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1、,Company report,Consumer&RetailFood&Staples RetailingEquity Indonesia,abcGlobal Research,Sumber Alfaria Trijaya(AMRT IJ),Neutral(V),Upgrade to N(V):Alfamart swallows Midi,Target price(IDR)Share price(IDR)Potential return(%),5,7355,2509.2,Alfamart ups its stake in sister company,Midi,to 54.575%from 1
2、2.75%,consolidating it into its financial accounts,Note:Potential return equals the percentagedifference between the current share price and,The transaction is at best fairly valued,while the benefits are,the target priceDecHSBC EPSHSBC PE,2011 a 2012 e105.10 160.4950.0 32.7,2013 e221.9523.7,uncerta
3、in Upgrade to N(V)(from UW(V)and raise target price to,PerformanceAbsolute(%)Relative(%),1M7.13.1,3M-0.9-2.9,12M32.119.2,IDR5,735(from IDR4,450),owing largely to the cost of equityfor Indonesia being lowered by our strategist,Note:(V)=volatile(please see disclosure appendix)Alfamart ups stake in sis
4、ter company Midi:Alfamart announced on 18 January 2013that it is purchasing 1.205bn shares in Midi Utama(MIDI IJ)worth IDR964.4bn atIDR800 per share(closing price on 17 January 2013),which is equivalent to 41.825%ofMidis stake,from Djoko Susanto,the majority owner of both Alfamart and Midi.Theacquis
5、ition gives Alfamart a 54.575%controlling stake in Midi,which will result in theconsolidation of both companies financial accounts.The Midi share purchase will resultin a cash payment from Alfamart to Djoko Susanto with none of the minority shareholders,25 January 2013Permada Darmono*AnalystThe Hong
6、kong and Shanghai BankingCorporation Limited(Singapore Branch)+65.sgView HSBC Global Research at:http:/*Employed by a non-US affiliate ofHSBC Securities(USA)Inc,and is notregistered/qualified pursuant to FINRAregulationsIssuer of The Hongkong and Shanghaireport:Banking Corporation Limited,Singapore
7、BranchMICA(P)038/04/2012MICA(P)063/04/2012MICA(P)110/01/2013Disclaimer&DisclosuresThis report must be readwith the disclosures andthe analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it,benefiting.At 47.2x 2012e Midis earnings,we think the valuation was hi
8、gh,especiallycompared with the sector average of 26.2x.At best,this was a fairly priced transactionassuming that Midis share price is its fair value.Growth expectations too high:The acquisition marginally raises our earnings forecastsby 3%for 2013e and 4%for 2014e.We maintain our thesis that the mar
9、ket is pricing inan overly optimistic growth scenario for Alfamart.We raise our DCF-based target price toIDR5,735,largely owing to a decline in the cost of equity for Indonesian stocks from 11%to 10%,as calculated by our global equity strategists.HSBC versus consensus:We believe that Alfamart is fai
10、rly valued,trading at a 23.7x2013e PE,in line with the sector average,despite our EPS estimates being 12%aboveconsensus for 2013e and 2014e.We think other analysts are valuing Alfamart usingmultiples that overlook the risk of decelerating growth.Upside risks:better-than-expected growth,synergies fro
11、m acquisition and negligiblecompetition.Downside risks:earnings miss,price wars and stronger-than-expected competition,adverseregulatory developments,deterioration in supplier relationships and supply chain disruptions.Index JAKARTA SE COMP Enterprise value(IDRb)19,911Index level 4,419 Free float(%)
12、25RIC AMRT.JK Market cap(USDm)2,060Bloomberg AMRT IJ Market cap(IDRb)19,819Source:HSBC Source:HSBC,Sumber Alfaria Trijaya(AMRT IJ)Food&Staples Retailing25 January 2013Financials&valuationFinancial statements,Key forecast drivers,abc,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Year to,12/2011a,12/201
