indonesia retail sector - credit suisse

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

11 April 2012 Asia Pacific/Indonesia

Equity Research Retailing Conglomerates (Retailing)

Indonesia Retail Sector SECTOR REVIEW

Shopping impulse Figure 1: Shoppers are now becoming more impulsive

10%13%

21%

39%

0%

10%

20%

30%

40%

50%

Never plan what to buy Purchase additional items on top of wish list

2003 2011

respondents

Source: Nielsen

■ More to come. In the past six months, Mitra Adiperkasa (MAPI) has outperformed the JCI by 17%. However, we see more potential upside due to rising impulsive buying, continued emergence of middle class in Indonesia and MAPI’s strategic expansions. We believe MAPI is on track to achieve an earnings CAGR of 22% over FY12-14. We initiate coverage on ACE Hardware Indonesia (ACES) with a NEUTRAL rating; and prefer MAPI to ACES.

■ Impulsive buying. We believe shoppers are becoming more impulsive. Based on a Nielsen study on Shopper Trends in Indonesia, 21% of respondents said that they have never planned their purchases in advance (versus 10% in 2003), while 39% (versus 13% in 2003) stated that they always purchase additional item(s) on top of their wishlist. The emergence of impulsive buying trend supports the earnings growth of Indonesia's middle and high income segment retailers.

■ Strategic expansion. MAPI pursues a strategy of expanding its specialty stores; this suggests smaller store size but higher margins. Exclusive licensing rights for a number of sport brands allow MAPI to manufacture its own design—on principal’s approval—to better meet market needs. In contrast, ACES focuses on one-stop shopping and targets growing cities in Java and outside Java regions.

■ We prefer MAPI to ACES. Our preference for MAPI is based on (1) its specialty store expansion strategy, which leads to better penetration, (2) better product positioning, (3) higher entry barrier for MAPI than ACES’ market, (4) capex moderation at MAPI, as most of the big expansions are underway and (5) its stock’s less demanding valuation. MAPI trades at 0.7x FY12E PEG—a 31% discount to ACES and a 46% discount to its regional peers. We initiate coverage on ACES with a NEUTRAL rating and a DCF-based target price of Rp5,000.

Research Analysts

Dian Haryokusumo 62 21 255 37974

[email protected]

Ella Nusantoro 62 21 2553 7917

[email protected]

11 April 2012

Indonesia Retail Sector 2

Focus charts and tables Figure 2: Middle-income group’s spending is rising Figure 3: Shoppers are now becoming more impulsive

10% 7% 4%

21%17%

12%

27%25%

22%

20%24%

27%

14% 18%24%

8% 9% 11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010

Below Rp 700K Rp 700K - Rp1mn Rp 1 mn - Rp1.5 mn

Rp 1.5 mn - Rp 2 mn Rp 2 mn - Rp 3 mn Over Rp 3 mn

42% 62%51%

10%13%

21%

39%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Never plan what to buy Purchase additional items on top ofwish list

2003 2011

respondents

Source: Nielsen Media Research, Media Index Source: Nielsen

Figure 4: MAPI vs ACES—business portfolio Figure 5: MAPI has outperformed the JCI by 17% in the

past six months

Zara Reebok Home appliances Electrical

Marks & Spencer Converse Hardware Plumbing Topshop Cleaning aids Paint Topman Lawn & garden Outdoor living NEXT Lighting Miscellaneous

Tools Sogo Debenhams Houseware

Seibu Automotive Hotel, restaurant, café, bakery

Starbucks Furniture Burger King Sporting goods & pet supplies

Domino's pizza

Department storesLifestyle

F&B (top brands)

Toys

MAPI ACESSpecialty stores (top brands) Home improvement

(5)

0

5

10

15

20

25

30

4-Nov-11

18-Nov-11

2-Dec-11

16-Dec-11

30-Dec-11

13-Jan-12

27-Jan-12

10-Feb-12

24-Feb-12

9-Mar-12

23-Mar-12

6-Apr-12

Rel.

perf.

to J

CI (

%)

MAPI ACES

Source: Company data Source: Bloomberg

Figure 6: MAPI trades at 46% discount to regional peers,

31% discount to ACES

Figure 7: Regional valuation comparison of retail

companies

0.60.8

0.9 0.9

2.2

4.4

0.71.0

0

1

2

3

4

5

HongKong

Indonesia SouthKorea

Thailand China Taiwan MAPI ACES

PEG

Rat

io (x

)

Average at 1.2x

12E 13E 12E 13E 12E 13E

South Korea 11.1 9.8 13.5 12.8 0.9 1.0

Hong Kong 20.5 14.7 71.6 34.0 0.6 0.6

Indonesia 21.8 17.8 28.7 22.4 0.8 0.8

China 17.1 13.8 0.4 0.5 2.2 0.6

Taiwan 24.8 23.3 5.7 6.1 4.4 3.8

Thailand 25.4 20.7 36.0 24.3 0.9 1.1

Weighted avg 18.6 14.9 34.5 22.6 1.2 1.0

MAPI 21.6 17.8 33.0 21.5 0.7 0.8

ACES 21.9 17.7 22.9 23.6 1.0 0.7

PE (x) EPS Growth PEG (x)

Source: Credit Suisse estimates Source: Credit Suisse estimates

11 April 2012


Shopping impulse Temptation to consumers We believe MAPI and ACES will benefit from the rising spending of middle- and high-income groups—their target segments. Moreover, shoppers are now becoming more impulsive in their purchase, in our view. Based on a Nielsen study on Shopper Trends in Indonesia’s five cities, with respondents’ minimum household spending level of Rp1.5 mn, 21% of respondents said they have never planned what they want to buy before shopping—an 11% increase from 2003 study—while 39% of respondents (versus 13% in 2003) stated they always purchase additional item(s), even though they plan things in advance. Thus, it is crucial to identify changes in shoppers’ behaviours to manage higher purchases, in our view.

Growing big Indonesia’s middle class is emerging, bringing with it changes in shoppers’ behaviours, which tend to be more impulsive. This should benefit both MAPI’s and ACES’ positioning. We believe this has also led them to continue with their expansion plans in order to capture future growth. The potential re-emergence of Indonesian consumers’ purchasing power, as the country moves into a higher investment cycle, should benefit both the companies. Java has been the main focus of the companies’ expansion plans. MAPI and ACES are also likely to continue penetrating the outside Java region. MAPI is strategically expanding its specialty store segment that focuses on smaller sizes but higher margins in the outside Java region. Moreover, MAPI holds exclusive licensing rights for a number of sports brands—which allow the company to manufacture its own designs based on principal’s approval—to meet target market needs. Meanwhile, ACES, with its concept of one-stop shopping, offers home improvement and lifestyle products, which still mostly come from the Java area. We expect ACES to utilise its hardware concept store (normally at a smaller size) to expand into smaller cites in rest of Java and outside to capture potential growth.

Competition is manageable Indonesia’s growing consumption story—private consumption accounts for 52% of its GDP—along with the country’s rising middle- and high-income segment and limited number of retailers have attracted new entrants into the industry. Moreover, Indonesia provides a large consumer base with 240 mn population (the fourth most populous country), which is one of the key factors behind its growing domestic consumption. Both MAPI and ACES face competition from existing and new entrants. However, supported by their strong presence in their respective sectors (MAPI has 1,044 stores, while ACES has 63 stores), combined with their strategic moves, competition appears manageable.

We prefer MAPI to ACES We prefer MAPI to ACES due to (1) its specialty store expansion strategy, which we believe will enable the company to better penetrate the market; (2) its better product positioning (MAPI offers a wide range of products, including food and non-food products), which allows the company to tap into a bigger consumer base; (3) higher entry barrier for MAPI than ACES’ market, (4) capex moderation at MAPI, as most of the big expansions are underway; and (5) MAPI’s less demanding valuation. With an average daily trade value of US$2.2 mn, the stock trades at 0.7x FY12E PEG—a 31% discount to ACES and a 46% discount to regional peers. We initiate coverage on ACES with a NEUTRAL rating and a DCF-based target price of Rp5,000, implying 24.5x FY12E P/E, 1.1x FY12E PEG with a 22% earnings CAGR over FY12E-14E.

We believe MAPI and ACES will benefit from rising middle and high income consumers along with growing impulsive shoppers

MAPI and ACES to continue expansion both in and outside Java regions

MAPI and ACES face competition from existing and new entrants. However with their strong presence in the sector, competition is manageable.

We prefer MAPI to ACES.

11 April 2012


Regional valuation comparison Figure 8: Regional valuation comparison of retail companies As of 9 April 2012 Mcap Price Target Rating P/E (x) EV/EBITDA (x) ROE (%) EPS growth (%) PEG (x)

(US$ mn) lc price (lc) 12E 13E 12E 13E 12E 13E 12E 13E 12E 13E

CHINA

Boshiwa 449 1.68 2.03 N 6.5 5 2.4 2.3 12.6 14.8 39.7 30.6 0.2 0.2

Gome 3,130 1.44 1.46 N 10.4 8.9 4.2 3.5 10.9 11.7 3.2 17 3.3 0.5

Golden Eagle 4,925 19.7 11.75 N 23.9 18.5 14.6 10.7 23.6 24.7 10 29 2.4 0.6

Parkson 3,001 8.29 7.31 N 15.7 13.2 8.2 7 20.4 21.2 8.9 19.4 1.8 0.7

Sparkle Roll 269 0.7 0.85 N 8.9 8.3 6.5 5.6 16 15.2 20.8 7 0.4 1.2

Springland 1,745 5.42 3.33 U 16.3 13.3 8 6.7 15.7 17.1 16.4 22.3 1 0.6

17.1 13.8 9.4 7.3 18.4 19.4 10.2 20.1 2.2 0.6

HONG KONG

Esprit 2,696 16.22 12.5 U 50.2 21.9 17.4 10.6 2.7 5.9 426.6 129.5 0.1 0.2

Li & Fung 17,229 16.44 22.6 N 18.3 14.6 13.4 11 21.9 25.3 37.3 25.4 0.5 0.6

Lifestyle Intl 4,196 19.52 23.8 O 15.7 13.1 11.7 9.2 21.1 21.6 10.5 20 1.5 0.7

Sa Sa 1,610 4.44 5 N 19.7 15.7 13.7 10.7 39.5 40.9 23.5 25.5 0.8 0.6

Luk Fook 1,681 22.15 37.8 O 8.5 7.6 6.2 5.3 31 26.9 52.4 11.7 0.2 0.6

20.5 14.7 13.1 10.3 21.5 23.9 71.6 34 0.6 0.6

INDONESIA

Mitra Adiperkasa 1,131 6,250 7,900 O 21.6 17.8 10.4 8.8 21.6 21.4 33 21.5 0.7 0.8

Ace Hardware 836 4,475 5,000 N 21.9 17.7 18.1 14.5 25.8 25.4 22.9 23.6 1 0.7

21.8 17.8 13.7 11.2 23.4 23.1 28.7 22.4 0.8 0.8

SOUTH KOREA - -

CJ O Shopping 1,328 245,000 250,000 U 13.4 11.1 11.3 9.8 23.6 22.4 6.4 20.3 2.1 0.5

Daum 1,314 111,600 170,000 O 13 10.4 8.4 6.6 20.6 21 10.3 24.9 1.3 0.4

E-Mart 6,467 265,500 310,000 O 11.8 10.8 8.5 7.9 9.7 9.6 14.8 9.7 0.8 1.1

GS Home Shopping 654 114,100 165,000 O 8 7.4 0.9 0.1 13 12.6 -61.1 8.4 -0.1 0.9

Hyundai Dept. Store 3,640 178,000 225,000 O 10.4 9.2 7 5.9 12.2 12.2 4.8 13.2 2.2 0.7

Lotte Shopping 9,770 385,000 470,000 O 10.2 9.5 7.5 7 7.3 7.3 17.6 7.1 0.6 1.3

Shinsegae 2,275 264,500 310,000 N 12.3 9.1 8.3 6.3 11.4 13.6 33.5 35.5 0.4 0.3

11.1 9.8 7.9 7 10.7 10.8 13.5 12.8 0.9 1

THAILAND

HomePro 2,475 13.1 6.6 U 33.2 29.5 17.9 16.3 24.8 24.1 15.4 12.5 2.1 2.4

Robinson Dept Store 1,770 49.3 60 O 24.2 17.6 14.4 10.8 23.1 27.2 55.8 37.4 0.4 0.5

Siam Makro 2,664 343 255 N 24.5 22 18.6 16.8 29.6 29 29.2 11.4 0.8 1.9

C.P All Public Company 9,561 65.8 55.5 N 23.4 18.3 13.2 10.3 41.5 40.1 40.4 28 0.6 0.7

Siam Global 516 11 7 U 35.2 26.2 23.3 19.1 9.3 11.4 20.2 34.1 1.7 0.8

25.4 20.7 15.1 12.5 34.3 33.8 36 24.3 0.9 1.1

TAIWAN

President Chain Store 5,670 161 138.8 U 24.8 23.3 19.1 18.3 30.6 31 5.7 6.1 4.4 3.8

Sector Average - NJA 18.6 14.9 11.9 9.9 21 21.8 34.5 22.6 1.2 1

Source: Company data, Credit Suisse estimates

11 April 2012


Temptation to consumers We believe that MAPI and ACES will benefit from the Indonesian consumption growth story as well as the emergence of middle- and high-income groups’ spending. Both companies mainly focus on the middle-and-high-income consumer segment; based on a Nielsen survey in Indonesia’s 12 cities, the proportion of the group’s population increased from 42% in 2008 to 62% in 2010, implying that 48 mn people moved into the middle-income segment during the period. We expect the group’s spending to continue to grow along with an estimated rise in GDP per capita from US$2,977 in 2010 to US$4,134 in 2013E.

