I N D O N E S I A

21 September 2010 Initiate Coverage

RETAIL SECTOR
Rising Affluence of Indonesians OVERWEIGHT

Retailers are beneficiaries of strong consumer spending. Growing disposable

income will directly benefit retailers given the strong positive correlation between
disposable income and listed retailers' revenue (R2=0.99). The 16.5% CAGR in annual
disposable income in 2005-09 led to a 15.4% CAGR in listed retailers' aggregate revenue.

Changing consumption patterns. As per capita disposable income had more than
doubled over five years to Rp15.9m (US$1,776) in 2009, lifestyles and consumption
patterns have also evolved. Spending on non-food items has risen, from 45.4% of
monthly expenses in 2004 to 49.4% in 2009, and will benefit retailers like Ramayana
Lestari Sentosa (RALS) and Mitra Adiperkasa (MAPI).

Low penetration rate provides opportunity. The proportion of modern retailers is

projected to increase from 38% of the industry's retail channels in 2009 to 41% in
2012, driven by store openings amid rising income and changing lifestyle. Indonesia's
store penetration rate is also a low 52 stores/1m population, compared with that of
countries with similar market characteristics, like Malaysia (156 stores/1m) and Thailand
(124 stores/1m).

Swelling disposable income. Registering a 17.2% CAGR in 2004-09, disposable

income growth is expected to remain strong on the back of: a) growing of middle-
income earners, b) a growing urban population, c) continued increase in foreign and
domestic investments, and d) relocation of foreign factories to Indonesia to improve
income sustainability. High remittance inflow (4.0% CAGR in 2005-09) should also
support purchasing power in the middle- to low-income segments.

Burgeoning middle class. The proportion of the middle- and upper-income groups
form 51% of the total surveyed population (in 2009) vs 42% a year ago. It is estimated
that the number of middle-income earners with an annual per capita income of
US$15,000 will grow to 36m in the next five years, which is larger than the population
of Malaysia (28m).

Indonesians spending more. Annual per capita private consumption over 2004-09
expanded at a 15.0% CAGR to Rp14.2m (US$1,586). Strong car and motorcycle
sales that hit monthly record highs in July this year, of 72,130 and 699,411 units
respectively, are indicative of Indonesians' propensity to spend.

Top pick is Ramayana Lestari Sentosa. We initiate coverage on the Indonesian

retail sector with an OVERWEIGHT rating. We have a BUY on RALS and MAPI, with
target prices of Rp1,100 and Rp1,920 based on 16.5x and 13.0x 2011F PE respectively.
RALS is our top pick due to its convincing recovery story, strong competitive advantage
and robust balance sheet. We like MAPI for its operational turnaround, supported by
the growing number of middle-income earrners.

Indonesia Research Team

 (6221) 2993 3916
researchindonesia@uobkayhian.com

Refer to last page for important disclosures.

 Contents
Investment Highlights .........................................................................3

Valuation .................................................................................................9

Industry ................................................................................................ 10

Risk Factors ........................................................................................ 14

Stock Picks
- Mitra Adiperkasa ................................................................................. 15
- Ramayana Lestari Sentosa .................................................................. 17

2 Retail Sector
Investment Highlights
Retailers are beneficiaries of strong consumer spending. Growing disposable
income will directly benefit retailers. We run a regression analysis at the 95% confidence
level. The results show a significant positive correlation (R2 of 0.99) between disposable
income and listed retailers’ aggregate revenue. The 16.5% CAGR in annual disposable
income in 2005-09 led to a 15.4% CAGR in listed retailers’ aggregate revenue.

Figure 1: Disposable Income vs Listed Retailers' Aggregate Revenue

Annual disposable incomes (Rpt)
4,000
R2 = 0.989
3,500

3,000

2,500

2,000

1,500
15.0 20.0 25.0 30.0 35.0
Aggregate retailers' revenues (Rpt)

Source: Bloomberg, Central Statistics Agency, UOB Kay Hian

Indonesians are changing their consumption patterns. The stronger economy has
raised Indonesia’s socio-economic status – per capita disposable income more than doubled
from Rp7.7m in 2004 to Rp15.9m in 2009 – and led to improving lifestyles and consumption
patterns. In the same period, per capita expenditure also more than doubled from Rp7.1m
to Rp14.2m. Spending on non-food items increased from 45.4% of monthly expenses in
2004 to 49.4% in 2009. The rising proportion of urban population, which allocates at
least 54.3% of their monthly expenses on non-food items, will also boost consumption.
This will benefit retailers like RALS and MAPI as they focus on the department stores
business.

