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Midi Utama Indonesia (MIDI IJ) (Buy) - Cleaning up Lawson

Midi Utama Indonesia (MIDI IJ) (Buy) - Cleaning up Lawson

Retail JW SH SC 476 22nd Nov, 2024

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Cleaning up Lawson

Maintain Buy with higher TP of IDR500

Time to move on from Lawson

After closing 105 Lawson store-in-store (SIS) locations in 9M24, MIDI plans to fully phase out the rest of the 220 SIS stores by Nov-24. This leaves the company with 375 standalone Lawson stores. We estimate that around half of these standalone stores could be closed by 1H25F, as MIDI prioritizes maintaining locations with positive EBITDA and allocating capital to its proven Alfamidi business. We forecast a IDR140bn loss for Lawson in 2025F, an improvement from the IDR200bn loss expected in 2024F (Fig. 1 and 3). This is based on the assumption of closing half the standalone Lawson stores with the remaining stores operating at breakeven, and assuming the closed stores are not being leased out to other tenants. One-off costs from the SIS closures are expected to be minimal, as equipment can be repurposed for the expansion of the JA~DI format (refer to Strategic move for an agile MIDI). 

Alfamidi has performed better than market expectations

MIDI's strong 20% y-y earnings growth in 9M24 was driven by Alfamidi's impressive 10% same-store sales growth (SSSG) and a +560bp improvement in GPM. This led to an +840bp improvement in NPM, excluding Lawson losses (Fig. 4). Alfamidi's strong revenue performance, particularly in the higher-margin ex-Java region (52% of revenue in 9M24), helped offset the significant IDR143bn loss from Lawson during this period. Thus, we raise our MIDI’s earnings assumptions. Notably, we raise 2024F earnings by 7% but keep 2025F earnings unchanged, following stronger-than-expected Alfamidi performance (EBIT raised by 24%/11% for 2024F/2025F), but offset by higher Lawson loss expectations (2024F/2025F at IDR200bn/IDR140bn vs IDR160bn/IDR100bn previously).

Maintain Buy with higher TP of IDR500; +20% upside potential

Following our earnings forecast revisions and pegging a 23.4x 2025F P/E (from 21x 2024F), at a 30% (previously 38%) discount to Alfamart’s (AMRT IJ, Buy) P/E target of 33.4x, our TP now stands at IDR500 (from IDR450). This discount reflects MIDI’s 2025F ROE of 16% compared to AMRT’s 24%. We are positive on MIDI following strong Alfamidi performance and its decision to slow down the loss-making Lawson business, although we expect one-off costs to impact its 2H24-2025F performance. The primary downside risk is the potential for larger-than-expected write-offs from Lawson. Currently, the stock trades at 19.4x 2025F P/E.

Year-end 31 DecFY23FY24FFY25FFY26F
Currency (IDR)ActualOldNewOldNewOldNew
Revenue (bn)17,35119,81319,78222,33021,07524,97423,348
Reported net profit (bn)517576616716717870868
Normalised net profit (bn)517576616716717870868
FD normalised EPS15.4617.2418.4221.4121.4526.0125.96
FD norm. EPS growth (%)29.411.519.224.216.521.521.0
FD normalised P/E (x)26.9–22.6–19.4–16.0
EV/EBITDA (x)11.1–9.0–7.4–6.0
Price/book (x)3.7–3.3–3.0–2.6
Dividend yield (%)1.3–1.5–1.8–2.2
ROE (%)18.014.615.616.216.217.417.4
Net debt/equity (%)net cashnet cashnet cashnet cashnet cashnet cashnet cash
Source: Company data, Verdhana estimates