Moreover, shoppers are now becoming more impulsive in their shopping. According to a Nielsen study on Shopper Trends conducted in five major cities in Indonesia with respondents’ household spending level at around Rp1.5 mn and above, 21% of respondents said they have never planned what they want to buy before shopping, an 11% increase from 2003 study. The study also found that 39% of respondents (versus 13% in 2003) always purchase additional item(s), even though they plan things in advance. Therefore, it is crucial to understand the changes in shoppers’ behaviour in order to manage higher purchase.

Emerging middle class We believe that MAPI and ACES are well positioned to capture the consumption growth in Indonesia. Moreover, the emergence of the middle-income segment also plays a key role in their positioning, as both the companies are targeting the middle- and high-income segments. In contrast to the low-income segment—which generally focuses on essentials (staples)—the rise of the middle-income segment is generally accompanied by a stronger growth in consumer discretionaries. Consumers from this income group, by default, have met their requirement for essentials and allocate incremental purchasing power on products beyond their essential needs. Both MAPI and ACES target market are mainly focused on consumers with income of more than Rp2 mn per month, in which there have been significant increase from only 3% in 2006 to 17% in 2011, based on Indonesia Statistical Bureau data.

Figure 9: MAPI’s and ACES’ target market lies within the income group of over

Rp2 mn/month

7

15 14 13

8 8

53

4

11 1213

12

20

10

17

-

5

10

15

20

25

<200,000 200,000-399,999

400,000-599,999

600,000-799,999

800,000-899,999

1,000,000-1,499,999

1,500,000-1,999,999

>2,000,000

2006 2011

%

Source: Indonesia Statistical Bureau (BPS)

Increasing proportion of middle and high income population with growing impulsive behaviour will benefit both MAPI and ACES.

MAPI and ACES both targets middle and high income segments consumers with income over Rp2 mn/month.

11 April 2012


Based on a Nielsen survey in Indonesia’s 12 cities, the proportion of middle and high income groups’ spending population increased from 42% in 2008 to 62% in 2010, implying that 48 mn people moved into the middle-income segment during the period. We expect the middle-income group’s spending to continue to grow along with an estimated rise in Indonesia’s GDP per capita from about US$2,977 in 2010 to US$4,134 in 2013E. Given their niche market, we view the company earnings to be resilient towards any fuel price hike impact.

Figure 10: Middle-income group’s spending is rising… Figure 11: … along with rising GDP/capita

10% 7% 4%

21%17%

12%

27%25%

22%

20%24%

27%

14% 18%24%

8% 9% 11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010



42% 62%51%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2005 2006 2007 2008 2009 2010 2011 2012E 2013E

Source: Nielsen Media Research, Media Index Source: CEIC, Credit Suisse estimates

Impulsive buying is a new trend With the trend of growing modern retailing, MAPI and ACES are well positioned to benefit from it, especially given that shoppers are now looking to shop in a convenient way where a store can offer wide range of products with a concept of one-stop shopping. As modern retailing is initially correlated with population in high density area, modern stores are still mainly located in Java, especially Greater Jakarta. People residing in higher density areas (big cities) tend to opt for shopping convenience without the need to spend time on bargaining, while people in less populated areas (which is normally located in a rural area) tend to be more conservative, where they prefer to go shopping in traditional market (wet market) and bargain for a cheaper price. However, this trend will change as the area is growing and becoming more developed.

Figure 12: Modern stores penetration are growing Figure 13: Modern stores are mainly still located in Java

6 5 64 6 3 62 6 1 60

3 5 36 3 7 38 3 9 40

0

20

40

60

80

1 00

20 06 2 00 7 20 08 2 00 9 20 10 2 01 1

Trad it io na l M od ern

%

Java78%

Other islands11%

Sumatra11%

Source: AC Nielsen Source: AC Nielsen

Shoppers turn to more modern and convenient way of shopping.

11 April 2012


According to a Nielsen study on Shopper Trends conducted in five major cities in Indonesia, with respondents’ household spending level at around Rp1.5 mn and above, shoppers are now becoming more impulsive in their shopping. 21% of respondents said that they have never planned what they want to buy before shopping, an 11% increase from 2003 study. The study also found that 39% of respondents (versus 13% in 2003) always purchase additional item(s), even though they plan things in advance.

Figure 14: Shoppers are now becoming more impulsive

10%13%

21%

39%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Never plan what to buy Purchase additional items on top of wish list

2003 2011

respondents

Source: Nielsen

Therefore, it is crucial to understand changes in shoppers’ behaviours. We believe that retailers have to be able to create effective in-store promotion that lead to higher purchases, which will also imply bigger ticket size. Attractive visual merchandising also play an important role in the sales improvement. MAPI offers various range of product segments from fashion (Zara, Next, Marks&Spencer), sports (Reebok, Converse, Speedo), to F&B (Starbucks, Domino’s, Burger King). Meanwhile ACES offer houseware, automotive accessories, hardware and tools, and toys. Goods that are offered in MAPI and ACES retail outlets are displayed in a way which is certainly attractive to shoppers resulting in the presence of impulsive buyers.

Shoppers are becoming more impulsive in their shopping. MAPI and ACES displays attractive visual merchandising to attract them

11 April 2012


Growing big Indonesia’s middle class is emerging, bringing with it changes in shoppers’ behaviours, which tend to be more impulsive. This should benefit both MAPI and ACES positioning; we believe this has also led the companies to continue with their expansions in order to capture future growth.

Re-emergence of Java …

Based on our Indonesian Consumer Survey 2012, In a good confidence (17 January 2012), respondents in outside Java region appear to earn slightly less than Java on the back of uncertainties in the US, Europe. Moreover, China is putting downward pressure on commodity prices, which we believe, was the reason for significant earnings decline for outside Java respondents (2011 survey: outside Java respondents earn Rp3.2 mn per month). Moreover, we have witnessed recovery in non-oil manufacturing, which coincided with stronger purchasing power in Java. We also use cement consumption as a proxy for purchasing power in Java, which outpaced than that in outside Java.

Over 70% of MAPI’s revenue comes from Jakarta and around 14% from the rest of Java. Meanwhile, over 40% of ACES’s revenue comes from Jakarta and 36% from the rest of Java. The re-emergence of Java is clearly beneficial for both MAPI and ACES, as they are well positioned to benefit from the potential re-emergence of strong purchasing power in Java.

Figure 15: Java earned more in 2011… Figure 16: … while outside Java continue to save more

2.93.0

2.62.9 2.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Total Urban Rural Java Non-Java

Avg

mon

thly

inco

me

(Rp

mn/

mon

th)

2.9

0.3

2.8

0.4

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Income Saving

Java Non Java

Source: Credit Suisse Emerging Consumer Survey 2012, AC Nielsen Source: Credit Suisse Emerging Consumer Survey 2012, AC Nielsen

… with outside Java adding the support

Despite having slightly lower income, outside Java respondents continue to have higher savings than those in Java. Thus, we believe that the consumption capacity of outside Java remains abundant but is yet to be translated into actual purchases, potentially due to limited access to goods and services provided in the area compared to that in Java, as well as the more conservative nature and more savings oriented nature of individuals living in the outside Java region. We believe this may provide a business opportunity to the outside Java market.

MAPI and ACES to benefit from stronger purchasing power of Java consumers

11 April 2012


MAPI continues to focus on specialty store expansion, leads to higher profitability

We estimate that the company will continue to expand its retail areas, where it plans to add another 60,000 sq m this year versus last year’s 42,793 sq m. In 2011, MAPI’s total area was 465,140 sq m. Based on management guidance, MAPI’s capital expenditure, which will be financed internally, is estimated to reach Rp600 bn this year. All in all, we expect the company’s total area to grow at a 10% CAGR over 2012E-14. We estimate that the total number of stores will reach around 1,220 this year, a 17% YoY growth. This year, MAPI plans to open more than 100 of its specialty stores (i.e., sports, fashion and lifestyle, and children) across the region. Hence, we believe that the company is likely to continue focussing on expanding its higher margin business, i.e., the specialty store. We expect the company’s same store sales growth (SSG) in the speciality store segment to grow at 14%. MAPI also plans to open two new department stores (i.e., Sogo and Debenhams). However, this will slightly erode the company’s department store division margin this year, as it normally takes approximately 1.5 years for a department store to reach its break-even point. For MAPI’s food and beverage (i.e., Starbucks, Burger King, Domino’s), management indicate that it is planning to add around 75 outlets. All in all, MAPI is on track to deliver 18% CAGR in operating profit for the next two years on the back of 12% consolidated SSG, with operating margin likely to remain at similar level as that of last year’s with gradual improvement the following years.

Figure 17: MAPI—store area continues to grow Figure 18: MAPI—capital expenditure

101,157 107,358 124,068 150,932 170,932 185,932 200,932

223,208 248,310265,353

271,621301,621

341,621371,621

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2008 2009 2010 2011 2012E 2013E 2014E

Speciality stores Department stores F&B Others

10% CAGR 12E-14E

Sqm

324

188

393339

600 600

528

-

100

200

300

400

500

600

700

2008 2009 2010 2011 2012E 2013E 2014E

Rp bn

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Recognising the lower density of population in outside Java, MAPI focuses on expanding specialty stores in the region, in line with the company’s focus on higher margin business. Specialty stores, generally, have smaller area—which suits well to outside Java given the lower population density—while at the same time offer higher margins.

The company is actively expanding its sports line, which is a part of the specialty store segment, in the outside Java region. MAPI is the No 1 distributor of sport brands in Indonesia, with the store concepts targeting middle-to-higher income (Planet Sports and The Athlete’s Foot) as well as middle-to-low income (Sports Station, The Sports Warehouse) segments. Moreover, MAPI holds an exclusive licensing rights for a number of international sport brands—which allow the company to manufacture its own design based on principal’s approval. The brands include Reebok, Converse, Speedo, Diadora, Lotto, and Airwalk. We believe that this gives the company a competitive advantage, as it would allow MAPI to customise its licensed sport goods to meet the criteria of its target market. With the right product mix, we believe MAPI is well positioned to enjoy higher margins.

MAPI to open over 100 specialty stores across Indonesia as the company continues with its focus on this higher margin business.

11 April 2012


ACES offer the experience of one-stop shopping

Established in 1995, ACES is a subsidiary of PT Kawan Lama Sejahtera (non listed), a commercial and industrial supply company. ACES is the leading home improvement company in Indonesia, which operates more than 50 retail outlets across the country. The company offers more than 75,000 SKUs of Home Improvements (59% of FY12E gross sales) and Lifestyle (38% of FY12E gross sales) categories. In mid-2010, ACES entered into the toys business, which we expect will contribute around 3% of total FY12E gross sales.

