Inaugurated its new store concept ‘SmartClub’ last month
MPPA has finally inaugurated its newest retail channel called ‘SmartClub’ last month, a wholesale chain, designed for business customers. SmartClub also offers cheaper prices than the usual hypermarts, as the products are available to purchase in bigger portions. In terms of contribution, currently SmartClub contributes around 16% to MPPA’s total topline figure. Further, the company also inaugurated Foodmart Express (FMX) which has a minimarket concept, with the average store size of 80-150 sqm, targeting the middle class segment. FMX is the new branding of the MPPA’s old Foodmart Express, which is now open for franchise scheme. On a brighter side, SmartClub openings should be seen as an alternative strategy in pursuing higher topline growth due to the stronger purchasing power from the business customers compared to the retail customers, despite of the lower margin it generates. MPPA plans to open 26 Smartclub and 152 FMX stores in 2020.
Conservative targets this year on the expectation of weak macro conditions
This year, MPPA has decided to set conservative targets for its new stores targets where it plans to open 6-7 Hypermart stores, 3-5 SmartClub, 6 Boston, and 4 Foodmart. Around 2-3 Hypermarts will be converted to the new SmartClub stores. The number of Hypermarts going through renovations for the newest ‘G7’ concept will also be reduced to 6 from 10 stores last year. We view that these less aggressive renovation and expansion plan should lead the way to better topline and SSSG growth. Apart from focusing on the efficiencies in operating level, MPPA is also putting emphasize in reviewing its SKUs based on several criteria such the consumers’ demands in every store of various regions. The company will take out the non-performing products and add in products that meets the consumers’ preferences. We believe that this should improve its overall topline growth in a longer-time frame.
Earnings adjustments on the company’s new guidance
While we expect for an improvement in 4Q15 on the back of holiday festive, management indicated that demand stayed weak in 4Q’15 (particularly in October-November). Nevertheless, we slightly adjust our 2015 revenue assumption, as we increase new stores numbers, but reduce our SSSG assumption to flat (0%). While in account to the company’s newest guidance for this year, we slightly reduce our revenue assumption by 0.3%. We also made alterations on our 2016 revenue key assumptions for: (1) new Hypermart store numbers to 6 from 9 (2) add 3 new SmartClub stores (3) SSSG to 2.5% from 3.0% and (4) additional selling area to 76,000sqm from 78,000sqm.
Valuation: Maintain BUY with a lower TP of Rp2,300/share
We reiterate our BUY rating with a lower TP of Rp2,300/share, implying 20.4x PER-16F, as we trimmed down our 2015-16F earnings by 13.8% and 15.0%, respectively, on the back of softer demand and higher opex assumptions. We believe that the overall slowdown is just temporary and that we expect that MPPA should be ready to capture higher growth when its new strategies are settled and when the macroeconomic turns more positive.