Figure 2: Proportion Non-food Expenditure Increased With Rising Income

(%) (Rpm)
55 20

15
50
10
45
5

40 -
2004 2005 2006 2007 2008 2009
Proportion of Food expenditures (LHS) Proportion of Non-food expenditures (LHS)
Annual disposable incomes/capita (RHS)

Source: Central Statistics Agency

Retail Sector 3
Modern retailers’ low penetration rate provides another opportunity. The
proportion of modern retailers is projected to increase from 38% of the industry’s retail
channels in 2009 to 41% in 2012, which we believe would be supported by more store
openings amid rising income and changing lifestyle. Indonesia’s store penetration rate is
a low 52 stores/1m population, compared with that of countries with similar market
characteristics, like Malaysia (156 stores/1m) and Thailand (124 stores/1m). This provides
huge opportunities for RALS and MAPI which have strong positioning through their
supermarket arms.

Figure 3: Penetration Of Modern Retail Stores vs Population

Population (m)
300

250 Indonesia

200

150

100
T hailand
50 Singapore Korea
Malaysia T aiwan
- Hong Kong
- 100 200 300 400 500 600
Modern retailers/1m population
Source: Indonesian Retailers Association, Nielsen Indonesia, Bloomberg, UOB Kay Hian

DISPOSABLE INCOME GROWTH WILL REMAIN STRONG

We think the drivers of disposable income growth are as follows: a) a growing number of
middle-income earners, b) a growing urban population, c) a continued increase in domestic
and foreign direct investments, and d) relocation of foreign factories to Indonesia.

a) Growing number of middle-income earners will benefit modern retailers.

The middle-income group is the retailers’ largest target segment, especially for mid-
high department store operators like MAPI. We believe growth in this segment will
increase retailers’ revenue and thereby improve modern retailers’ low penetration
rate (Figure 3) through more store openings. It is estimated that the number of
middle-income earners with an annual per capita income of US$15,000 will grow at
a 14.9% CAGR to 36m in the next five years, which is larger than the population of
Malaysia (28m). At the same time, AC Nielsen Survey also shows a shifting trend
towards higher spending by the middle- and upper-income groups, with the proportion
increasing from 42% of the total population surveyed in 2008 to 51% in 2009.

4 Retail Sector
Figure 4: Rising Expenditure By Higher-income Groups

Social Economy Status Total number of people Growth Proportion (%)

2008 2009 (%) 2008 2009

A Above Rp3m 3,509,840 4,085,550 16.4 8.0 9.0

B Rp2.0-3.0m 6,142,220 8,171,000 33.0 14.0 18.0
C1 Rp1.5-2.0m 8,774,600 10,894,800 24.2 20.0 24.0
C2 Rp1.0-1.5m 11,845,710 11,348,750 (4.2) 27.0 25.0
D Rp0.7-1.0m 9,213,330 7,717,150 (16.2) 21.0 17.0
E Below Rp0.7m 4,387,300 3,177,650 (27.6) 10.0 7.0
Source: Nielsen Media Research, Media Index, Mitra Adiperkasa

b) Attractive demographics. Indonesia has a large proportion of its population in the

productive age profile, a declining unemployment rate and a growing urban population.
About 38% of the population falls within the productive age profile of 20-54 years
old. The unemployment rate is also on the decline, down from 11.2% in 2005 to 7.9%
in 2009. At the same time, the proportion of urban population is also expected to
reach 59% by 2015 from 54% currently, translating into 3.7m people moving into the
cities p.a.. Such an attractive population landscape would raise purchasing power
and stimulate a change in consumer lifestyle in favour of modern retailers.