Figure 19: ACES—Gross sales breakdown, FY12E Figure 20: ACES—Gross profit breakdown, FY12E

Home Improvement

59%

Lifestyle38%

Toys3%

Home Improvement

56%

Lifestyle41%

Toys3%

Source: Credit Suisse estimates Source: Credit Suisse estimates

There are two concepts of ACES stores, namely ‘Home Center’ and ‘Hardware’ stores. Ace home center is normally more than 3,000 sq m in size, and offers more lifestyle products versus the hardware store. Meanwhile, the hardware store is less than 3,000 sq m in size. The hardware store concept would allow ACES to expand into Tier 2 cities, especially the area outside Java that tend to have lower population density. As per the end of 2011, ACES had 14 home centers and 39 hardware stores. We estimate that the company would continue to expand its retail areas, in which, it plans to add around 30,782 sq m this year totalling 191,700 sq m. This is implying around 68 stores in total in 2012E, increasing from 53 stores last year. We expect the company’s total area for home improvement and lifestyle to grow at 12% CAGR 2012E-14E.

As of the end of last year, ACES had around 12,000 sqm in total for its toys division (known as Toys Kingdom), or around 10 retail outlets. We estimate Toys Kingdom’s area will grow at a 26% CAGR over 2012E-14E on the back of growing demand from this segment. We expect the company to add another 5,000 sq m of its toys area to around 17,000 sqm in total.

Based on management guidance, ACES’ capital expenditure, which will be financed internally, is estimated to reach Rp160 bn this year. The majority of it would be allocated to finance the expansion of ACES’ retail outlet, while the remaining would be used to finance the toys business. The company is currently at a net cash position, with an estimated net cash of Rp290 bn this year.

ACES is a leading home improvement company in Indonesia with over 50 retail outlets across the country.

ACES offer two store concepts: Home Center (>3,000 sq m) and Hardware stores (<3,000 sq m), with a total of 53 stores.

Recently expanded to Toys retail business under the brand, Toys Kingdom.

11 April 2012


Figure 21: ACES—to expand further Figure 22: ACES—capital expenditure

98,289 105,697

129,802

160,918

191,700

216,700

241,700

-

50,000

100,000

150,000

200,000

250,000

2008 2009 2010 2011 2012E 2013E 2014E

0

5,000

10,000

15,000

20,000

25,000

30,000

Ace Hardware Toys Kingdom (RHS)

Sqm Sqm

58 55

159

186

161

144153

-

20

40

60

80

100

120

140

160

180

200

2008 2009 2010 2011 2012E 2013E 2014E

Rp bn


MAPI to benefit from its specialty store expansion strategy

MAPI continues to actively expand its sports line, which is a part of specialty stores. Combined with its advantage of holding exclusive licensing rights for a number of its sports brands, we believe that the company is able to better penetrate across the region. As per the end of 2011, MAPI operated 1,044 retail outlets and department stores across 38 cities throughout Indonesia, while ACES operated 53 retail outlets and ten toys outlets across 16 cities in Indonesia. As seen on Figure 23, MAPI has successfully penetrated the Papua region, which has lower population density compared to other regions in Indonesia. The company entered the market by opening its sports store concept, which has been showing positive growth since the day it was opened.

We believe MAPI’s specialty store expansion strategy has enabled the company to tap wider target market, i.e. middle-high and middle-low income segments. Hence, it has a bigger presence, as compared to ACES. Although both MAPI and ACES are still mainly focusing in the Jakarta area (as its biggest revenue contributor), the companies will continue to expand into other regions in both Java and outside Java.

Figure 23: MAPI & ACES’ presence in Indonesia

Source: Company data

MAPI and ACES operate 1,044 and 63 retail outlets, respectively, across Indonesia. Both companies continue to expand their stores across Indonesia

11 April 2012


Competition appears manageable Indonesia is becoming more and more attractive to a number of new entrants in the retail industry, mainly supported by the fact that Indonesia’s middle and high-end income spending is rising. We also believe that Indonesians are very consumptive, with the fact that 52% of GDP is accounted for private consumptions.

Figure 24: Middle-income group’s spending is rising Figure 25: Private consumption accounts for 52% of GDP

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Source: Nielsen Media Research, Media Index Source: Bloomberg, as of Dec 2011

In addition, Indonesia provides a large consumer base, as the country’s population reached around 240 mn people—the fourth most populous country in the world. Hence, this is one of the key behind its growing domestic consumption. All in all, these facts have resulted in numbers of new entrants are entering the industry, especially the consumer/ retail space.

MAPI’s competition remains the biggest concern, but it’s still manageable

In the department store segment, MAPI’s existing competitor is Metro Department Store (Singapore), which is owned by Para Group (non listed). However, we believe that Metro caters to a slightly different market than MAPI’s Sogo or Debenhams. Recently, Parkson (Malaysia) entered the industry by acquiring Centro Department Store in 2011. Centro caters to the middle income segment, while MAPI caters middle and high-end customers. If Parkson is going to launch the same format of department store as the one in Malaysia (which caters middle and high-end segment), then there would be another head-to-head competitor for MAPI.

Another development would come from Lotte Department Store (Korea), which is expected to start its operations at the end of 2012 in the new development called Ciputra World, which is located in South Jakarta. Lotte Department Store targets the same segment as MAPI’s department store. Despite the arrival of new competitors, MAPI has secured most of the spaces for its expansion plan. Meanwhile, new players would face challenges in finding strategic locations compared to what MAPI currently has.

Competition from department store business comes from Metro, Centro and Lotte department stores, which target almost the same segment as MAPI’s department stores

11 April 2012


Figure 26: MAPI’s competition in department store Figure 27: Starbucks remains MAPI’s top F&B brand

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Source: Company data Source: Company data

For specialty stores, based on the Presidential Regulation No.36/2010, department stores with less than 2,000 sq m (which normally comes under the specialty store category) must be owned by 100% local capital. As an illustration, one ZARA store is less than 1,500 sq m. Therefore, competition from new players is relatively limited.

Moreover, MAPI’s sports brands, which remain a dominant player, should play a key role in MAPI’s specialty store division. MAPI has been continuously supplying sport products for most of the department stores in Indonesia, including its rivals. For fashion, MAPI would face competition from the Para Group, which mostly hold franchises of high-end brands such as Tods, Hugo Boss, Versace, Jimmy Choo, Giorgio Armani, and Valentino. MAPI remains the dominant player in Indonesia’s kids business. The company will clearly benefit from the fact that MAPI holds an exclusive licensing for number of its kids brands. These include Osh Kosh B’Gosh, Barbie, Superman, and Batman. For F&B—particularly coffee shops—MAPI still leads the market with its exclusive rights for Starbucks, while rivals include Coffee Bean & Tea Leaf (Para Group), Excelso (PT Excelso Multi Rasa, non listed).

With a bigger portfolio of international brands that MAPI currently holds, It will automatically create a bigger market for the company, which we believe, would benefit the company in posting strong earnings growth.

ACES to face competition mainly from existing rivals

ACES’s main business line is providing consumers with home improvement and lifestyle products. The company faces competition from both existing and new players. The recent one—Do It Best Pongs Home Center, owned by PT Pongs Indonesia (non listed)—is a retail company selling home-improvement products, in which it is affiliated with Do it Best USA as its exclusive partner in Indonesia. Paulus Ong, the Chairman and President of the company, was the former Chief Operation Officer of Kawan Lama Group (the parent company of ACES, non listed). He played an important role in developing Ace Hardware stores in Indonesia. The presence of its retail outlets are still relatively limited compared to ACES. Another similar business portfolio is operated by PT Griya Tritunggal Abadi (non listed) under Rumah Kita.

Mitra 10, as well as Depo Bangunan, offers a supermarket concept for building materials. We believe that ACES faces competition from Mitra 10 and Depo Bangunan, particularly in the home improvement business. Mitra 10 is owned by PT Catur Mitra Sejati Sentosa (non listed), while Depo Bangunan is owned by PT Caturkada Depo Bangunan (non listed).

Relatively limited threat of competition from new players due to regulation.

MAPI has a portfolio of well-known international brands which creates a bigger market for the company.

ACES faces competition from existing players such as Rumah Kita, Mitra 10 and Depo Bangunan and most recently from new player, Do It Best Pongs Home Center.

11 April 2012


In addition, IKEA, the most popular one-stop shopping for furniture and accessories, is expected to enter the Indonesian retail business. The company is expected to start its operations next year. We believe that IKEA would be quite popular in Indonesia on the back of its well-known brand, i.e. numbers of Indonesian willing to go to Singapore just to find the IKEA brand. IKEA franchise is owned by PT Hero Supermarket (HERO.JK, Rp6100, Not rated). However, we believe that IKEA would offer slightly different products to ACES and to be a closer rival for Informa (the sister company of ACES, non listed, who specialise in furniture products).

We believe the competition is still at manageable level as ACES’s presence is far higher than its existing competitors, with more than 70% of the stores located in Java.

Figure 28: ACES’s existing competitors Figure 29: MAPI remains the dominant player in

Indonesia’s toys business

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In mid 2010, ACES started to enter the toys business under the name of “Toys Kingdom”. Toys Kingdom is ACES’ own concept store, which is currently located in 10 locations across the country. Although the contribution to total company’s gross sales is still relatively small, we believe that the future growth can be seen as potential growth driver on the back of limited competitions in Indonesia’s toys business. Competitors in the business include MAPI, that operates its toys business under the name “Kidz Station” since 1998, and Toys City, which is operated by PT Hero Inti Putra (non listed) since 1990.

In the future, ACES also faces competition from IKEA which is expected to start its operation in Indonesia next year.

ACES recently entered into toys business under the name ‘Toys Kingdom’ which faces competition with MAPI’s ‘Kidz Station’.

11 April 2012


We prefer MAPI to ACES Both MAPI and ACES benefit from the emergence of middle and high income segments in Indonesia, which we believe will continue to increase along with the rising GDP per capita, which is expected to increase from US$3,510 in 2011 to US$4,134 in 2013E. Given MAPI and ACES’ niche market, we view the companies earnings to be resilient towards any fuel price hike impact.

MAPI and ACES displayed robust performance in 2011, and we expect strong fundamentals to remain. We prefer MAPI to ACES on the back of the following:

(1) MAPI’s specialty store expansion strategy, which we believe will enable the company to better penetrate the market. Java has been the main focus of the company’s expansion. Going forward, MAPI would also continue to penetrate the outside Java region. MAPI is strategically expanding its specialty store segment that focus on smaller sizes but higher margins, in the outside Java region. MAPI also holds an exclusive licensing rights for a number of sport brands—which allows the company to manufacture its own design based on principal’s approval—to meet target market needs.

(2) MAPI’s better product positioning. MAPI owns exclusive franchises of over 100 international brands under its business portfolio—including Zara, Marks & Spencer, Topshop, Next, Reebok, Converse, Starbucks, Domino’s Pizza, and Burger King—while ACES is mostly focused on home improvement and lifestyle only. Wide range of products that MAPI offered—including food and non-food products—allows the company to tap bigger consumer base.

(3) Higher entry barrier for MAPI than ACES’s market. As MAPI has secured most of its expansion plan area, it would clearly benefit the company to expand on strategic locations for its retail outlets. On the other hand, a new player would face challenges in finding strategic locations compared to what MAPI currently has.

(4) Moderating capex for MAPI as most of the big expansions are underway. The company is planning to add around 60,000 sq m this year and the next year, with estimated capex of Rp600 bn per year.

(5) Less demanding valuations for MAPI. With an average daily trade value of US$2.2 mn, the stock trades at 0.7x FY12E PEG—a 31% discount to ACES, and a 46% discount to regional peers.

Figure 30: Regional peers P/E (x) EPS growth (%) PEG (x)

12E 13E 12E 13E 12E 13E

South Korea 11.1 9.8 13.5 12.8 0.9 1

Hong Kong 20.5 14.7 71.6 34 0.6 0.6

Indonesia 21.8 17.8 28.7 22.4 0.8 0.8

China 17.1 13.8 0.4 0.5 2.2 0.6

Taiwan 24.8 23.3 5.7 6.1 4.4 3.8

Thailand 25.4 20.7 36 24.3 0.9 1.1

Weighted average 18.6 14.9 34.5 22.6 1.2 1

MAPI 21.6 17.8 33 21.5 0.7 0.8

ACES 21.9 17.7 22.9 23.6 1 0.7

Source: Credit Suisse estimates

Reiterate MAPI with OUTPERFORM rating

We maintain our target price of Rp7,900 and OUTPERFORM rating. Our target price implies 1.0x FY12E PEG, 27.4x FY12E P/E, and 13.0x FY12E EV/EBITDA, with a 22% earnings CAGR over 2012E-14E.

