Bareksa.com - We adjust our 2014/15F based on 2013 results and maintain our previous assumptions. We have derived our TP using DCF method to get TP Rp5.000,- (+11% from the previous TP), implies 20x 2014F P/E. Our con-sideration of our SELL stance due to: 1) Some cost components are ex-pected to remain high with ratio to sales at ~42% in 2014F. 2.) The Rupiah depreciation will erode GM by 1%-2% in 2014F-15F (60% of its mer-chandises are imported). 3) Newest import tax regulation from 2.5% to 7.5% that will bring unfavorable impact for MAPI, since they have a high gearing level and longer working capital cycle. The stock currently trades at 24x P/E.

2013 Number Results - 12M13 MAPI’s gross sales jumped strongly by +43% YoY, made the 4Q13 booked at Rp3,4tn (+27% YoY). 2013 net reve-nue soared by +28% YoY to Rp9,7tn, 100% & 102% towards BCf & cons. Some escalating costs in wage and rental (+32% YoY), higher interest rate (+150bps YTD) as well as the Rupiah depreciation (+26% YTD) brought net profit declined by -24% YoY to Rp328bn & net margin squeezed to 3.4% (-234bps YoY). It was 104% of BCf & 88% of cons.

2013 Operational Results - MAPI have done aggressive expansion by opening 396 new stores (+29% YoY), was equivalent to ~80k sqm (+14% YoY) additional space areas. It made 102% of the Co’s and 101% of BCf. To date, MAPI has 1.779 stores with ~650k sqm total space areas. Moreover, SSSG declined to 10% from 14% in 2012.

Expansion Deceleration - MAPI will take a breather in its expansion to reduce its dependency on debt financing. The Co. plans to add ~50k sqm p.a. & budgets approximately Rp500bn for 2014F Capex which will be used for store’s expansions.

Higher Cost still Haunted - We predict opex to sales ratio will be at ~42%, mostly come from salary and rental costs. Furthermore, the Rupiah depreciation will also erode company’s GM, since 60% of its merchandise is imported. Thus, GM will decline by 1%-2% in 2014/15F.

In 12M13, MAPI’s gross sales jumped strongly by +43% YoY due to Christmas and new year seasons, which made the 4Q13 booked at Rp3,4tn (+27% YoY). All in all, 2013 net revenue soared by +28% YoY to arrive at Rp9,7tn, formed 100% & 102% towards BCf & consensus. However, some escalating costs in wage and rental due to the company’s aggressive expansions (+32% YoY), resulted a decrease in 2013 operating profit to come at Rp751bn (-1% YoY). Also, operating margin was slashed by -232bps YoY to 7.7% from 10.0%. Moreover, MAPI had to face some unfavorable conditions; namely higher interest rate (+150bps YTD) as well as the Rupiah depreciation (+26% YTD). Net profit declined significantly by -24% YoY to Rp328bn, while net margin squeezed to 3.4% (-234bps YoY). The net profit was 104% of BCf & 88% of consensus. We have already predicted and factored all of these conditions into our forecasts (MAPI updated report in 30 December 2013 for reference), thus the overall performance was within our expectations.

In 2013, MAPI have done aggressive expansion by opening 396 new stores (+29% YoY), was equivalent to ~80k sqm (+14% YoY) additional space areas. The realization of the expansion areas was 102% of the management and 101% of BCf. The new stores consisted of 336 specialty stores (+32% YoY), 5 department stores (+11% YoY), and 55 food & beverage stores (+20% YoY). To date, MAPI has 1.779 stores with ~650k sqm total space areas.

Meanwhile, MAPI experienced a deceleration in SSSG to the level of 10% in 2013 from 14% in 2012. Thus, the productivity level declined by -8% to ~Rp18mn/sqm, based on our calculation.

We are in the same perspective with our previous outlook for MAPI. Despite MAPI looks like will benefit by having middle and high income segments for their targeted consumers, the Company will have compressed margin as a result of the Rupiah depreciation, higher cost of fund factored by BI’s rate increasing, higher inflation on the back of economic surges and the newest import tax regulation.
> Expansion deceleration to reduce dependency on debt financing

In 2014F, MAPI will take a breather in its expansion and plans to only add ~50k sqm per annum. Thus, the additional area in 2014F will decline by -39% from 2013 realization at ~80k sqm. MAPI budgets approximately Rp500bn for 2014F Capex which will be used for store’s expansions.

Moreover, MAPI will try to use internal cash flow to pay down loans, instead of using it for expansion purposes. Hopefully, it will generate a more positive cash flow. We expect MAPI’s net gearing will be at 0.83 in 2014F compared to 0.99 in 2013. They might be looking to use the bonds that are still available (Rp1tn under current program). In addition, MAPI will attempt to switch some of the short-term floating rate debts to longer term fixed bonds, in order to minimize risk resulted from interest rate volatility. Currently, MAPI’s floating debt comprises 75% of the total.
> Higher cost still haunted

In 2014F, we expect salary and rental costs will remain high considering of the Rupiah depreciation, expectation of 11% increases in minimum wage which will effectively started on January 2014, occupancy rate of leased retail space is already high at the level of >95% (according to BI’s commercial property survey in 3Q13), expectation of 15% increases in electricity tariff. We predict opex to sales ratio will be at the level of ~42%, as same as our previous assumption. Furthermore, the Rupiah depreciation will also erode company’s gross margin, since 60% of its merchandise is imported. Thus, gross margin is expected to decline around 1%-2% in 2014F-2015F.
> Newest import tax regulation

At the end of 2013, government has adjusted up import tax regulation to 7.5% from 2.5%. As per Minister of Finance statement, the impact will only affect to cash flows, not to company’s profitability and it can be credited back to the company at the end of the year. This will bring negative impact for MAPI, since they have a high gearing level and longer working capital cycle.
We maintain our assumption for additional areas and SSSG level in 2014F-2015F. All of the changes in our forecast are resulted from adjustment of 2013 results.

Reiterate SELL with higher TP Rp5.000,-. We adjust our 2014/15F based on 2013 results and maintain our previous assumption. We have derived our TP using DCF method to get TP Rp5.000,- (+11% from the previous TP), implies 20x 2014F P/E and 16x 2015F P/E. Our consideration of our SELL stance due to: 1) Some cost components are expected to remain high with ratio to sales at ~42% in 2014F. 2.) The Rupiah depreciation which will be potential to erode GM by 1%-2% in 2014F-15F (60% of its merchandises are imported). 3) Newest import tax regulation from 2.5% to 7.5% that will bring unfavorable impact for MAPI, since they have a high gearing level and longer working capital cycle. The stock currently trades at 24x & 19x 2014F & 2015F P/E.

*M.Dian Octiana is PT Buana Capital's equity analyst. This article is part of the Equity Research of PT Buana Capital