Brief Equities Bottom-Up: Mitra Adiperkasa (MAPI IJ) – Retail Therapy Is Alive and Well – On the Ground in J-Town and more

In this briefing:

1. Mitra Adiperkasa (MAPI IJ) – Retail Therapy Is Alive and Well – On the Ground in J-Town
2. Meiji Holdings 3QFY2019 Results On Track to Meet Guidance, Dark Clouds Loom Over Its Mid Term Target
3. Zozo: At First the Fit Was Bad but Now the Threads Are Unravelling
4. Yahoo Japan 3Q Update: Consumer Business Drives Mid-Term Growth; Plans to Diversify in the Long Run
5. Ghabbour Auto: Hyundai Motor’s Gateway to Egypt & A Major Turnaround Story

1. Mitra Adiperkasa (MAPI IJ) – Retail Therapy Is Alive and Well – On the Ground in J-Town

With the huge investment that has been going into e-commerce in Indonesia, especially in the consumer space, there are doomsayers out there crying out that the end is nigh for traditional offline retail as we know it.

Anyone who has actually visited popular destination Jakarta malls such as Grand Indonesia or Kota Kassablanca with their eyes open would almost certainly take a different view. 

A visit to Mitra Adiperkasa (MAPI IJ) management in Jakarta last week confirmed that middle-class retail therapy in Indonesia is alive and well and the company is well positioned to take advantage.  

Mitra Adiperkasa (MAPI IJ) finished 2019 with +8% Same Store Sales Growth (SSSG), with a particularly strong performance from its Sports Station Stores within Ramayana Lestari Sentosa (RALS IJ) stores. 

The company continues to expand its footprint in Indonesia, with plans to increase its floor area by 60,000 sqm in 2019 and a focus on MAP Active, Fashion, and Starbucks. 

MAP continues to take an omnichannel approach to sales, working with all the major online marketplaces and selling through its own Mapemall.com. Online sales only account for around 1% of total sales currently. 

Mitra Adiperkasa (MAPI IJ) remains a key proxy for middle-class consumption in Indonesia, with an increasingly broad spectrum of exposure through alliances with other retailers such as Ramayana Lestari Sentosa (RALS IJ) and Pt Matahari Department Store (LPPF IJ), as well as through its Starbucks expansion. After a few years of restructuring, the company is now harvesting on its transformation, with its specialty business now growing at a faster pace, its department stores in much better shape, and Starbucks enjoying better scale benefits. The company’s margins have improved, it has a stronger balance sheet and more efficient working capital management. According to Capital IQ, the company is trading on 19.6x FY19E PER and 16.5x FY20E PER, with forecast EPS growth of +14.0% and +18.2% for FY19E and FY20E respectively, which continues to look attractive in valuation terms. 

2. Meiji Holdings 3QFY2019 Results On Track to Meet Guidance, Dark Clouds Loom Over Its Mid Term Target

Meiji Holdings (2269 JP) recorded revenue growth of 4.1% in 3QFY2019. The food segment which produces yoghurt, drinking milk, cheese, ice cream, chocolate, nutritional products and sports nutrients came short of the expectations as it recorded a 1.1% drop in revenue. The pharmaceutical segment grew by 35.9% during the quarter allowing Meiji to maintain overall revenue growth in line with FY2019E guidance.

In contrast, EBIT turned out better than expected as it grew 32.6% in 3QFY2019. Both the food and pharmaceutical segments reported significant margin gains, thus the overall EBIT margin of Meiji improved by 227bps cf. 3Q2018.

3. Zozo: At First the Fit Was Bad but Now the Threads Are Unravelling

Just a day after a pledge from CEO Maekawa to stop tweeting sent ZOZO Inc (3092 JP)‘s stock up 8% intraday, the Nikkei reported that United Arrows (7606 JP) would be parting ways with Zozotown and bringing their e-commerce business in-house from October. This comes just days after United Arrows affirmed their desire to continue working with Zozo casting doubt on the positive noises coming from Zozo itself.

As we have pointed out previously, this is the big risk for Zozo and with arguably the company that granted Zozo credibility when it was a startup leaving, a dark cloud has settled over the company’s mid-term future.

4. Yahoo Japan 3Q Update: Consumer Business Drives Mid-Term Growth; Plans to Diversify in the Long Run

Yahoo Japan (4689 JP)  reported 3Q FY03/19 financial results last Monday (04th February). Revenue and OP were on par with consensus. YJ revised the lower range of its FY03/19E OP guidance upwards by JPY7bn to JPY140bn mainly due to lower than expected growth related expenses (expenses for new challenges as per the management). Meanwhile, the upper limit of the FY03/19E OP guidance of JPY143bn remains unchanged. The revised OP guidance for FY03/19E is JPY140-143bn.

5. Ghabbour Auto: Hyundai Motor’s Gateway to Egypt & A Major Turnaround Story

• This is a follow-up report to Dylan Waller‘s note Egypt Travel Report: Stock Market Discount Widens Despite Numerous Recovery Signals. This report is the first of several company-specific series of reports on the Egyptian companies. Although I have taken a first crack at analyzing Ghabbour Auto (AUTO EY) (also called GB Auto), most of the other Egyptian company specific reports will be done by Dylan Waller. 
• In this report, I provide an analysis about Ghabbour Auto, which is the largest auto manufacturing company Egypt, and it is also a distributor of Hyundai Motor vehicles. This report is aimed at investors with very long-term investment perspectives (3 to 5+ years), rather than those with shorter investment horizons. 
• Established in 1960, the Ghabbour Group is an Egyptian manufacturer of automobiles, buses, and motorcycles, with headquarters in Cairo. Ghabbour Auto has partnerships with numerous global auto makers including Hyundai Motor, Mazda, Geely, and Volvo. The company has the exclusive license to assemble and distribute Hyundai and Geely passenger cars. GB Auto is the largest company in the Egyptian passenger car market in terms of market share, sales, and production capacity.