Given MAPI and ACES’ niche market, we view the companies earnings to be resilient towards any fuel price hike impact.

We maintain our target price of Rp7,900 and OUTPERFORM rating on MAPI

11 April 2012


Although the stock is trading at the high end of its historical trading range, we believe that MAPI’s 21.6x FY12E P/E—a 17% premium to regional peers—is justified given the retailer’s uniqueness in term of business portfolio and we expect it to post robust earnings growth of 22% CAGR over 2012E-14E, leading MAPI to trade at 0.7x PEG, a 31% discount to ACES and a 46% discount to regional peers.

With the rising middle and high income segments (MAPI’s target market), which we believe is relatively resilient to macroeconomic changes, coupled with the increase in GDP per capita from US$3,510 in 2011 to US$4,134 in 2013E, we expect specialty stores segment, which has the highest margin, to continue to deliver strong growth.

Figure 31: MAPI’s forward P/E Figure 32: MAPI’s forward EV/EBITDA

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Initiate coverage on ACES with a NEUTRAL and a target price of Rp5,000

We initiate our coverage on ACES with a NEUTRAL rating and a DCF-based target price of Rp5,000. We derive our target price by assuming a WACC of 12.3% (a risk-free rate of 7.5%, beta of 1.0, and an equity risk premium of 5%) with a terminal growth rate of 6.4%. Our target price equates 24.5x FY12E P/E, 16.1x FY12E EV/EBITDA with 22% earnings CAGR over FY12E-14E.

ACES is trading at the high end of its historical trading range. ACES’s 21.9x 2012E P/E (an 18% premium to regional peers) is leading the retailer to trade at 0.96x PEG, a 22% discount to its regional peers. Our Rp5,000 target price implies a 2012E PEG of 1.1x.

Figure 33: ACES’ forward P/E Figure 34: ACES’ forward EV/EBITDA

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We initiate coverage on ACES with NEUTRAL rating and target price of Rp5,000.

11 April 2012


Figure 35: MAPI has outperformed the JCI by 17% Figure 36: MAPI trades at average of US$2.2 mn per day

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Source: Bloomberg Source: Bloomberg

11 April 2012


Asia Pacific / Indonesia Retailing Conglomerates

Mitra Adiperkasa (MAPI.JK / MAPI IJ)

COMPANY UPDATE

More to come ■ We prefer MAPI to ACES. (1) MAPI’s specialty store expansion strategy

leads to better penetration. (2) The company has a better product positioning. (3) There is higher entry barrier for MAPI than ACES’s market. (4) Capex is moderating at MAPI, as most of the big expansions are underway. (5) Its stock’s valuation looks less demanding.

■ Continue to focus on specialty store expansion, which could lead to higher profitability. We expect strong SSG to continue, given rising middle and high-income segments and MAPI’s target market along with rising Indonesian GDP per capita. MAPI’s specialty store is likely to post strong SSG of 14% over the next two years. Margins are likely to improve across the board, with specialty store (which has higher profitability) continuing to post the strongest growth, and leading the company to post a 22% earnings CAGR over 2012E-14E.

■ Better penetration across the region. The company is actively expanding its sports line, which is a part of the specialty store segment. MAPI is the number one distributor of sport brands in Indonesia, with the store concepts targeting middle-to-higher income (Planet Sports and The Athlete’s Foot) as well as middle-to-low income (Sports Station, The Sports Warehouse) segments, which will allow MAPI to penetrate a wide market. Moreover, MAPI holds an exclusive licensing rights for a number of international sport brands—which allow the company to manufacture its own design based on principal’s approval. We believe this gives the company a competitive advantage as it would allow MAPI to customise its licensed sport goods to meet the criteria of its target market. With the right product mix, we believe MAPI is well positioned to enjoy higher margins.

■ Maintain OUTPERFORM. We maintain our DCF-based target price of Rp7,900, implying 1.0x FY12E PEG, 27.4x FY12E P/E, 13.0x FY12E EV/EBITDA. Given MAPI’s strong earnings growth of 22% CAGR 2012E-14E, its stock trades at 0.7x PEG, a 46% discount to the regional peers.

Share price performance

02000400060008000

Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11

0200400600800

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 4149.8 on 10/04/12 On 10/04/12 the spot exchange rate was Rp9145./US$1

Performance Over 1M 3M 12M Absolute (%) 5.0 21.4 117.4 Relative (%) 1.1 15.2 106.6

Financial and valuation metrics

Year 12/11A 12/12E 12/13E 12/14E Revenue (Rp bn) 5,889.8 7,210.6 8,530.6 9,996.9 EBITDA (Rp bn) 898.4 1,064.7 1,241.3 1,441.3 EBIT (Rp bn) 622.3 766.6 913.2 1,076.1 Net profit (Rp bn) 360.4 479.4 582.3 719.3 EPS (CS adj.) (Rp) 217.12 288.78 350.77 433.34 Change from previous EPS (%) n.a. 0 0 0 Consensus EPS (Rp) n.a. 271 346 427 EPS growth (%) 79.3 33.0 21.5 23.5 P/E (x) 28.8 21.6 17.8 14.4 Dividend yield (%) 0.32 0.61 0.81 0.98 EV/EBITDA (x) 12.5 10.4 8.8 7.4 P/B (x) 5.8 4.7 3.8 3.1 ROE (%) 22.1 23.9 23.6 23.8 Net debt/equity (%) 46.2 31.2 21.5 7.7

Source: Company data, Thomson Reuters, Credit Suisse estimates.

*Stock ratings are relative to the relevant country benchmark. ¹Target price is for 12 months. [V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts


[email protected]


[email protected]

Rating OUTPERFORM Price (10 Apr 12, Rp) 6,250.00 Target price (Rp) 7,900.00¹ Chg to TP (%) 26.4 Market cap. (Rp bn) 10,375 Enterprise value (Rp bn) 11,068 Number of shares (mn) 1,660.00 Free float (%) 42.4 52-week price range 6,750.0 - 2,775.0

11 April 2012


Financial summary Figure 37: MAPI—financial summary (Rp bn) Year end 31 Dec 2008 2009 2010 2011E 2012E 2013E 2014E CAGR 12E-14E

Stores area (in sqm)

Speciality stores 101,157 107,358 124,068 150,932 170,932 185,932 200,932 8

Department stores 223,208 248,310 265,353 271,621 301,621 341,621 371,621 11

F&B 21,153 23,046 30,240 39,901 49,901 54,901 59,901 10

Others 3,431 3,038 2,686 2,686 2,686 2,686 2,686 -

Total 348,949 381,752 422,347 465,140 525,140 585,140 635,140 10

Revenue breakdown

Speciality stores 2,100 2,424 2,758 3,509 4,360 5,217 6,205 19 Department stores 1,058 1,296 1,449 1,664 1,918 2,240 2,561 16 F&B 349 407 514 733 977 1,145 1,334 17 Others 186 180 172 170 177 183 190 4 Elimination (225) (195) (180) (187) (221) (255) (294) 15 Revenue contribution (%)

Speciality stores 56 56 56 57 58 59 60

Department stores 30 31 31 28 27 26 26

F&B 10 10 11 12 14 13 13

Others 3 3 3 2 2 1 1

Profit & loss statement

Revenue 3,468 4,112 4,712 5,890 7,211 8,531 9,997 18

Gross profit 1,841 2,058 2,376 3,043 3,730 4,415 5,173 18

Operating profit 303 308 449 622 767 913 1,076 18

Pre-tax profit (87) 282 276 485 644 783 967 22

Net profit (70) 164 201 360 479 582 719 22

Balance sheet statement

Total assets 3,761 3,379 3,671 4,415 4,967 5,752 6,652 16

Total liabilities 2,633 2,091 2,201 2,621 2,747 3,033 3,316 10

Total shareholders' equity 1,128 1,288 1,469 1,794 2,221 2,719 3,336 23

Inventory days 209 202 173 157 155 155 155

Cash flow statement

Operating cash flow 198 270 770 471 803 808 973 10

Investing cash flow (400) (247) (522) (493) (614) (614) (545) (6)

Free cash flow (126) 83 377 132 203 208 446 48

Financing cash flow 146 (111) (214) 86 (144) (109) (170) 9

Net change in cash (56) (88) 35 64 45 84 259

YoY growth (%)

Revenue 19 15 25 22 18 17

Gross profit 12 15 28 23 18 17

Operating profit 1 46 39 23 19 18

Pre-tax profit (423) (2) 76 33 21 24

Net profit (335) 23 79 33 21 24

Ratios (%)

Gross margin 53.1 50.0 50.4 51.7 51.7 51.8 51.8

Operating margin 8.7 7.5 9.5 10.6 10.6 10.7 10.8

Pre-tax margin (2.5) 6.9 5.9 8.2 8.9 9.2 9.7

Net margin (2.0) 4.0 4.3 6.1 6.6 6.8 7.2


11 April 2012


More to come Robust consumption story to support growth The Indonesian consumption continues to grow in both Java and outside Java, due to the rise in the middle-income group’s spending. We believe that the company is well positioned to prolong its business growth. MAPI’s revenue is expected to grow at 18% CAGR over the next two years, in which, among MAPI’s four business segments, speciality stores remain to be the key driver of the company’s robust growth.

58% revenue contributed from speciality stores

Historically, same store revenue grew at 11% CAGR during 2007-11, with rise in GDP per capita, thus boost purchasing power. We expect the same store growth to be at around 14% for the next two years. As the company focuses on expanding the segment due to higher profitability among other divisions (excluding other stores, i.e. Kinokuniya Bookstore), speciality stores would remain the major contributor (58% of total revenue). Within the segment, sports line contribute the majority (50%) of speciality stores’ revenue, followed by fashion (45%), with the remaining being children and lifestyle. Its top brands include Zara, Reebok, Marks & Spencer, and Converse.

We estimate a 30% CAGR in additional revenue from new stores, with average weight of additional new stores to be around 36% of total speciality stores’ revenue. This will increase revenue per sq m for speciality stores from Rp25.5 mn in 2012E to Rp30.9 mn in 2014E. As MAPI is positioned to capture the consumption growth in both Java and outside Java, we expect speciality stores to grow in both areas, in which, we estimate store area for the division to grow at 8% CAGR. Thus, total speciality stores’ revenue is expected to grow at 19% CAGR.

F&B posted the second highest growth

F&B is a segment within MAPI that has historically been delivering strong growth. We expect the segment to post the second highest growth among others, after the speciality stores’. Starbucks would remain the key driver for the segment as it contributes more than half of the segment’s revenue. MAPI successfully operates more than 120 Starbucks outlets across the country.

We estimate the contribution to the total revenue to increase to around 14% in 2012E, an increase from 11% in 2010 as we see the potential for the segment to grow. We expect same store revenue to grow at 10% CAGR 2012E-14E, where additional revenue from new stores is likely to grow at 21% CAGR, with the average weighting of additional new stores of around 67%. Therefore, we expect the revenue to grow at 17% CAGR.

Specialty stores division is the main contributor to revenue (58%).

F&B posted second higher revenue growth, with Starbucks remaining as its key driver.

11 April 2012


Figure 38: Specialty stores—revenue to grow at a 19%

CAGR

Figure 39: F&B—revenue to grow at a 17% CAGR

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Department stores continue to grow but contribution is expected to soften

As we expect speciality stores to post the highest growth among others—and F&B contribution to improve gradually—we estimate department stores’ revenue contribution to total revenue will soften over the years. We are expecting same store revenues to grow at 10%, with 43% CAGR in additional revenues from new store (average weighting of additional new stores of around 21% to total department stores’ revenue). MAPI’s department stores consist of SOGO, SEIBU and Debenhams, which cater to middle and higher income segment. SOGO and SEIBU together contribute around 50% of total department stores’ revenue. As the company continues to grow its department store concept, we expect the revenue per sq m to increase from Rp6.4 mn in 2012E to Rp6.9 mn in 2014E. With most of the department stores located in Tier 1 cities due to larger space requirement versus other store concepts, we believe its growth would be limited. We expect the area to grow at 11% CAGR and thus, the total department stores’ revenue is estimated to grow at 16% CAGR.

Other stores contribution (Kinokuniya bookstores) is relatively small and accounted for only 2% of total revenue.

