debt-free company. At the end of 2015, LPPF
has paid off its outstanding debt, in line with its objective in
being debt-free by end of last year. The other positive aspect is
the company’s asset-light business model. We like that 100%
of LPPF’s stores are leased – 70% on 10-year fixed rent
contracts and 30% on revenue sharing contracts with the
space operator.

LPPF also does not rely heavily on distribution centres as its

effective supply chain allows for just-in-time inventory system;
Capital Expenditure
its goods are shipped to its stores nationwide within 48 hours
of arriving at the distribution centre. This business model has
allowed the company to improve its operating efficiency, and
its store and marketing initiatives have expanded net margins
over the past few years.

Share Price Drivers:

Better-than-expected same store growth. A recovery in the
domestic economy and a pick-up in consumer spending will
be reflected in better-than-expected SSSG for LPPF. In FY15,
LPPF stores recorded 6.8% SSSG, which was weak but ROE (%)
relatively better than peers’ amid the slow economy.

Key Risks:
Slower demand because of higher price of subsidised fuel
Increase in fuel price could reduce middle-low/middle income
consumers’ disposable income, subsequently reducing
discretionary spending.

Limited available space for expansion

LPPF’s store expansion could be slowed down if space
becomes more limited. This could lead to a slower-than- Forward PE Band (x)
expected revenue growth for the firm. 33

31
+2sd
29
Company Background +1sd
27
PT Matahari Department Store Tbk engages in the retail Avg.
25
business for several types of products such as clothes,
23
accessories, bags, shoes, cosmetics, and household -1sd

appliances. 21
-2sd
19

17
Apr-13 Apr-14 Apr-15 Apr-16 Apr-17

EV/EBITDA Band (x)

22.0
21.0
+2sd
20.0
19.0 +1sd
18.0
17.0 Avg.

16.0
-1sd
15.0
14.0 -2sd
13.0
12.0
Apr-13 Apr-14 Apr-15 Apr-16

Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

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 Company Guide
Matahari Department Store

Key Assumptions
FY Dec 2014A 2015A 2016F 2017F 2018F
New Stores 6.00 11.0 8.00 7.00 8.00
Same-Store Sales Growth 10.7 6.80 6.10 7.10 7.60

Segmental Breakdown
FY Dec 2014A 2015A 2016F 2017F 2018F
Gross Revenues (Rpbn)
Consignment sales 9,552 10,354 11,109 11,966 12,961
Retail sales (direct 4,899 5,729 6,420 7,219 8,159
Service fees 45.4 50.2 54.7 59.9 65.9
Total 14,496 16,133 17,584 19,246 21,185
Gross Profit (Rpbn) We forecast 9% growth
Consignment sales 2,981 3,228 3,474 3,754 4,079 in gross revenue in
Retail sales (direct 2,038 2,412 2,735 3,111 3,516 FY17F
Service fees 28.7 31.8 35.6 38.9 42.9
Total 5,048 5,671 6,245 6,905 7,638
Gross Profit Margins (%)
Consignment sales 31.2 31.2 31.3 31.4 31.5
Retail sales (direct 41.6 42.1 42.6 43.1 43.1
Service fees 63.3 63.4 65.0 65.0 65.0
Total 34.8 35.2 35.5 35.9 36.1

Income Statement (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F
Revenue 7,926 9,007 9,949 11,033 12,304
Cost of Goods Sold (2,878) (3,336) (3,704) (4,129) (4,666)
Gross Profit 5,048 5,671 6,245 6,905 7,638
Other Opng (Exp)/Inc (2,937) (3,342) (3,636) (3,977) (4,374)
Operating Profit 2,111 2,330 2,609 2,928 3,264
Other Non Opg (Exp)/Inc (27.1) 8.10 8.10 8.10 8.10
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc (233) (92.8) 23.7 34.8 44.9
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 1,851 2,245 2,641 2,971 3,317
Tax (431) (464) (546) (614) (686)
Minority Interest 0.0 0.0 0.0 0.0 0.0
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 1,419 1,781 2,095 2,357 2,631
Net Profit before Except. 1,419 1,781 2,095 2,357 2,631
EBITDA 2,318 2,564 2,906 3,286 3,682
Growth
Revenue Gth (%) 17.3 13.6 10.5 10.9 11.5
EBITDA Gth (%) 17.2 10.6 13.3 13.1 12.1
Opg Profit Gth (%) 18.5 10.3 12.0 12.2 11.5
Net Profit Gth (Pre-ex) (%) 23.4 25.5 17.6 12.5 11.6
Margins & Ratio
Gross Margins (%) 34.8 35.2 35.5 35.9 36.1
Opg Profit Margin (%) 14.6 14.4 14.8 15.2 15.4
Net Profit Margin (%) 9.8 11.0 11.9 12.2 12.4
ROAE (%) 891.1 161.0 107.2 82.9 68.8
ROA (%) 41.6 45.8 43.4 39.9 36.9
ROCE (%) 122.9 118.4 85.9 70.4 60.5
Div Payout Ratio (%) 60.0 70.0 70.0 70.0 70.0
Net Interest Cover (x) 9.0 25.1 NM NM NM
Source: Company, DBS Vickers

ASIAN INSIGHTS VICKERS SECURITIES

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Company Guide
Matahari Department Store

Quarterly / Interim Income Statement (Rpbn)

FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016

Revenue 2,892 2,194 1,862 3,318 2,343

Cost of Goods Sold (1,080) (816) (700) (1,196) (874)
Gross Profit 1,812 1,378 1,162 2,122 1,468
Other Oper. (Exp)/Inc (887) (832) (856) (967) (909)
Operating Profit 925 547 307 1,155 560
Other Non Opg (Exp)/Inc 2.50 5.60 1.70 (3.7) 0.40
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc (13.3) (48.5) 0.60 (2.4) 4.40
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 914 504 309 1,149 565
Tax (178) (107) (65.2) (235) (112)
Minority Interest 0.0 0.0 0.0 0.0 0.0
Net Profit 736 397 244 913 453
Net profit bef Except. 736 397 244 913 453
EBITDA 988 615 367 1,219 627

Growth
Revenue Gth (%) 25.6 (24.1) (15.1) 78.2 (29.4)
EBITDA Gth (%) 49.7 (37.8) (40.3) 232.1 (48.5)
Opg Profit Gth (%) 53.6 (40.9) (43.9) 276.6 (51.5)
Net Profit Gth (Pre-ex) (%) 59.1 (46.1) (38.6) 274.7 (50.4)
Margins
Gross Margins (%) 34.4 35.3 35.3 36.6 35.0
Opg Profit Margins (%) 17.6 14.0 9.3 19.9 13.3 Margins based on
Net Profit Margins (%) 14.0 10.2 7.4 15.8 10.8 gross revenue

Balance Sheet (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F

Net Fixed Assets 726 877 1,030 1,122 1,150

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0
Other LT Assets 570 740 982 1,425 1,425
Cash & ST Invts 786 947 1,393 1,794 2,807
Inventory 955 1,008 1,100 1,238 1,411
Debtors 45.1 39.3 46.6 51.7 57.6
Other Current Assets 331 279 279 279 279
Total Assets 3,413 3,889 4,831 5,909 7,129

ST Debt 423 110 110 110 110

Creditor 1,411 1,552 1,645 1,833 2,072
Other Current Liab 685 777 777 777 777
LT Debt 410 0.0 0.0 0.0 0.0
Other LT Liabilities 325 344 344 344 344
Shareholder’s Equity 159 1,106 1,954 2,844 3,826
Minority Interests 0.0 0.0 0.0 0.0 0.0
Total Cap. & Liab. 3,413 3,889 4,831 5,909 7,129

Non-Cash Wkg. Capital (764) (1,002) (996) (1,042) (1,101)

Net Cash/(Debt) (46.8) 836 1,283 1,684 2,696
Debtors Turn (avg days) 2.1 1.6 1.7 1.7 1.7
Creditors Turn (avg days) 192.8 182.6 176.2 177.5 178.0
Inventory Turn (avg days) 130.5 118.6 117.9 119.8 121.3
Asset Turnover (x) 2.3 2.3 2.1 1.9 1.7
Current Ratio (x) 0.8 0.9 1.1 1.2 1.5
Quick Ratio (x) 0.3 0.4 0.6 0.7 1.0
Net Debt/Equity (X) 0.3 CASH CASH CASH CASH
Net Debt/Equity ex MI (X) 0.3 CASH CASH CASH CASH
Capex to Debt (%) 32.5 343.0 407.8 407.8 404.0
Z-Score (X) 12.0 13.7 13.2 12.7 12.2
Source: Company, DBS Vickers

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Cash Flow Statement (Rpbn)

FY Dec 2014A 2015A 2016F 2017F 2018F

Pre-Tax Profit 1,851 2,245 2,641 2,971 3,317

Dep. & Amort. 207 234 297 358 418
Tax Paid (431) (464) (546) (614) (686)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (87.0) 240 (6.3) 46.0 58.7
Other Operating CF 167 (79.5) 0.0 0.0 0.0
Net Operating CF 1,705 2,175 2,386 2,761 3,108
Capital Exp.(net) (271) (379) (450) (450) (446)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 1.70 (84.6) (242) (443) 0.0
We have factored in
Net Investing CF (269) (463) (692) (893) (446) Rp590bn investment in
Div Paid (460) (851) (1,247) (1,467) (1,650) MatahariMall.com with
Chg in Gross Debt (988) (700) 0.0 0.0 0.0 25% of total
Capital Issues 0.0 0.0 0.0 0.0 0.0 investment being
Other Financing CF 0.0 0.0 0.0 0.0 0.0 disbursed in FY16F.
Net Financing CF (1,448) (1,551) (1,247) (1,467) (1,650)
Currency Adjustments 25.6 0.0 0.0 0.0 0.0
Chg in Cash 13.7 161 446 402 1,012
Opg CFPS (Rp) 614 663 820 930 1,045
Free CFPS (Rp) 492 616 663 792 912
Source: Company, DBS Vickers

Target Price & Ratings History

Source: DBS Vickers

Analyst: Tiesha PUTRI
Andy SIM CFA

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DBS Vickers recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends

Completed Date: 9 Feb 2017 07:55:21 (WIB)

Dissemination Date: 9 Feb 2017 14:49:43 (WIB)

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by PT DBS Vickers Sekuritas Indonesia. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities
(Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied,
photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PT DBS Vickers Sekuritas
Indonesia.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to
change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard
to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of
addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal
or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of
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document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or
persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it
may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no
obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
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UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
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assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research
department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction
in the past twelve months and does not engage in market-making.

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ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. As of 9 Feb 2017, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold
interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s)
responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and
procedures are in place to ensure that confidential information held by either the research or investment banking function is handled
appropriately.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. PT DBS Vickers Sekuritas Indonesia (''DBSVI'') have a proprietary position in Matahari Department Store recommended in this report as of 8
Feb 2017.

Compensation for investment banking services:

2. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced:

3. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

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received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other
services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

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Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No.
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Otoritas Jasa Keuangan (OJK)

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