13、2e,12/2013e,12/2014e,Profit&loss summary(IDRb),Jakarta revenue,9,376,11,252,13,277,15,269,RevenueEBITDADepreciation&amortisationOperating profit/EBIT,18,227965-468497,23,4901,156-493663,35,6151,702-748954,43,8162,088-9201,168,Other Java revenueSumatra revenueMidi UtamaTotal,7,6911,160018,227,10,3831
14、,856023,490,13,4982,9695,87235,615,16,8724,4537,22243,816,Net interest,-87,-66,-66,-66,PBTHSBC PBT,410410,672672,978978,1,2341,234,DCF analysis,TaxationNet profit,-49361,-121551,-196762,-247954,HSBC assumptions,DCF,comprising,HSBC net profitCash flow summary(IDRb),361,551,762,954,Risk-free rate(%)Eq
15、uity premium(%),3.007.00,FCF CAGR 2013e-22e(%)Terminal growth rate(%)WACC(%),7.75.09.9,Cash flow from operationsCapex,931-492,1,091-466,1,637-466,2,023-466,Cash flow from investmentDividendsChange in net debtFCF equityBalance sheet summary(IDRb)Intangible fixed assetsTangible fixed assetsCurrent ass
16、etsCash&others,-788-120-242902,2092,582585,-747-177-16754302,2953,371852,-747-2711,0601,01504,6264,229508,-747-375-9021,35004,4365,9441,410,Sensitivity and target price range(IDR)Cost of capital vs terminal growthrate8.0%9.0%9.9%11.0%12.0%,4.0%7,3725,8474,9154,1003,552,5.0%9,1766,9435,5594,5023,831,
17、6.0%12,7858,5046,5235,0664,203,Total assets,5,015,5,891,9,079,10,605,Operating liabilitiesGross debt,2,5531,001,3,1601,101,4,7001,817,5,7421,817,Valuation data,Net debtShareholders fundsInvested capital,4161,4601,652,2491,7401,654,1,3092,3643,647,4072,8493,229,Year toEV/salesEV/EBITDA,12/2011a1.120.
18、8,12/2012e0.817.2,12/2013e0.612.4,12/2014e0.59.7,EV/IC,12.2,12.0,5.8,6.3,Ratio,growth and per share analysis,PE*P/NAV,50.012.3,32.710.4,23.77.6,18.96.3,Year toY-o-y%change,12/2011a,12/2012e,12/2013e,12/2014e,FCF yield(%)2.2Dividend yield(%)1.0Note:*=Based on HSBC EPS(fully diluted),2.81.5,5.12.1,6.8
19、2.6,RevenueEBITDAOperating profit,29.646.559.9,28.919.833.3,51.647.244.0,23.022.722.4,Price relative,PBTHSBC EPS,41.341.0,63.852.7,45.638.3,26.125.3,61505650,61505650,Ratios(%),5150,5150,Revenue/IC(x)ROICROEROAEBITDA marginOperating profit marginEBITDA/net interest(x)Net debt/equityNet debt/EBITDA(x
20、)CF from operations/net debt,12.329.528.39.55.32.711.128.50.4223.7,14.232.934.411.24.92.817.514.30.2438.2,13.428.837.111.24.82.725.851.10.8125.0,12.727.236.610.64.82.731.613.40.2497.1,465041503650315026502150Jan-11 Jul-11Sumber Alfaria TrijayaSource:HSBC,Jan-12 Jul-12Rel to JAKARTA S E COMPOSITE,465
21、041503650315026502150Jan-13,Per share data(IDR),Note:price at close of 23 Jan 2013,EPS reported(fully diluted)HSBC EPS(fully diluted)DPSNAV,105.10105.1051.70425.58,160.49160.4978.95507.12,221.95221.95109.18688.92,278.03278.03136.77830.18,2,3,Sumber Alfaria Trijaya(AMRT IJ)Food&Staples Retailing25 Ja
22、nuary 2013Faster expansion throughconsolidation Alfamart consolidates sister company,Midi,through the purchaseof a 41.825%stake from Djoko Susanto Acquisition raises our 2013e and 2014e earnings estimates by 3%and 4%,respectively Upgrade to N(V)(from UW(V)and raise target price to IDR5,735(from IDR4
23、,450),abc,Alfamart raises stake in MidiOn 18 January 2013,Alfamart announced that itwas increasing its stake in Midi Utama(MIDI IJ)to 54.575%,from 12.75%previously,through thepurchase of 1.205bn shares in Midi Utama(Midi)for IDR964.44bn in cash.The shares wereacquired from PT.Amanda Cipta Persada(Am
24、anda),which is 99.99%owned by DjokoSusanto(the majority owner and founder of,Alfamart)and family,for IDR800 per share,Midis closing share price on 17 January 2013.Midi was established in 2007 by Djoko Susantoand operates minimarkets under the brandsAlfamidi,Alfaexpress and Lawson.As atDecember 2011,
25、Midi operated 323 Alfamidi,176Alfaexpress and 10 Lawson stores along withthree distribution centres.It planned to open 130Alfamidi and 100 Lawson stores in 2012.,Figure 1:Alfamart shareholding of Midi pre-acquisitionPT.Sigmantara Alfindo(Djoko Susanto&Family),99.999%PT.Amanda CiptaPersada41.825%PT.M