Figure 40: Department stores—revenue to grow at 16%

CAGR

Figure 41: Others—despite higher revenue per sqm, the

segment only accounts for around 2% of total revenue

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11 April 2012


Strategic expansion leads to higher profitability Figure 42: MAPI’s strategic expansion lead to higher profitability

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7.5%

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9.5%

8.7%

-

200

400

600

800

1,000

1,200

2008 2009 2010 2011 2012E 2013E 2014E7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

Operating profit (Rp bn) Operating margin (RHS)


In 2010, we saw a turn in the strategy of MAPI to refocus into profitability, evident from the recovery in operating margin from 7.5% in 2009 to 9.5% in 2010. We believe that MAPI has now achieved sufficient portfolio of brands and revenues that allow the retailer to refocus on profitability through (1) focusing on higher margin store type, namely specialty stores and (2) closing down less profitable stores.

Figure 43: Top line to grow at 17.7% CAGR … Figure 44: ... with operating profit to grow at 18.5% CAGR

2,100 2,424 2,758 3,5094,360

5,2176,205

1,0581,296

1,4491,664

1,918

2,240

2,561

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2008 2009 2010 2011 2012E 2013E 2014E


Rp bnTotal revenue to grow 18% CAGR 12E-14E

205 246354

467584

703837

89 47

59

120

135

154

174

-

100

200

300

400

500

600

700

800

900

1,000

2008 2009 2010 2011 2012E 2013E 2014E


Rp bn

18.5% CAGR 12-14E


Margins improved In 2008, the gross margin reached 53.1%, but decreased to 50% in the year after that due to global economic crisis. The margin has started to improve since then and we expect gross margins to reach around 51.7% in 2012E.

We estimate the company’s total operating profit to grow at 18% CAGR for the next two years, as speciality stores remains the major contributor on the back of higher margin. Operating margin continues to recover as we saw a turn in the company’s strategy to refocus into profitability. Margins have improved from as low as 7.5% in 2009 to an estimated 10.6% in 2012E, which has been accompanied by higher contribution from

We expect operating profit to grow at 18% CAGR with specialty stores remaining as the major contributor.

11 April 2012


speciality stores. Margins across the board are improving. In fact, MAPI’s department store contribution to total operating profit recovers after being hit by loss-making brands in 2010.

Figure 45: Operating profit contribution Figure 46: Operating margin

56% 54% 61% 68%80% 79% 75% 76% 77% 78%

36% 43%37% 29%

15% 13% 19% 18% 17% 16%

-20%

0%

20%

40%

60%

80%

100%

2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2008 2009 2010 2011 2012E 2013E 2014E

Total Speciality storesDepartment stores F&BOthers


Moreover, as the company has achieved its economies of scale, contributions of rental expenses as percentage to revenues is expected to decline. We estimate rental expenses per sq m to grow at 5% CAGR, with total area in sq m to grow at 10% CAGR in 2012E-14E. The fact that MAPI’s presence contribute to approximately 31% of total available major retail space in Indonesia, benefits the company due to economies of scale.

Marketing and promotion contributes a marginal proportion to the total expenses as MAPI benefits from the well-known of its existing world class brands, which results in need of less aggressive promotion. In fact, MAPI has partnered up with a number of high profile commercial banks in some of its stores. As an example, MAPI partnered up with Bank Central Asia’s (BBCA.JK) credit cards for its Starbucks. In this case, BBCA is the one who will spend the major proportion of the promotional costs.

Hence, we believe that MAPI is well positioned to refocus its strategy on its profitable businesses as well as to benefit from the large portfolio of brand, which enables it to rotate within the brands.

Speciality stores offer the highest margin

Speciality stores’ contribution to the total company’s operating profit continues to increase, from 56% in 2005 to 76% in 2012E. This division include sports, fashion, and children & lifestyle. MAPI’s sport brands continue to play the key role in its speciality stores, with contribution of 50% to the total division’s revenue.

MAPI is well positioned to refocus its strategy on its profitable businesses

11 April 2012


Figure 47: Speciality stores contribution rising … Figure 48: Speciality stores—revenue breakdown

56%54%

61%

68%

80% 79%

75% 76% 77% 78%

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E

Sports50%Fashion

45%

Children& lifestyle

5%

Source: Company data, Credit Suisse estimates Source: Company data

We estimate speciality stores’ operating profit to grow at 20% CAGR for the next two years on the back of 9% CAGR in operating profit per sq m. Operating margin in this division has improved gradually and has reached the historical high at 13.3% margin in 2011 as the company sold most of its loss-making brands (i.e., the luxury brands) at the beginning of 2010. The strategy to let go of less profitable brands has only been available recently as the company’s brand portfolio and revenues reach economies of scale, allowing the retailer to be more selective and focus on winning brands. These brands include Giorgio Armani, Emporio Armani, and Salvatore Ferragamo, which were then returned to its principals. We believe that the company is now in a good shape to refocus on its high profitability businesses. Moreover, we expect margins to continue to improve, which is in line with the company’s strategy of focusing on higher margin business.

Figure 49: Speciality stores offer the highest margin Figure 50: Department stores—margin to decline slightly

9.8%

10.2%

12.8% 13.3% 13.4% 13.5% 13.5%

8%

9%

10%

11%

12%

13%

2008 2009 2010 2011 2012E 2013E 2014E

8.4%

3.7%4.1%

7.2% 7.1% 6.9% 6.8%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2008 2009 2010 2011 2012E 2013E 2014E

Harvey Nichols dragged down overall perf.


Department stores’ margin recovers

Following the closure of Harvey Nichols in 2010, we estimate that the contribution from MAPI’s department stores to the total operating profit would recover to 18% in 2012E from 13% in 2010 as Harvey Nichols have been loss making. In October 2008, MAPI launched the South East Asia’s first Harvey Nichols in Jakarta, which offered premium-class products. Unfortunately, the store only lasted for about two years, in which, the company decided to close down the loss-making brand in October 2010. MAPI’s department stores’

Specialty stores to contribute more to operating profit, growing at 20% CAGR over the next two years.

11 April 2012


margin declined during that time to as low as 3.7% in 2009 from 8.4% in 2008. Harvey Nichols has 12 stores across the globe, with primarily seven of the stores located in the UK, one in Riyadh (Saudi Arabia), Hong Kong, Dubai (UAE), and two stores in Turkey.

The arrival of Harvey Nichols did not seem to attract a lot of customers in Indonesia, particularly Jakarta, although this does not mean that the affordability of consumer was not there. We found that a lot of Indonesians prefer to shop in Singapore (particularly for premium-class products) during their business visits, as Singapore has been the key business hub for the Indonesian elite.

We believe that the ability of the company to close down non-profitable store is made possible by the fact that MAPI’s capacity of having a large portfolio of brands, enables the company to rotate within the brands. This move will improve the profitability of department stores and would result in increased focus of company on margin improvements ahead. MAPI will continue to focus on its existing department stores: SOGO, SEIBU, and Debenhams. We expect department stores’ operating profit to grow at 13% CAGR for the next two years. The margins are slightly expected to decline due to opening of two new department stores expected this year and up to three department stores the following year, which is likely to erode margins.

F&B

MAPI started a lot of new F&B’s brands in 2007. It takes normally three years for new brands to make profit at the company level. Starbucks Coffee, MAPI’s biggest contributor in the F&B segment, continue to do well. It dragged up the overall margin in 2010. The margin rose to 4.9% in 2010. As the middle income spending is rising along with rising GDP per capita, we believe that people’s lifestyle is changing. Thus, MAPI’s fast food chain, such as Burger King for example, would be the beneficiary. We estimate that the operating profit would grow at 21% CAGR 2012E-14E and margin would hover at around 3.8-4% in the next two years. F&B is likely to account for 5% of total FY12E operating profits.

Figure 51: F&B contribution to total operating profit Figure 52: F&B—operating margin

1.0%

1.7%

5.6%

3.1%

4.8% 5.0% 4.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2008 2009 2010 2011 2012E 2013E 2014E

0.9%1.3%

4.9%

2.7%

3.8%4.0% 4.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2008 2009 2010 2011 2012E 2013E 2014E


MAPI department stores’ margin recovers following the closure of unprofitable Harvey Nichols stores in 2010.

MAPI’s Starbucks continue to do well in the F&B segment. F&B business’s operating profit is expected to grow at 21%CAGR in the next two years.

11 April 2012


Asia Pacific / Indonesia General Merchandise Stores

ACE Hardware Indonesia (ACES.JK / ACES IJ)

INITIATION

The one-stop shopping ■ Initiate with a NEUTRAL rating. Emergence of middle and high income

groups’ spending should benefit ACES’s positioning, as the trend of growing impulsive buyers is expected to enhance the company’s profitability. However, the stock is trading at 0.96x PEG, a 46% premium to MAPI (despite a 22% discount to regional peers).

■ The three pillars. ACES started its business by selling hardware products, which is currently under its home improvement division (59% of FY12E gross sales). Although the contribution to sales is gradually declining, the maturity of the division let other divisions (lifestyle and toys) to grow more aggressively without the need to cannibalise. Contribution of lifestyle division is estimated to go up to 39% in 2012E from 32% in 2008, offering the highest margin at the same time. Assuming 12% CAGR in store expansion, we believe the company is on track to post an earnings CAGR of 22% in FY12E-14E.

■ Temptation to consumers. ACES will benefit from the rising middle and high income groups, its target segments. Based on Nielsen survey in Indonesia’s 12 cities, the proportion increased from 42% in 2008 to 62% in 2010, implying that 48 mn people entered into the segment during the period. Moreover, shoppers are now becoming more impulsive in their shopping. Nielsen study on Shopper Trends in Indonesia’s five cities, with respondents’ household spending level at a minimum of Rp1.5 mn, found that 21% of respondents believe they never plan what they want to buy before shopping, an 11% increase from 2003 study, while 39% of respondents (versus 13% in 2003) always purchase additional item(s), even though they plan things in advance. We believe it is crucial to identify changes in shoppers’ behaviour which will boost earnings at 22% CAGR, in our view.

■ Target price of Rp5,000. Our target price of Rp5,000 is based on DCF valuation, which assumes a WACC of 12.3% and implies 1.07x 2012E PEG, 24.5x 2012E P/E and 16.1x 2012E EV/EBITDA. Risks: (1) principal risk, (2) competition from new and existing players and (3) macroeconomic risks.

Share price performance

0

2000

4000

6000

Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11

0100200300400

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 4149.8 on 10/04/12 On 10/04/12 the spot exchange rate was Rp9145./US$1

Performance Over 1M 3M 12M Absolute (%) -1.6 13.3 82.7 Relative (%) -5.6 7.1 71.9

Financial and valuation metrics

Year 12/11A 12/12E 12/13E 12/14E Revenue (Rp bn) 2,494.8 3,083.0 3,789.3 4,544.4 EBITDA (Rp bn) 416.0 514.3 631.3 758.1 EBIT (Rp bn) 363.1 450.4 557.4 673.5 Net profit (Rp bn) 285.1 350.5 433.3 524.7 EPS (CS adj.) (Rp) 166.25 204.38 252.66 305.92 Change from previous EPS (%) n.a. Consensus EPS (Rp) n.a. 188 235 306 EPS growth (%) 66.8 22.9 23.6 21.1 P/E (x) 26.9 21.9 17.7 14.6 Dividend yield (%) 1.2 0.6 0.7 0.8 EV/EBITDA (x) 17.9 14.4 11.5 9.3 P/B (x) 6.4 5.1 4.1 3.3 ROE (%) 25.7 25.8 25.4 24.7 Net debt/equity (%) net cash net cash net cash net cash

Source: Company data, Thomson Reuters, Credit Suisse estimates.

*Stock ratings are relative to the relevant country benchmark. ¹Target price is for 12 months.