Figure 5: Indonesia's Huge Productive Age Profile

3,823
70-74 3,523
4,501
60-64 6,139
8,645
50-54 11,436
14,042
40-44 16,179
18,067
30-34 19,698
20,627
20-24 21,121
21,196
10-14 20,618
20,382
0-4 21,374
0 5,000 10,000 15,000 20,000 25,000
('000)

Source: Central Statistics Agency, UOB Kay Hian

Retail Sector 5
Figure 6: Indonesia's Growing Urban Population
(m people)
250
Urban Rural
200

150

100

50

-
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Source: United Nations, UOB Kay Hian

c) Continued increase in foreign direct investments. Foreign direct investments

(FDI) should continue to increase as Indonesia’s sovereign rating has been upgraded
several times by global credit rating agencies. It is now just 1-2 notches below
investment grade. Higher FDI, particularly in labour-intensive sectors like
manufacturing, will increase employment and lift purchasing power.

Figure 7: Rising FDI

(US$m)
16,000 1,400
14,000 1,200
12,000 1,000
10,000
800
8,000
600
6,000
4,000 400

2,000 200
0 0
1990 1994 1998 2002 2006 1Q10
Value (LHS) No. of project (RHS)

Source: Indonesia Investments Coordinating Board, UOB Kay Hian

d) Relocation of foreign factories to Indonesia will improve income. The relocation

of foreign factories will boost workers’ purchasing power. According to the chairman
of the Indonesia Investment Coordinating Board (BKPM), Indonesia boasts
competitive advantages in terms of low wages, abundant natural resources, and a
huge domestic market. These stand in contrast to rising wages in China and political
uncertainty in Thailand. The Jakarta Globe reported that the Indonesian Footwear
Association (Aprisindo) had said six footwear manufacturers would relocate from
China and Vietnam to Indonesia this year, investing a total of US$550m, and another
20 are expected next year. Relocations are also said to be taking place in the textile,
electronics and automobile sectors.

6 Retail Sector
PURCHASING POWER

Purchasing power has recovered. Purchasing power of the mid-low and lower-end
segments has started to recover since early this year, as can be seen in the recovery in
RALS’ same-store sales growth (SSSG) from -1.8% in Dec 09 to 13.0% in Jul 10.
Recovery is also seen in the middle- to upper-income segments. We use MAPI’s SSSG
as an indicator, which we believe is suitable given its premium retail brands. MAPI’s
SSSG rose from 4% in Dec 09 to 9% in Mar 10. At the same time, car and motorcycle
sales in July have also reached new highs, reflecting the recovery in purchasing power.

Figure 8: RALS' SSSG Has Recovered Since Early-10

(%)
30.0
25.0
20.0
15.0
10.0
5.0
-
(5.0)
(10.0)
(15.0)
Jan 06 Jun 06 Nov 06 Apr 07 Sep 07 Feb 08 Jul 08 Dec 08 May 09 Oct 09 Mar 10

Source: Ramayana Lestari Sentosa, UOB Kay Hian

High remittance inflow is positive for mid- and low-income segments. The inflow
of foreign remittance to Indonesia will have a positive impact on purchasing power in the
mid- and low-income segments as their income is highly dependent on the money sent
back by their relatives (mostly children) overseas. Workers’ remittance plays a more
significant role in Indonesia than in other countries in the region due to the much larger
number of Indonesian workers overseas (Figure 9). In 2005-09, workers’ remittance
inflow increased at a 4.0% CAGR to Rp50.7t, representing 0.9% of gross domestic
product (GDP) in 2009.

Figure 9: Immigrant Labour Population In Selected Host Countries

Host Home Hong Kong, China Japan Malaysia Singapore

Phillipines 141,720 185,200 250,000 90,000

Indonesia 107,960 22,800 1,000,000 60,000
Malaysia >1,000 9,000 - 165,000
Total 249,680 217,000 1,250,000 315,000

Source: Asian Development Bank 2006

Retail Sector 7
Figure 10: Main Beneficiaries of Workers Remittance

Host Home Hong Kong, China Japan Malaysia Singapore

Indonesia 50% parent 61% parent 81% spouse 66% parent

Malaysia - 87% parent - 74% parent
Phillipines 49% parent 53% parent 50% parent 58% parent
Source: Asian Development Bank 2006

Figure 11: Workers' Remittance Inflow To Indonesia

(US$m)
1,600
1,400
1,200
1,000
800
600
400
200
-
Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar
04 04 05 05 06 06 07 07 08 08 09 09 10

Source: CEIC

High commodity prices will also boost purchasing power. Indonesians are enjoying
rising incomes, partly from the increase in commodity prices, as 42% of the total workforce
is employed in resources-related sectors. Strong commodity prices will thus have a
positive impact on purchasing power, particularly for those in non-Java islands. The
renminbi appreciation is also a positive catalyst as it could make Indonesia’s exports
more competitive.