26、idi Utama(Midi)Source:Company data,12.75%,55.923%PT.Sumber AlfariaTrijaya(Alfamart),Lawson,caf+retail,4,000m,Hybrid,Sumber Alfaria Trijaya(AMRT IJ)Food&Staples Retailing25 January 2013However,Alfamart advised that Midi only hadaround 600 stores at the end of 2012.The Alfamidi brand is positioned as
27、a communityminimarket located in residential areas offeringaffordably priced,everyday items.Alfaexpressfocuses on fast service for customers,while Lawsonis a franchise convenience store from Japan.Figure 2:Different format comparisonAlfamart Alfamidi Alfaexpress,While we acknowledge the possibility
28、of costsavings through synergies,such as streamliningdistribution centres,closing overlapping stores,integrating procurement and unifying functionaldivisions,there is no disclosure from the companieson how much synergy can potentially be extracted.As such,our pro-forma numbers do not yet assumeany c
29、ost savings as a result of the acquisition.Acquisition appears expensivewith majority owner benefiting,abc,Avg sellingarea(sqm),90,200-400,35-100,N/A,The acquisition of Midi was transacted at IDR800,Sales mixSKUCapex/new,70%food;30%non-food4,000700-850m,20%food Serves fast Serves fastand 80%food&dri
30、nks food&drinksnon-food7,000 2,500 N/A2,000-2,000-2,000-,per share,ie,the closing price of the stock on 17January 2013,the day before the announcement ofthe acquisition.This price equates to 47.2x 2012e,store(IDR)3,000m 4,000mUnique Modern retail Located in Expressselling point at affordable residen
31、tial checkout and,PE compared with Alfamarts 32.7x 2012e PE andthe sector market-cap-weighted average 26.2x PE.,prices areas and serves fastoffers fresh food&drinksfoodSource:Company,HSBC estimates,model;providesseating areainside andoutside thestores,Measured by EV/EBITDA,the transaction wasvalued
32、at 11.4x 2012e EV/EBITDA versusAlfamarts 17.2x and a sector market-cap-weighted average of 14.9x.,As at the end of 2012,Alfamart had 7,064 stores.With the increase of its stake in Midi leading toconsolidation of reporting,Alfamart will gainaround 600 stores or approximately 8.5%of itsexisting store
33、base.According to the company,the rationale for theincrease in stake is as follows:To gain synergy from logistics as well asother functional divisions such as marketing,human resources and IT.To expand its sales channels to sell groceriesand offer payment points for motorcycleinstalments,utilities,t
34、rain tickets and otherservices.To expand its brand offerings to includeAlfamidi,Alfaexpress and Lawson;and To expand its channels of distribution.,We use 2012e PE and EV/EBITDA to evaluatethe transaction as consensus forecasts for Midi areunavailable.From a PE standpoint,the acquisitionlooks expensi
35、ve to us with Midis PE multipletrading at a 44%premium to Alfamarts and an80%premium to the market-cap-weighted sectoraverage while from an EV/EBITDA perspective,the transaction appears more reasonable.We estimate(using the limited information wehave)that Midi would generate earnings after taxof aro
36、und IDR62bn in 2013e,equivalent to IDR21per share.At IDR800 per share,Alfamart ispaying around 37.3x 2013e PE for Midi.The best gauge of whether an acquisitionrepresents good value for shareholders is typicallyto use DCF and incorporate all synergies andoperating improvements brought about by theacq
37、uisition.However,we feel there is insufficientdisclosure regarding the transaction and from,Midi to build into our DCF assumptions.4,Alfamart,PresidentChain,SMInvestments,AceHardware,SiamMakro,Hero,DairyFarm,MAPI,BigC,Philippine7,Ramayana,Puregold,Modern,Jollibee,CPAll,URC,Midi,1000,Sumber Alfaria T