Research Analysts


[email protected]


[email protected]

Rating NEUTRAL Price (10 Apr 12, Rp) 4,475.00 Target price (Rp) 5,000.00¹ Chg to TP (%) 11.7 Market cap. (Rp bn) 7,675 Enterprise value (Rp bn) 7,381 Number of shares (mn) 1,715.00 Free float (%) 33.9 52-week price range 4,800.0 - 2,525.0

11 April 2012


Financial summary Figure 53: ACES—financial summary (Rp bn) Year End 31 Dec 2008 2009 2010 2011 2012E 2013E 2014E CAGR 12E-14E

Store area (in sqm)

Ace Hardware 98,289 105,697 129,802 160,918 191,700 216,700 241,700 12

Toys Kingdom 5,000 12,000 17,000 22,000 27,000 26

Total 98,289 105,697 134,802 172,918 208,700 238,700 268,700 13

Gross sales (incl. consignment)

Home Improvement 874 926 1,087 1,530 1,829 2,173 2,515 17

Lifestyle 406 472 585 893 1,164 1,504 1,889 27

Toys - - 17 72 90 112 141 25

Gross sales contribution (%)

Home Improvement 68 66 64 61 59 57 55

Lifestyle 32 34 35 36 38 40 42

Toys - - 1 3 3 3 3

Gross profit contribution (%)

Home Improvement 66 66 62 58 57 54 52

Lifestyle 34 34 37 39 41 43 45

Toys - - 1 3 3 3 3

Profit & loss statement

Revenue 1,280 1,398 1,690 2,495 3,083 3,789 4,544 21

Gross profit 503 552 709 1,136 1,401 1,720 2,064 21

Operating profit 164 178 209 363 450 557 673 22

Pre-tax profit 183 206 220 371 458 566 686 22

Net profit 131 155 171 285 351 433 525 22

Balance sheet statement

Total assets 790 975 1,198 1,452 1,842 2,285 2,811 24

Total liabilities 113 120 173 220 309 381 457 22

Total shareholders' equity 677 855 1,010 1,207 1,514 1,895 2,355 25

Inventory days 93 41 50 78 85 85 85

Cash flow statement

Operating cash flow 129 186 109 82 321 373 465 20

Investing cash flow (92) 72 (121) (172) (207) (199) (212) 1

Free cash flow 37 258 (12) (90) 113 174 253 49

Financing cash flow (38) 42 (16) (71) (30) (37) (49) 27

Net change in cash (1) 301 (27) (161) 83 137 204 57

YoY growth (%)

Revenue 9 21 48 24 23 20

Gross profit 10 28 60 23 23 20

Operating profit 8 17 74 24 24 21

Pre-tax profit 13 7 69 24 24 21

Net profit 18 11 67 23 24 21

Ratios (%)

Gross margin 39.3 39.5 41.9 45.5 45.4 45.4 45.4

Operating margin 12.9 12.8 12.4 14.6 14.6 14.7 14.8

Pre-tax margin 14.3 14.8 13.0 14.9 14.9 14.9 15.1

Net margin 10.2 11.1 10.1 11.4 11.4 11.4 11.5


11 April 2012


The three pillars Ace Hardware Indonesia (ACES), the exclusive franchisee of Ace Hardware Corporation (non listed), is the leading home improvement company in Indonesia. It operates more than 50 retail outlets across the country under two main divisions: lifestyle and home improvement, with additional toys division started in 2010. ACES holds the exclusive franchise of Ace Hardware Corporation (non listed), a US-based company headquartered in Oak Brook, IL, which operates 4,400 stores across all 50 states and 70 foreign countries. The license agreement of ACES is valid for the period of 15 years, which will then be renewed upon expiry.

ACES started its business by selling hardware products, which is currently under its home improvement division and contribute more than 50% of the company’s gross sales. The company then expanded from 1 to 11 product lines over the years and stood in its current mature level among other divisions. Although the contribution to revenue is gradually declining, the maturity of the division let other divisions (lifestyle and toys) to grow more aggressively without the need to cannibalise. We expect to see gradual increase in contribution from lifestyle division, which, we estimate would contribute around 38% of gross sales in 2012E from 32% in 2008 and at the same time offer the highest margin. Assuming a 10% same store sales growth (excluding toys) over the next two years, with around 30% CAGR in additional revenue from new stores, and toys division to grow at 25% CAGR, we believe that the company is on track to post earnings CAGR of 22% over 2012E-14E.

Lifestyle offer the highest margin

Lifestyle contribution to total gross sales should continue to increase, from 32% in 2008 to an estimated 38% this year. We estimate that this division’s gross sales would post the highest growth at 27% CAGR 2012E-14E, in line with the company’s plan to continue to expand the division—as it currently only consist of 5 subdivisions, namely houseware, automotive, sporting goods& pet supplies, furniture, and HORECABA (hotel, restaurant, café & bakery)—versus home improvement that currently has 11 subdivisions.

Figure 54: Lifestyle contribution is rising Figure 55: Houseware’s sales contribute the most

406 472585

893

1,164

1,504

1,889

42%

40%

38%

36%35%

34%

32%-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2008 2009 2010 2011 2012E 2013E 2014E

30%

32%

34%

36%

38%

40%

42%

44%

Gross sales (Rp bn) % of total gross sales (RHS)

Automotive26%

Furniture3%

Houseware46%

Sporting goods & pet supplies

21%

HORECABA4%

Source: Company data, Credit Suisse estimates Source: Company data, 2011

Given the fact that impulsive buyers are trending up in modern retailing, ACES’ lifestyle division is well positioned to benefit from the rising trend. Houseware products contribute around 46% for this division. It offers products from modular wire racking, cookware, kitchen gadgets and utensil, as well as bathroom accessories. We believe ACES’ attractive products display has well supported the presence of impulsive buyers, which

ACES operates three divisions namely: lifestyle, home improvement and toys divisions.

11 April 2012


automatically led to higher purchase. Moreover, these line of products are part of necessity for most of the people for their modern living.

The second biggest contributor is automotive related products, which include car accessories, car covers, tools, and varieties of automotive needs. The Indonesian automotive industry has been growing since last few years. Nowadays, the competition is even becoming more challenging, resulting in the introduction of new four-wheelers as well as two-wheelers into the market, making the customers open to a lot of choices. Supported by higher purchasing power, the total auto sales in 2011 reached 900,000 for 4W, and exceeded 8 mn units for 2W. ACES has benefitted from this rising trend as automotive related products became more and more popular among impulsive buyers, particularly men, for this category of products. The fact that over 60% of auto sales comes from Java, the company’s strategy is in line. The company mainly focuses on Java despite of surging outside Java growth opening up more opportunities.

Figure 56: Indonesian auto sales Figure 57: Over 60% of auto sales comes from Java

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2006 2007 2008 2009 2010 2011

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

2W 4W

Units Units

66%60%

34%

40%

0%

10%

20%

30%

40%

50%

60%

70%

4W 2W

Java Outside Java

Source: Indonesia automotive association Source: Astra International

We estimate that the gross profit of lifestyle division would post the highest growth among other divisions, growing at 28% CAGR for 2012E-14E. Lifestyle division also offers the highest margin, and we expect this year’s margins to be at similar level as that of last year. Hence, the company is in shape to focus on its high-profitability business, in which we expect to see the gross profit’s contribution of lifestyle department rising from 34% in 2008 to 41% this year.

Figure 58: Lifestyle—gross profit to post the highest

growth among other businesses…

Figure 59: … and it offers the highest gross margin

170 188264

442

574

745

935

-

100

200

300

400

500

600

700

800

900

1,000

2008 2009 2010 2011 2012E 2013E 2014E

Rp bn

28% CAGR 12E-14E

41.9%

39.8%

45.2%

49.5% 49.4% 49.5% 49.5%

35%

37%

39%

41%

43%

45%

47%

49%

51%

2008 2009 2010 2011 2012E 2013E 2014E


Lifestyle division to post the highest growth among other divisions, also with highest profit margin.

11 April 2012


Home improvement is on its mature level

Although the contribution of home improvement has declined over the years, the division still contributes more than 50% of ACES gross sales. We estimate the contribution to gradually decline from 68% in 2008 to around 59% this year, with an estimated growth in gross sales of 17% CAGR during 2012E-14E. Home improvement consists of 11 subdivisions (see Figure 46); the top three subdivisions includes hardware which contributes 14% of the sales, followed by electrical (14%), and cleaning aids (11%).

Figure 60: Home improvement contribution is declining Figure 61: Hardware & electrical is the top contributor

874 9261,087

1,530

1,829

2,173

2,51568%

66%

64%

61%

59%

57%

55%

-

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012E 2013E 2014E

50%

53%

55%

58%

60%

63%

65%

68%

70%

Gross sales (Rp bn) % of total gross sales

Hardware14%

Home appliances

9%

Cleaning aids11%

Lawn & garden5%

Lighting6%Miscellaneous

7%

Outdoor living8%

Paint8%

Plumbing9%

Electrical14%

Tools9%

Source: Company data, Credit Suisse estimates Source: Company data, 2011

ACES started its business by providing only hardware products. The business then expanded from one-to-eleven product lines over the years. This is the reason why home improvement appears to be on its mature level among other divisions. Although the contribution to revenue is gradually declining, this does not mean the business is dying. Instead, the maturity of the division let other divisions to grow more aggressively without the need to cannibalise.

Based on Credit Suisse Indonesia Consumer Survey 2012, Indonesia appears to be the highest among other regions in terms of willingness to purchase a house in the next two years (25% of respondents). This was also supported by the fact that 47% of respondents believe that income outlook for the next 12 months would be better, although the figure is likely to decline from 58% in 2010. 45% of respondents are first-time home buyers who will need home improvement products to furnish their houses, while 31% of respondents plan to upgrade or renovate their existing houses. ACES is a clear beneficiary of the rise in the Indonesian property sector.

Figure 62: Indonesian – highest of wanting to buy a house

in the next 2 years

Figure 63: … with 45% a first-time home buyer

25 24

17 1614

12

86

2422

10

22

13

0

57

0

5

10

15

20

25

30

Indonesia

Brazil

Saudi

China

India

Turkey

Egypt

Russia

% o

f res

pond

ents

wan

ting

to b

uy a

hou

se in

the

next

2

year

s

2011 2010

Upgrade31%Investment

17%

Change of location

7%

First-time home buyer45%

Source: Credit Suisse Indonesia Consumer Survey 2012 Source: Credit Suisse Indonesia Consumer Survey 2012

Home improvement division is maturing but still contributes more than 50% of ACES gross sales.

11 April 2012


We estimate that gross profit will grow at 18% CAGR over 2012E-14E and margins are likely to reach around 43% level after a significant improvement from 40.3% in 2010.

Figure 64: Home improvement—gross profit to grow at

18% CAGR…

Figure 65: … and expect gross margin to reach 43%

333 365438

665

792

932

1,075

-

200

400

600

800

1,000

1,200

2008 2009 2010 2011 2012E 2013E 2014E

Rp bn

17% CAGR 12E-14E

38.1%

39.4%

40.3%

43.4% 43.3%42.9% 42.8%

35%

36%

37%

38%

39%

40%

41%

42%

43%

44%

2008 2009 2010 2011 2012E 2013E 2014E


Toys is ACES’ new kingdom

In mid 2010, ACES started to enter the toys business under the name of “Toys Kingdom”. Toys Kingdom is ACES’ own concept store, which is currently located in ten locations across the country. This youngest division contributes around 1% of total company’s gross sales in 2010 and we expect it to increase to 3% in 2012E.

The fact that 29% of the Indonesian population is children within age group of 0-14 years old (ACES’ target segment), along with continuous growth in its population and rising GDP per capita, should benefit ACES in driving future growth for its toys business. Thus, we estimate the division to post 25% CAGR for the next two years.

Figure 66: Children in age group 0-14 years account for

29% of total Indonesia population …

Figure 67: … and its population continues to grow

0-14 years old29%

15+ years old71%

61,800

61,900

62,000

62,100

62,200

62,300

62,400

62,500

62,600

2007 2008 2009 2010

000 people

Source: Indonesia Statistical Bureau (BPS) Source: Indonesia Statistical Bureau (BPS)

Toys is ACES’s youngest division which we expect it to continue to grow along with children population growth and rising GDP per capita.

11 April 2012


Unlike home improvement and lifestyle, where more than 90% of its products are direct products, Toys Kingdom’s concept is designed in such a way that 70% of the products are consignment products while the remaining 30% of the products are direct products which are supplied mostly by local toys suppliers. Gross profit is estimated to grow at 24% CAGR over the next two years.

Net net …

In terms of expenses, salary contributes the majority of ACES operating expenses of around 40%. Salary expenses in 2011 increased from 11% of gross sales in 2010 to 12% of gross sales on the back of changes in incentive scheme which started in May 2011. The new scheme provides an additional incentive for the staff once they exceed targeted sales. Previously, no additional incentive was given when the event occurred. We expect this year’s salary expenses to be at around 12% of gross sales. Rental expenses contributed 14% to total operating expenses or around 4% of total gross sales. ACES signed fixed rental agreement for the duration of ten years for each of its retail outlets, with price increment of every 5 years.

Net net, we expect earnings to grow at 22% CAGR over the next two years with net margin to be maintained at 11.4% in 2012E.

