In this briefing:
- Isetan-Mitsukoshi Unveils Digital Strategy
- Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)
- DoCoMo Company Visit: Brief Comments on Mobile Competition and Payment Efforts
- Yahoo Japan Company Visit: Profit Erosion Has Bottomed and Mobile Payments (PayPay) Starts Strong
- SAPPE: New Strategic Partner Drive 2019 Earning Growth
1. Isetan-Mitsukoshi Unveils Digital Strategy
Three years ago, Isetan-Mitsukoshi attempted to reverse a strategy of shifting to small format retailing.
At the same time, the department store operator made a final ditch effort to avoid closing department stores and sacked its CEO who had had the temerity to suggest closure was the only way to revive the business.
Last year new management finally realised the old CEO had been right and that culling stores was the only way to improve profit growth.
Now the company is diversifying again but, instead of just small stores, it is planning a big investment into e-commerce with a projected ¥145 billion in sales from personal styling alone.
2. Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)
In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
The fourth company that we explore is township developer Alam Sutera Realty (ASRI IJ), which provides an interesting exposure to a mix of landed housing, high-rise and low-rise condominiums through its Alam Sutera Township near Serpong and its Pasir Kemis township 15 km further out on the toll road.
Given the diminishing area of high-value land bank in Alam Sutera, the company has shifted emphasis towards selling low-rise condominiums and commercial lots for shop houses, which has been a success story.
Alam Sutera Realty (ASRI IJ) also has a contract with a Chinese developer, China Fortune Land Development (CFLD), to develop a total of 500 ha over a five year period in its Pasir Kamis Township. This has provided a fillip for the company during a quiet period of marketing sales and will continue to underpin earnings for the next 2 years.
The company stands to benefit from the completion of two new toll-roads, one soon to be completed to the south connecting directly to BSD City and longer term a new toll to Soekarno Hatta Airport to the north.
It will start to utilise new land bank in North Serpong in 2021, which will extend the development potential in the area significantly longer-term.
Management is optimistic about marketing sales for 2019 and expects growth of +16% versus last year’s number, which already exceeded expectations.
Alam Sutera Realty (ASRI IJ) has less recurrent income than peers at around 10% of total revenue but has the potential to see better contributions from the Garuda Wisnu Kencana Cultural Centre (GWK) in Bali.
The new regulations on the booking of sales financed by mortgages introduced in August 2018 will benefit Alam Sutera Realty (ASRI IJ) from a cash flow perspective. Given that the company is consistently producing free cash flow, this is also a strong deleveraging story.
One of the biggest risks for the company is its US$ debt, which totals US$480m and is made up of two bonds expiring in 2020 and 2022.
From a valuation perspective, Alam Sutera Realty (ASRI IJ) looks very interesting, trading on 4.9x FY19E PER, at 0.67x PBV, and at a 71% discount to NAV. On all three measures, at 1 STD below its historical mean. Our target price of IDR600 takes a blended approach, based on the company trading at historical mean on all three measures implies upside of 91% from current levels. Catalysts include better marketing sales from its low-rise developments at its Alam Sutera township and further cluster sales there, a pick-up in sales and pricing at its Pasir Kemis township, a sale of its office inventory at The Tower, a pick up in recurrent income driven by improving tenant mix at GWK. Given that the company has high levels of US$ debt, a stable currency will also benefit the company. A more dovish outlook on interest rates will also be a positive, given a large and rising portion of buyers use a mortgage to buy its properties.
3. DoCoMo Company Visit: Brief Comments on Mobile Competition and Payment Efforts
We met NTT Docomo Inc (9437 JP) today for a quick chat. Markets are focused on FY19 guidance and the magnitude of price reductions that DoCoMo plans, neither of which were on the table for discussion. We did get a little bit of color on the Q4 competitive environment (not too intense), the mobile payments effort (strategically important but less need to invest heavily like PayPay) and the impending sale of its 34% stake in Sumitomo Mitsui Card.
4. Yahoo Japan Company Visit: Profit Erosion Has Bottomed and Mobile Payments (PayPay) Starts Strong
We recently met with Yahoo Japan (4689 JP) for an update on the company after Q3 results. We thought the financial announcement was positive with encouraging forecasts for profitability, both this year and going forward, and revenue growth potential. In addition, Yahoo Japan reported solid customer growth for mobile payments joint venture PayPay, driven by strong marketing support and an attractive proposition for offline merchants. We think the latter is very important for the development of mobile payments in Japan and PayPay has had a robust start.
5. SAPPE: New Strategic Partner Drive 2019 Earning Growth
We cut our target price by 22% to Bt24.7 to factor in disappointing 2018 result. However, we maintain our BUY rating on the back of positive outlook toward its new products and market expansion plan.
The story:
- Posted net profit of Bt50m in 4Q18, down 36%YoY and 25%QoQ
- Trimmed 2019-21E forecast by 23.8%-24.3% respectively
- Expanding strategic partnership
- Our new target price of Bt24.7 is based on a target PE’19E of 18.8x which is equivalent to the World’s consumer staples sector.
Risks: (1) Fluctuations in raw material prices
(2) Exchange rate fluctuations
(3) Highly competitive industry
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