38、rijaya(AMRT IJ)Food&Staples Retailing25 January 2013It is worth noting the only parties that willimmediately benefit from the transaction areDjoko Susanto and family.Alfamart will payIDR964.4bn(cUSD100m)for Djokos stake inMidi owned by Amanda.As at 30 September2012,Alfamart only had IDR434.3bn in ca
39、sh.Thus,it will have to finance the remainder inorder to pay out the required amount.Indeed,Alfamarts director and corporate secretary,Fernia Kristanto,stated that part of the acquisitionwill be financed through an IDR900bn creditobtained from Bank Central Asia.Figure 3:Acquisition of Midi(IDR bn)12
40、00,This transaction will clearly raise the risk forpassive minority shareholders of Alfamart owing tothe increased leverage on Alfamarts balance sheetwithout them being compensated for the extra risk.At IDR800 per share,Midis market cap is valuedat IDR1,767.11bn with around 600 stores.Thisworks out
41、to a valuation of IDR2.9bn per storecompared with the average Alfamart capex per newstore of IDR0.70-0.85bn.As such,Alfamart ispaying around three times its usual capex per storeto acquire the 600 operating stores from Midi.That said,Alfamarts acquisition of Midi probablymakes sense from an operatio
42、nal efficiencystandpoint as it opens up the opportunity tostreamline operations,reduce cannibalisation and,abc,800600400200,434.3,530,964.4,improve the combined groups strategic direction.At best,we believe this was a fairly valuedtransaction with the market price assumed to bethe correct valuation
43、for Midi.,0,Cash,Credit finance,Acquisition,Source:Company dataFigure 4:Midi and comparables 2012e PE multiples,90.0080.0070.00,84.30,60.0050.0040.0030.0020.00,26.13,41.59,31.75,31.80,24.86,37.91,51.88,47.24,44.56,20.08,32.70,Weighted average of26.2x34.2529.0725.6322.06,30.71,10.000.00Source:Thomson
44、 One,HSBC estimates5,IDR bn,Jakarta,Revenue,Sumber Alfaria Trijaya(AMRT IJ)Food&Staples Retailing25 January 2013Fairness opinionAlfamart engaged the services of an independentappraiser to evaluate the transaction,Jennywati,Kusnanto&Partners.,Figure 5:Changes to income statement forecast_ 2013e _ _ 2
45、014e_Old New Chg Old New Chg13,277 13,277 0%15,269 15,269 0%,abc,Other Java,13,498 13,498,0%16,872 16,872,0%,The independent appraiser used DCF andcomparables in order to arrive at its conclusion.Itwas furnished with internal data by themanagement of both companies.,SumateraMidi UtamaTotalGross prof
46、itMargin,2,969 2,9695,87229,743 35,6154,462 5,34215.0%15.0%,0%4,453 4,4537,22220%36,594 43,81620%5,489 6,5720%15.0%15.0%,0%20%20%0%,Jennywati,Kusnanto&Partners ascribed a fairvalue of IDR1,033.66bn to Djoko Susantos41.825%stake in Midi.The acquisition was transacted at IDR964.4bn,amounting less to t
47、he fair valuation of the appraiser.Marginal impact to earningsWe model for the combined company by creating2013e pro-forma financials for Midi.We thenconsolidate these with our forecast financials forAlfamart.,EBITDADep&amortEBITJakartaOther JavaSumateraMidi UtamaUnallocatedTotalMarginJakartaOther J
48、avaSumateraMidi UtamaTotalPBTIncome tax,1,526-625690702134-6259015.2%5.2%4.5%3.0%925-185,1,702-748690702134176-7489545.2%5.2%4.5%3.0%2.7%978-196,12%20%0%0%0%20%6%0%0%0%-12%6%6%,1,872-768794877200-7681,1035.2%5.2%4.5%3.0%1,147-229,2,088-920794877200217-9201,1685.2%5.2%4.5%3.0%2.7%1,234-247,12%20%0%0%
49、0%20%6%0%0%0%-12%8%8%,Min interests,0,-21,0,-33,We assume Midi can add IDR5.9tn in revenue toAlfamart in 2013 on the assumption that it cangrow its revenue by 50%y-o-y,which has been,Ears after taxSource:HSBC estimates,740,762,3%,918,954,4%,its annual growth rate over the past two years.Weare comfor
50、table with this assumption as Midistarts from a relatively low base.Midi has an average lower EBIT margin thanAlfamart at 3%versus our 2013e estimate of 4.5-5.2%for Alfamart(depending on the region seeFigure 5).We assume a constant EBIT margin forMidi in 2013e and 2014e,thus lowering Alfamartsoveral