Initiate ACES with NEUTRAL at Rp5,000/ share

We initiate coverage on ACES with a NEUTRAL rating and a DCF-based target price of Rp5,000. We derive at our target price by assuming a WACC of 12.3% (a risk free rate of 7.5%, beta of 1.0, and an equity risk premium of 5%) with a terminal growth rate of 6.4%. Our target price equates 24.5x FY12E P/E, 16.1x FY12E EV/EBITDA with 22% earnings CAGR over FY12E-14E.

ACES is trading at the high end of its historical trading range. ACES’s 21.9x 2012E P/E (an 18% premium to regional peers) is leading the retailer to trade at 0.96x PEG, a 22% discount to its regional peers. Our Rp5,000 target price implies a 2012E PEG of 1.1x.

Figure 68: DCF valuation (Rp bn) 2012E

Risk-free rate 7.5%

Beta 1.0

Risk premium 5%

Ke 12%

Kd 0.0%

Tax 25%

Debt/Capital -

Equty/Capital 1.0

WACC 12.3%

Terminal value multiple 17

Growth 6.4%

Net Present Value (Rp bn) 8,179

Add: Cash (Rp bn) 294

Minus: Debt (Rp bn) -

Shareholder value (Rp bn) 8,473

TP (Rp/share) 5,000

Source: Credit Suisse estimates

earnings is expected to grow at 22% CAGR 12-14E

We initiate coverage on ACES with NEUTRAL rating and target price of Rp5,000.

11 April 2012


Investment risks Principal risk Ace Hardware Indonesia holds the franchise of Ace Hardware Corporation. Risk of franchise termination exists.

Competition from existing and new players Currently, there are number of competitors operating the same business portfolio as that of ACES. The recent one is ‘Do It Best Pongs Home Center’, which is owned by PT Pongs Indonesia (non listed). It is a retail company selling home-improvement products and is affiliated with Do it Best USA as its exclusive partner in Indonesia. Paulus Ong, the Chairman and President of the company was the former Chief Operation Officer of Kawan Lama Group (the parent company of ACES, non listed). He played an important role in developing Ace Hardware stores in Indonesia. Although the presence of its retail outlets are still relatively limited compared to ACES, the business portfolio of Do It Best Pongs is somewhat replicating the success story of ACES.

Another similar business portfolio is operated by PT Griya Tritunggal Abadi (non listed) under Rumah Kita. It has relatively sizeable number of retail outlets, which are mostly located in the Jakarta area. Unlike ACES, Rumah Kita does not offer toys products for its customers.

Mitra 10, as well as Depo Bangunan, offers a supermarket concept for building materials. We believe that ACES faces competition with Mitra 10 and Depo Bangunan, particularly in the home improvement business. Mitra 10 is owned by PT Catur Mitra Sejati Sentosa (non listed), while Depo Bangunan is owned by PT Caturkada Depo Bangunan.

Figure 69: ACE’s Competitors Comparison Company Brand No. of Stores Java Non-Java

PT Ace Hardware Indonesia Ace Hardware 55 41 14

PT PONGS Indonesia Do It Best Pongs Home Center 5 5 0

PT Griya Tritunggal Abadi Rumah Kita 13 11 2

PT Penta Home Indonesia Home Fix 1 1 0

PT Catur Mitra Sejati Sentosa MITRA10 18 14 4

PT Caturkada Depo Bangunan Depo Bangunan 6 5 1


Moreover, IKEA, the most popular one-stop shopping for furniture and accessories, is expected to enter the Indonesian retail business. The company is expected to start its operation in 2014. We believe that IKEA would be quite popular in Indonesia on the back of its well-known brand, in terms of numbers of Indonesian willing to go to Singapore just to find the IKEA brand. However, we believe that IKEA would offer slightly different products to ACES and to be a closer rival for Informa (the sister company of ACES, non listed, who specialise in furniture products).

Macroeconomic risks Other risks that the company may face would be macroeconomic conditions such as inflation, and exchange rate.

ACES faces competition from existing and new players in the home improvement business.

11 April 2012


Appendix 1: MAPI’s financials Figure 70: MAPI—profit & loss (Rp bn) Year-end 31 December 2008 2009 2010 2011E 2012E 2013E 2014E CAGR 12E-14E

Revenue 3,468 4,112 4,712 5,890 7,211 8,531 9,997 17.7%

Speciality stores 2,100 2,424 2,758 3,509 4,360 5,217 6,205 19.3%

Department stores 1,058 1,296 1,449 1,664 1,918 2,240 2,561 15.5%

F&B 349 407 514 733 977 1,145 1,334 16.9%

Others 186 180 172 170 177 183 190 3.8%

Elimination (225) (195) (180) (187) (221) (255) (294) 15.4%

COGS 1,627 2,054 2,336 2,847 3,481 4,116 4,823 17.7%

Gross profit 1,841 2,058 2,376 3,043 3,730 4,415 5,173 17.8%

Opex:

Selling 1,287 1,515 1,664 2,067 2,497 2,953 3,456 17.6%

G&A 251 235 263 354 466 549 641 17.3%

Total opex 1,538 1,750 1,927 2,420 2,963 3,502 4,097 17.6%

Operating profit 303 308 449 622 767 913 1,076 18.5%

Speciality stores 205 246 354 467 584 703 837 19.8%

Department stores 89 47 59 120 135 154 174 13.4%

F&B 3 5 25 20 37 45 53 20.5%

Others 7 9 11 16 11 11 12 3.3%

EBITDA 513 558 711 898 1,065 1,241 1,441 16.4%

Other income (charges):

Forex (loss) gain (331) 165 1 (6) - - -

Interest income 9 5 6 8 10 12 18 32.6%

Interest expense (73) (114) (124) (123) (99) (98) (98) -0.7%

Others - net 4 (82) (56) (16) (33) (44) (29) -6.5%

Other income (charges) - net (391) (26) (173) (138) (122) (130) (109) -5.5%

Pre-tax profit (87) 282 276 485 644 783 967 22.5%

Tax benefit (expense) 18 (118) (75) (124) (165) (201) (248) 22.5%

Income before minority interest (70) 164 201 360 479 582 719 22.5%

Minority interest (0) (0) 0 0 0 0 0 0.0%

Net profit (70) 164 201 360 479 582 719 22.5%


11 April 2012


Figure 71: MAPI—balance sheet (Rp bn) Year-end 31 December 2008 2009 2010 2011E 2012E 2013E 2014E

Cash and cash equivalents 278 190 224 289 334 418 677

Short term investment 4 10 24 13 14 14 15

Account receivables 134 127 128 195 198 234 274

Inventories 1,130 1,146 1,074 1,378 1,478 1,748 2,048

Others 391 367 415 495 582 690 810

Total current assets 1,937 1,840 1,865 2,369 2,605 3,103 3,824

Deferred tax assets (net) 59 14 35 35 42 50 59

LT portion of prepaid rent 14 14 38 30 36 43 50

Investment properties 113 109 104 99 99 99 99

Plant, property and equipment 1,131 1,117 1,314 1,487 1,789 2,060 2,223

Other non current assets 508 286 314 396 396 396 397

Total assets 3,761 3,379 3,671 4,415 4,967 5,752 6,652

Account payables 493 376 509 668 715 846 991

Taxes payable 78 83 99 102 136 165 204

Accrued expenses 84 86 109 121 148 175 205

Unearned income 29 41 76 77 95 112 131

ST loans 440 519 450 985 671 653 653

Others 256 165 227 325 378 447 524

Total current liabilities 1,380 1,270 1,469 2,278 2,142 2,398 2,708

LT loans 938 600 504 133 356 348 280

Post-employment benefits 83 99 121 147 180 213 250

Deferred tax liabilities 25 41 39 38 40 42 44

Others 207 81 68 25 29 32 34

Total liabilities 2,633 2,091 2,201 2,621 2,747 3,033 3,316

Minority interest 0 0 0 0 0 0 0

Total equity 1,128 1,288 1,469 1,794 2,221 2,719 3,336

Total liabilities and equity 3,761 3,379 3,671 4,415 4,967 5,752 6,652


Figure 72: MAPI—Cash flow statement (Rp bn) Year-end 31 December 2008 2009 2010 2011E 2012E 2013E 2014E

Net income (70) 164 201 360 479 582 719

Add:Depreciation and amortisation 210 260 274 287 317 347 374

Minority interest 0 0 (0) (0) (0) (0) (0)

Forex loss 331 (165) (1) 6 - - -

Others (117) 192 18 (22) 24 19 32

Chg in WC (156) (181) 277 (161) (17) (141) (152)

Operating cash flow 198 270 770 471 803 808 973

Capital expenditures (324) (188) (393) (339) (600) (600) (528)

Assets disposal - - - - - - -

Others (76) (60) (129) (153) (14) (14) (17)

Investing cash flow (400) (247) (522) (493) (614) (614) (545)

Free cash flow (126) 83 377 132 203 208 446

Debt repayment 208 (105) (156) 185 (92) (25) (68)

Capital increase - - - - 10 - -

Dividend payment (19) - (25) (33) (63) (84) (102)

Others (43) (6) (33) (66) - - -

Financing cash flow 146 (111) (214) 86 (144) (109) (170)

Net change in cash (56) (88) 35 64 45 84 259


11 April 2012


Appendix 2: ACES’ financials Figure 73: ACES—gross profit and loss (Rp bn) Year-end 31 December 2008 2009 2010 2011 2012E 2013E 2014E CAGR 12E-14E

Gross sales (inc. consignment) 1,280 1,398 1,690 2,495 3,083 3,789 4,544 21.4%

Home Improvement 874 926 1,087 1,530 1,829 2,173 2,515 17.2%

Lifestyle 406 472 585 893 1,164 1,504 1,889 27.4%

Toys - - 17 72 90 112 141 25.0%

COGS (inc. consignment) 777 846 981 1,359 1,682 2,069 2,481 21.4%

Gross profit 503 552 709 1,136 1,401 1,720 2,064 21.4%

Home Improvement 333 365 438 665 792 932 1,075 16.5%

Lifestyle 170 188 264 442 574 745 935 27.6%

Toys - - 7 30 35 43 54 23.8%

Operating profit 164 178 209 363 450 557 673 22.3%

EBITDA 189 212 248 416 514 631 758 21.4%

Other Income - Net 19 28 11 8 8 9 12 25.8%

Pre-tax profit 183 206 220 371 458 566 686 22.3%

Income tax benefit (expenses) (53) (52) (52) (91) (115) (142) (171) 22.3%

Income before MI 131 155 168 280 344 425 514 22.3%

Minority Interests - 0 3 6 7 9 10 22.3%

Net profit 131 155 171 285 351 433 525 22.3%


Figure 74: ACES—balance sheet (Rp bn) Year-end 31 December 2008 2009 2010 2011 2012E 2013E 2014E

Cash 99 396 366 210 294 430 635

Short term investment 198 73 34 20 21 22 23

Account receivables 8 8 11 32 21 26 31

Other receivables 13 6 10 21 26 32 38

Inventories 198 96 135 290 392 482 578

Prepaid taxes - - 3 5 6 7 9

Prepaid expenses 23 27 38 69 85 104 125

Advances 80 171 265 201 248 305 366

Total current assets 619 776 862 847 1,092 1,408 1,804

Due from related parties 39 37 35 41 50 62 74

Long term prepaid expenses 24 23 21 121 149 184 220

Plant, property&equipment 83 105 226 361 460 532 603

Other non-current assets 25 34 54 82 90 100 110

Total non-current assets 171 199 336 605 750 878 1,007

TOTAL ASSETS 790 975 1,198 1,452 1,842 2,285 2,811

Short term loan - - - - - - -

Account payables 52 30 71 38 138 170 204

Accrued expenses 7 8 9 10 12 15 18

Taxes Payable 22 21 12 38 47 58 70

Long term loan (<1 year) - - - - - - -

Other current liabilities 11 33 45 81 46 57 68

Total current liabilities 92 91 137 167 243 300 360

Post Employment benefits 21 30 36 53 66 81 97

Long term loan (>1 year) - - - - - - -

Total non-current liabilities 21 30 36 53 66 81 97

TOTAL LIABILITIES 113 120 173 220 309 381 457

MINORITY INTEREST 0 0 14 25 18 10 (1)

