Daily Equities Bottom-Up: Sumber Alfaria Trijaya (AMRT IJ) – Flying off the Shelves – On the Ground in J-Town and more

In this briefing:

1. Sumber Alfaria Trijaya (AMRT IJ) – Flying off the Shelves – On the Ground in J-Town
2. Mitsubishi Selling off Stake in Aeon, Ministop in Limbo

1. Sumber Alfaria Trijaya (AMRT IJ) – Flying off the Shelves – On the Ground in J-Town

Leading Indonesian mini-mart operator Sumber Alfaria Trijaya Tbk P (AMRT IJ) (Alfamart) has undergone quite a dramatic transformation over the past 12 months, with a dramatic slowdown in its new store buildout paving the way for a significant pick up in SSSG and a reduction in debt. 

The company plans to start to step up its store openings selectively over the next year, with 500 new stores planned and fewer closures. Last year it only opened net 200 new stores having opened 1200 stores the previous year.

The market segment continues to see consolidation, with supermarkets and hypermarts suffering and mini-markets continuing to gain ground as the “pantry of the middle-class”.

The company continues to grow its fee-income business, which is highly profitable, with increasing collaboration with utilities, finance companies, and e-commerce players to name but a few. 

After a difficult 2017, Sumber Alfaria Trijaya Tbk P (AMRT IJ) looks to be well and truly back on a growth trajectory, with a rationalisation of its stores, a slow down in its expansion, reduced gearing, and a focus on operational efficiencies. The Mini-market continues to win out in the retail space and is increasingly being used as a distribution network for e-commerce companies. The growth in fee-service from bill payment and other services will be positive for the bottom line. The stock is by no means cheap on a PE basis but provides quite unique exposure to what is still a high-growth area of the economy. According to Capital IQ consensus estimates, the company trades on 51x FY19E PER and 44x FY20E PER, with forecast EPS growth of +30% and +16% for FY19E and FY20E respectively. 

2. Mitsubishi Selling off Stake in Aeon, Ministop in Limbo

Mitsubishi has finally given up its hope of convincing Aeon to merge Ministop (9946 JP) with Lawson and is selling its stake in the largest retail group.

There will be no change to the extensive supply relationship between the two companies and Mitsubishi’s food wholesale arm, Mitsubishi Shokuhin (7451 JP).

While Aeon seems to have spurned Mitsubishi for now, it is hard to see how Aeon will progress in the convenience store sector without Mitsubishi’s help. In the short-term Ministop looks like a poor investment but Aeon may have to sell to Mitsubishi eventually and will want a good price for it.