Matahari Dept Store (LPPF IJ):Overlooked opportunities
Stores expansion: Five new stores in Dec-18. LPPF has opened five new stores in Dec-18. The two new large-format department stores are located in Gresik, East Java and Prabumulih, South Sumatra. This is higher vs the company’s previous guidance of one new dept store opening in 4Q18. The other three stores are 361 Degrees specialty stores located in Jakarta and Surabaya. The company maintain FY19 target of 4-6 new large-format stores.
FY18F earnings outlook: non-cash impairment loss in the 4Q18. LPPF has decided to fully impair its IDR770bn investment in GEI (Mataharimall.com), which will be reflected in the company 4Q18 income statement. We calculate that this will reduce LPPF FY18F accounting earnings by ~40%. Nevertheless, it is worth to note that the impairment will not impact the company’s cash flow, and thus does not bring any negative impact to LPPF FY19F earnings prospect, which we forecast to reach 6.9% YoY growth.
Dividend outlook: potential lower dividend payout? Due to the impairment loss, there is a possibility that LPPF may reduce the total dividend by IDR539bn to factor in the IDR770bn impairment loss (assuming 70% dividend payout ratio). This will translate into lower dividend yield of 4.8% vs our forecast: 8.1%. However, the plan is not final and more clarity will be disclosed on 4Q18 earnings call. Furthermore, the company’s share buyback program amounting to IDR1.25tn would also partly offset the downside risk of lower dividend payout.
Sector outlook: macro environment provides the tailwind. We note that government policies have become more accommodative for consumer purchasing power, such as: 1) Higher govt social spending in 2019 state budget, 2) lower non-subsidized fuel price in Jan-19, 3) Zero hike on electricity tariff in FY19. We view these catalysts to bode well particularly with LPPF target market in the mid-class segment, and thus positive for LPPF top line growth in FY19.
Value play in the consumer sector; reiterate BUY call. We maintain our BUY call with target price of IDR8,000, reflecting a 11.2x 2019F P/E. Despite having appreciated by 15.0% in the last one month, LPPF is currently trading at 8.0 2019F P/E, still a hefty 59% discount vs other Indo retailers and 75% discount vs consumer sector. Key risk toward our call is lower than expected SSSG.