TOTAL EQUITY 677 855 1,010 1,207 1,514 1,895 2,355

TOTAL LIABILITIES &EQUITY

790 975 1,198 1,452 1,842 2,285 2,811


11 April 2012


Figure 75: ACES—cash flow statement (Rp bn) Year-end 31 December 2008 2009 2010 2011 2012E 2013E 2014E

Net income 131 155 171 285 351 433 525

Add:Depreciation and amortisation 24 34 39 53 64 74 85

Minority interest 0 (0) 14 11 (7) (9) (10)

Forex loss (7) (11) 5 2 - - -

Others 38 (114) (41) (142) (45) (2) (3)

Cash net income 186 64 188 209 362 496 596

Chg in WC (57) 122 (79) (128) (41) (123) (131) Operating cash flow 129 186 109 82 321 373 465

Capital expenditures (58) (55) (159) (186) (161) (144) (153)

Others (34) 128 38 14 (46) (55) (59)

Investing cash flow (92) 72 (121) (172) (207) (199) (212)

Free cash flow 37 258 (12) (90) 113 174 253

Debt repayment - - - - - - -

Capital increase (34) (26) - - - - -

Dividend payment (6) (12) (16) (89) (43) (53) (65)

Others 2 81 - 17 13 15 16

Financing cash flow (38) 42 (16) (71) (30) (37) (49)

Net change in cash (1) 301 (27) (161) 83 137 204


11 April 2012


Appendix 3: MAPI’s retail concept Figure 76: MAPI’s retail concept

PT MITRA ADIPERKASA TBK

Department Stores* Specialty Stores Food & Beverage Others

RETAIL

SOGOSEIBU

Debenhams

Sports Fashion & Lifestyle Children Starbucks CoffeeBurger King

Pizza MarzanoDomino's pizza

Cold Stone CreameryKrispy KremeChatterbox

Kinokuniya

Sports StationPlanet Sports

The Athlete's FootThe Sports Warehouse

Golf HouseReebok

ConversePayless ShoeSource

PumaRoyal Sporting House

RockportSoccer Station

Foot Gear

ZaraMarks & Spencer

NEXTTopmanTopshopNauticaLacoste

Mossimo DuttiPull and Bear

Dorothy PerkinsMiss Selfridge

KiplingNine West

OasisFCUK

MaidenformSamsonite

SwatchSole Effect

Steve MaddenStradivarius

BershkaTumi

MaxMaraLoeweH2O

WarehouseTravelogueHE Mango

BCBGMax&CoPandora

Kidz StationOshKosh B'GoshBarbie Boutique

MAP Support CenterGarment Factory

*Alun Alun Indonesia is included under MAPI’s Department Stores.


11 April 2012


Appendix 4: Indonesia selected economic indicators Figure 77: Indonesia selected economic indicators 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E

Real GDP growth % 5.0 5.7 5.5 6.3 6.0 4.6 6.1 6.5 6.4 6.6

Growth in private consumptions

% 5.0 4.0 3.2 5.0 5.3 4.9 4.6 4.7 5.0 5.0

Growth in real fixed investment

% 14.7 10.9 2.6 9.3 11.9 3.3 8.5 8.8 9.3 10.0

Nominal GDP $bn 225.5 284.5 365.3 431.1 507.2 541.2 707.5 844.1 923.5 1018.1

Population mn 216.4 219.9 222.7 225.6 228.5 231.4 231.4 240.5 243.4 246.3

GDP per capita $ 1,181 1,294 1,640 1,911 2,219 2,339 2,964 3,510 3,795 4134

CPI inflation (YE) %YoY 6.4 17.1 6.6 6.6 10.2 2.8 7.0 3.9 7.3 6.1

CPI inflation (average) %YoY 6.1 10.5 13.1 6.4 9.8 4.8 5.1 5.4 6.2 6.3

Exchange rate (YE) IDR/USD 9,290 9,830 9,020 9,419 10,950 9,400 8,991 9,068 9,050 9500

Exchange rate (average) IDR/USD 8,985 9,751 9,141 9,164 9,757 10,354 9,078 8,799 9,059 9275

Overnight rate (YE) % 7.43 12.75 9.75 8.00 9.25 6.50 6.50 6.00 6.25 6.5

Fiscal balance % GDP (1.0) (0.5) (0.9) (1.3) (0.1) (1.6) (0.6) (1.2) (2.0) -1.8

Govt expenditure % GDP 18.6 18.4 20.0 19.2 19.9 16.7 16.2 17.0 18.0 19

Govt revenues % GDP 17.6 17.9 19.1 17.9 19.8 15.1 15.5 15.8 16.0 17.2

Gross general debt % GDP 54.7 47.0 39.5 34.2 29.5 31.3 26.4 24.0 21.0 20

M2 % GDP 45.0 43.4 41.4 41.8 38.3 38.2 38.5 38.7 40.2 42.1

M2 growth %YoY 8.2 16.3 14.9 19.3 14.9 13.0 15.4 16.4 17.0 18

Domestic credit % GDP 34.0 32.5 29.4 28.8 26.3 26.1 25.0 26.5 27.2 28.2

Domestic credit growth %YoY (17.6) 15.5 8.8 16.2 14.3 12.2 9.9 22.4 16.0 17

Domestic credit to private sector

% GDP 26.4 26.4 24.6 25.5 26.6 25.0 26.2 28.5 32.4 36.5

Domestic credit to private sector growth

%YoY 36.9 21.0 12.1 22.4 30.7 6.8 20.0 25.8 28.0 27

Exports % GDP 30.6 35.1 31.5 30.3 30.5 24.5 24.7 26.3 26.7 28.1

Imports % GDP 27.5 32.2 26.1 25.4 28.6 20.6 21.7 23.5 24.7 27.4

Exports growth %YoY 9.3 20.7 15.1 13.4 18.7 (14.2) 31.7 27.0 11.0 16

Imports growth %YoY 29.4 28.0 4.1 15.0 32.3 (23.0) 37.6 29.3 15.0 22

Current account balance $ bn 1.6 0.3 10.9 10.5 0.1 10.6 5.1 2.1 (6.5) -15.3

Current account balance % GDP 0.6 0.1 3.0 2.4 - 2.0 0.7 0.2 (0.7) -1.5

Net FDI inflow $ bn (1.5) 5.3 2.2 2.3 3.4 2.6 11.1 10.4 12.0 10.0

Scheduled external debt amortization

$ bn 15.1 13.5 14.3 15.4 17.1 18.7 22.2 25.0 28.0 30.0

Foreign debt $ bn 137.0 130.7 128.7 136.6 149.1 172.9 200.1 210.0 220.0 230.0

Public $ bn 82.7 80.1 75.8 80.6 86.6 99.3 116.6 117.0 125.0 130.0

Private $ bn 54.3 50.6 52.9 56.0 62.6 73.6 83.4 93.0 95.0 100.0

Foreign debt % GDP 53.6 45.9 35.2 31.7 29.4 31.9 28.3 24.9 23.8 22.6

Foreign debt % exports 175.0 130.8 111.9 104.7 96.3 130.2 114.4 94.6 89.3 80.5

Central bank gross FX reserves

$ bn 36.3 34.7 42.6 56.9 51.6 66.1 96.2 112.0 100.0 90.0

Central bank net non-gold FX reserves

$ bn 35.0 33.1 41.1 55.0 49.6 63.6 92.9 109.0 97.0 87.0

Source: Bank Indonesia, Ministry of Finance, Central Bureau Statistics, CEIC, World Bank, Credit Suisse estimates

11 April 2012


Companies Mentioned (Price as of 10 Apr 12) ACE Hardware Indonesia (ACES.JK, Rp4,475.00, NEUTRAL, TP Rp5000) Boshiwa International Holding Ltd. (1698.HK, HK$1.68, NEUTRAL [V], TP HK$2.50) C.P. All PCL (CPALL.BK, Bt65.75, NEUTRAL, TP Bt55.50) CJ O Shopping Co Ltd (035760.KQ, W245,000, UNDERPERFORM, TP W250,000) Daum Communications Corp (035720.KQ, W111,600, OUTPERFORM, TP W170,000) E-MART CO. LTD (139480.KS, W265,500, OUTPERFORM [V], TP W310,000) Esprit Holdings (0330.HK, HK$16.76, UNDERPERFORM [V], TP HK$12.50) Golden Eagle Retail Group Ltd. (3308.HK, HK$20.30, NEUTRAL, TP HK$14.50) GOME Electrical Appliances Holding Limited (0493.HK, HK$1.52, NEUTRAL [V], TP HK$1.80) GS Home Shopping Inc (028150.KQ, W114,100, OUTPERFORM, TP W165,000) Home Products Center PCL (HMPR.BK, Bt13.10, UNDERPERFORM, TP Bt6.60) Hyundai Department Store Co. Ltd (069960.KS, W178,000, OUTPERFORM, TP W225,000) Li & Fung (0494.HK, HK$16.46, NEUTRAL [V], TP HK$22.60) Lifestyle International Holdings Ltd (1212.HK, HK$19.70, OUTPERFORM, TP HK$23.80) Lotte Shopping (023530.KS, W385,000, OUTPERFORM, TP W470,000) Luk Fook Holdings International (0590.HK, HK$22.75, OUTPERFORM [V], TP HK$37.80) Mitra Adiperkasa (MAPI.JK, Rp6,250.00, OUTPERFORM [V], TP Rp7,900.00) President Chain Store (2912.TW, NT$161.00, UNDERPERFORM, TP NT$138.80) Robinson Department Store Pcl (ROBI.BK, Bt49.25, OUTPERFORM, TP Bt60.00) Sa Sa International Holding (0178.HK, HK$4.44, NEUTRAL [V], TP HK$5.00) Shinsegae Co. (004170.KS, W264,500, NEUTRAL, TP W310,000) Siam Global House PCL (GLOBAL.BK, Bt11.00, UNDERPERFORM [V], TP Bt7.00) Siam Makro PCL (MAKR.BK, Bt343.00, NEUTRAL, TP Bt255.00) Sparkle Roll Group (0970.HK, HK$0.70, NEUTRAL [V], TP HK$0.85) Springland International Holdings Limited (1700.HK, HK$5.50, UNDERPERFORM, TP HK$4.10)

Disclosure Appendix Important Global Disclosures Dian Haryokusumo & Ella Nusantoro each certify, with respect to the companies or securities that he or she analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

See the Companies Mentioned section for full company names. 3-Year Price, Target Price and Rating Change History Chart for ACES.JK ACES.JK Closing

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11 April 2012


3-Year Price, Target Price and Rating Change History Chart for MAPI.JK MAPI.JK Closing

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11 April 2012


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See the Companies Mentioned section for full company names. Price Target: (12 months) for (ACES.JK) Method: Our target price of Rp5000 for Ace Hardware is based on DCF valuations. We assume 12.3x WACC (7.5% risk free rate, 1.0x Beta, and 5% risk premium). The implied multiples are 24.5x FY12E price to earnings ratio (P/E), and 16.1x FY12E EV/EBITDA. Risks: Key risks to our target price for Ace Hardware include principal risks, competition from both existing and new players, and macro risks. Price Target: (12 months) for (MAPI.JK) Method: Our target price of Rp7900 for Mitra Adiperkasa is based on DCF valuations. We assume 12.3x WACC (7.5% risk free rate, 1.2x Beta, and 5% risk premium). The implied multiples are 27.4x FY12E price to earnings ratio (P/E), and 13.0x FY12E EV/EBITDA. Risks: Key risks to our target price for Mitra Adiperkasa include principal risks, forced into cannibalism by the property boom, competition from both existing and new players, regulatory risks, and macro risks. Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names. The subject company (MAPI.JK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (MAPI.JK) within the past 12 months. Credit Suisse provided non-investment banking services, which may include Sales and Trading services, to the subject company (MAPI.JK) within the past 12 months. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (MAPI.JK) within the next 3 months. Important Regional Disclosures Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (ACES.JK, MAPI.JK) within the past 12 months.

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For Thai listed companies mentioned in this report, the independent 2010 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: C.P. All PCL(Very Good), Home Products Center PCL(Very Good), Robinson Department Store Pcl(), Siam Global House PCL(), Siam Makro PCL(Very Good). Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan-based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. • Dian Haryokusumo, non-U.S. analyst, is a research analyst employed by PT Credit Suisse Securities Indonesia. • Ella Nusantoro, non-U.S. analyst, is a research analyst employed by PT Credit Suisse Securities Indonesia. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683. Disclaimers continue on next page.

11 April 2012 Asia Pacific / Indonesia

Equity Research

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