Key data on Midi Utama Indonesia

Income statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Revenue
15,624
17,351
19,782
21,075
23,348
Cost of goods sold
-11,670
-12,843
-14,531
-15,472
-17,097
Gross profit
3,953
4,509
5,251
5,603
6,251
SG&A
-3,500
-4,084
-4,662
-4,867
-5,285
Employee share expense
Operating profit
453
425
589
736
966
EBITDA
1,205
1,250
1,495
1,701
2,030
Depreciation
-752
-825
-906
-966
-1,064
Amortisation
EBIT
453
425
589
736
966
Net interest expense
-131
-96
-50
-46
-37
Associates & JCEs
Other income
185
318
203
206
228
Earnings before tax
506
646
741
896
1,157
Income tax
-107
-130
-185
-224
-289
Net profit after tax
399
516
556
672
868
Minority interests
0
0
60
45
0
Other items
Preferred dividends
Normalised NPAT
399
517
616
717
868
Extraordinary items
Reported NPAT
399
517
616
717
868
Dividends
-139
-180
-216
-251
-304
Transfer to reserves
260
337
400
466
564
Valuations and ratios
Reported P/E (x)
34.8
26.9
22.6
19.4
16.0
Normalised P/E (x)
34.8
26.9
22.6
19.4
16.0
FD normalised P/E (x)
34.8
26.9
22.6
19.4
16.0
Dividend yield (%)
1.0
1.3
1.5
1.8
2.2
Price/cashflow (x)
9.7
11.2
9.4
7.6
7.7
Price/book (x)
7.0
3.7
3.3
3.0
2.6
EV/EBITDA (x)
12.2
11.1
9.0
7.4
6.0
EV/EBIT (x)
32.4
32.5
22.9
17.1
12.5
Gross margin (%)
25.3
26.0
26.5
26.6
26.8
EBITDA margin (%)
7.7
7.2
7.6
8.1
8.7
EBIT margin (%)
2.9
2.4
3.0
3.5
4.1
Net margin (%)
2.6
3.0
3.1
3.4
3.7
Effective tax rate (%)
21.2
20.1
25.0
25.0
25.0
Dividend payout (%)
34.9
34.9
35.0
35.0
35.0
ROE (%)
21.8
18.0
15.6
16.2
17.4
ROA (pretax %)
7.2
6.1
7.6
9.4
12.1
Growth (%)
Revenue
15.0
11.1
14.0
6.5
10.8
EBITDA
35.1
3.7
19.7
13.8
19.3
Normalised EPS
48.1
29.4
19.2
16.5
21.0
Normalised FDEPS
48.1
29.4
19.2
16.5
21.0
Source: Company data, Verdhana estimates
Cashflow statement (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
EBITDA
1,205
1,250
1,495
1,701
2,030
Change in working capital
243
-422
4
119
-125
Other operating cashflow
-10
408
-15
2
-94
Cashflow from operations
1,438
1,236
1,484
1,822
1,810
Capital expenditure
-970
-1,356
-860
-633
-1,049
Free cashflow
468
-120
625
1,189
761
Reduction in investments
0
0
0
0
0
Net acquisitions
0
0
0
0
0
Dec in other LT assets
-25
-49
-11
-6
-10
Inc in other LT liabilities
23
125
55
-41
-8
Adjustments
-17
-113
-284
41
8
CF after investing acts
448
-158
385
1,183
751
Cash dividends
-96
-139
-180
-216
-251
Equity issue
0
1,233
0
0
0
Debt issue
-285
-1,503
-63
0
0
Convertible debt issue
0
0
0
0
0
Others
106
477
157
-16
-12
CF from financial acts
-275
68
-86
-232
-263
Net cashflow
173
-90
300
952
488
Beginning cash
243
417
327
626
1,578
Ending cash
417
327
626
1,578
2,066
Ending net debt
795
-264
-626
-1,578
-2,066
Balance sheet (IDRbn)
As at 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Cash & equivalents
417
327
626
1,578
2,066
Marketable securities
0
0
0
0
0
Accounts receivable
399
430
501
488
603
Inventories
2,008
2,330
2,578
2,648
3,127
Other current assets
50
99
99
99
99
Total current assets
2,874
3,186
3,804
4,812
5,894
LT investments
0
0
0
0
0
Fixed assets
3,779
4,299
4,481
4,148
4,133
Goodwill
0
0
0
0
0
Other intangible assets
0
0
0
0
0
Other LT assets
252
301
312
318
329
Total assets
6,905
7,786
8,597
9,279
10,356
Short-term debt
446
63
0
0
0
Accounts payable
1,706
2,050
2,199
2,325
2,675
Other current liabilities
1,615
1,250
1,424
1,474
1,593
Total current liabilities
3,767
3,363
3,624
3,799
4,268
Long-term debt
766
0
0
0
0
Convertible debt
0
0
0
0
0
Other LT liabilities
386
511
566
525
517
Total liabilities
4,918
3,874
4,189
4,324
4,784
Minority interest
1
173
233
278
278
Preferred stock
0
0
0
0
0
Common stock
288
334
334
334
334
Retained earnings
1,590
1,987
2,422
2,924
3,541
Proposed dividends
0
0
0
0
0
Other equity and reserves
108
1,419
1,419
1,419
1,419
Total shareholders' equity
1,986
3,740
4,176
4,677
5,294
Total equity & liabilities
6,905
7,786
8,597
9,279
10,356
Liquidity (x)
Current ratio
0.76
0.95
1.05
1.27
1.38
Interest cover
3.4
4.4
11.7
16.2
26.5
Leverage
Net debt/EBITDA (x)
0.66
net cash
net cash
net cash
net cash
Net debt/equity (%)
40.0
net cash
net cash
net cash
net cash
Per share
Reported EPS (IDR)
11.94
15.46
18.42
21.45
25.96
Norm EPS (IDR)
11.94
15.46
18.42
21.45
25.96
FD norm EPS (IDR)
11.94
15.46
18.42
21.45
25.96
BVPS (IDR)
59.46
111.85
124.89
139.89
158.34
DPS (IDR)
4.16
5.39
6.45
7.51
9.08
Activity (days)
Days receivable
9.8
8.7
8.6
8.6
8.5
Days inventory
59.7
61.6
61.8
61.6
61.6
Days payable
50.7
53.4
53.5
53.4
53.4
Cash cycle
18.9
17.0
16.9
16.8
16.8
Source: Company data, Verdhana estimates
Company profilePT. Midi Utama Indonesia Tbk (MIDI) is engaged in the general trading which includes business in supermarket and mini market. The main business of the Company is in retail of consumer products through minimarkert network known as “Alfamidi” and “Alfaexpress” which started its commercial operation in 2007.
Valuation MethodologyOur target price of IDR500 is based on a 23.4x 2025F P/E, representing a 30% discount to AMRT's 2025F P/E target of 33.4x. This reflects MIDI's 2025F ROE discount of 16% compared to AMRT's 24%.Benchmark index is JCI.
Risks that may impede the achievement of the target priceThe primary downside risk is the potential for larger-than-expected write-offs from Lawson.
ESGAs a public company, the Company is committed to consistently improving the quality of Good Corporate Governance (GCG) practices in all aspects of the Company. Mechanisms and coordination between GCG organs continue to be improved, including by measuring the quality of GCG implementation independently or self-assessment, which the results serve as the basis for analyzing the strengths and weaknesses of GCG practices in the Company to provide recommendations and improvement steps in the coming year.
Fig. 1: One-off costs assumption for Lawson standalone

Source: Company data, Verdhana estimates

 

Fig. 2: Lawson 1Q24-3Q24 loss assessment

Source: Company data, Verdhana estimates

 

Fig. 3: Lawson excluding R&D income fee quarterly NPAT and 2025F

Source: Company data, Verdhana estimates
Fig. 4: MIDI quarterly NPAT and excluding Lawson NPAT

Source: Company data, Verdhana research
Fig. 5: Earnings forecast changes table

Source: Company data, Verdhana estimates

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.


This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.


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Rating Table

Rating
Remains
Buy
Target price
Increased from IDR 450
IDR 500
Closing price
21 November 2024
IDR 416
Implied upside+20.2%
Market Cap (USD mn)873.7
ADT (USD mn)0.5

Relative performance chart

Source: LSEG, Verdhana

M cap (USDmn)
873.7
Free float (%)
16.0
3-mth ADT (USDmn)
0.5
(%)
1M
3M
12M
Absolute (IDR)
-10.0
-3.7
-8.8
Absolute (USD)
-12.4
-6.4
-11.6
Rel to Jakarta Stock Exchange Composite Index
-2.3
1.3
-11.9

Research Analysts

Jody Wijaya (jody.wijaya@verdhana.id)

Sandy Ham (sandy.ham@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)

Tags: Retail, MIDI, MIDI JK, MIDI IJ, Jody Wijaya, Sandy Ham, Samuel Christian
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