Figure 12: About 42% Of Workforce In Resources-related Sectors

Resources-related 42.3
Manufacturing 12.1
Construction 4.4
Others 41.2

Source: Central Statistics Agency

8 Retail Sector
Valuation
We have an OVERWEIGHT rating on the Indonesian retail sector, with RALS as our
top pick due to its convincing recovery story, strong competitive advantage and robust
balance sheet. Our valuations are derived from a PE ratio methodology, with target
prices being pegged to the PE multiplier set within the historical trading mean and 2011F
as the valuation base year.

Mitra Adiperkasa (BUY/Rp1,530/Target: Rp1,920). Our Rp1,920 target price is

based on 13.0x 2011F PE, higher than the stock’s historical trading mean of 10.0x since
the initial public offering (excluding 2007-08), as we have seen a re-rating on the stock
on the back of operational turnaround, supported by the growing number of middle-
income earners. We initiate coverage with BUY recommendation.

Ramayana Lestari Sentosa (BUY/Rp900/Target: Rp1,100). Our Rp1,100 target

price is based on 16.5x 2011F PE, which is still within its five-year mean of 15.5x. We re-
initiate coverage with a BUY recommendation. RALS is also our top pick, for its
convincing recovey story, strong competitive advantage and stronger net cash position
without underlying debts.

Figure 13: Regional Peer Comparison

Mkt Cap Price TP -------- PE (x) --------
Company Ticker (US$m) Rec. 21 Sep 10* LC* 2009 2010F 2011F

Indonesia
Mitra Adiperkasa MAPI IJ 283.2 BUY 1,530 1,920 15.5 12.3 10.3
Ramayana Lestari RALS IJ 708.9 BUY 900 1,100 19.0 20.1 13.5
Average 496.1 17.3 16.2 11.9

Hong Kong
Golden Eagle 3308 HK 5,142.6 BUY 20.6 20.8 35.6 28.0 20.7
Intime 1833 HK 2,273.6 BUY 10.0 10.4 45.9 30.9 24.2
Lianhua Supermarket 980 HK 2,504.1 BUY 31.3 35.0 33.1 25.4 20.5
Lifestyle Int'l Ltd 1212 HK 4,152.2 HOLD 19.2 11.6 25.9 23.3 20.0
Parkson Retail 3368 HK 5,195.8 SELL 14.4 11.1 38.2 33.6 27.2
Average 3,853.7 35.7 28.2 22.5

* Local currency
Source: Bloomberg, UOB Kay Hian

Retail Sector 9
Industry
SECTOR OUTLOOK

Growing number of retail outlets indicates industry optimism. There has been
growing interest in Indonesia’s modern retail sector, as seen in the 1,681 new outlets
(+25.6% yoy) opened last year. At the same time, department stores also expanded by
42 (+4.9% yoy). The continued strengthening of Indonesia’s fundamentals offers
attractive growth potential, and we believe there is more room for retailers’ expansion.
We expect major retailers to open more than 1,400 new outlets this year, reflecting their
optimism over the growth potential.

Figure 14: Expanding Number Of Modern Retailers

------ Change yoy -----
No of outlets 2008 2009 (units) (%)

Minimarket 6,132 7,778 1,646 26.8

Indomart 3,093 3,812 719 23.2
Alfamart 2,736 3,450 714 26.1
Yomart 162 257 95 58.6
Circle-K 141 259 118 83.7

Hypermarket 130 150 20 15.4

Carrefour 42 49 7 16.7
Hypermart 43 47 4 9.3
Giant 26 35 9 34.6
Lottemart (Makro) 19 19 - -

Supermarket 305 320 15 4.9

Hero + Giant 105 107 2 1.9
Ramayana 104 105 1 1.0
Superindo 57 69 12 21.1
Foodmart 25 25 - -
Carrefour Express 14 14 - -

Total 6,567 8,248 1,681 25.6

Department stores
Sales (US$m) 2,488 2,622 n.a. 5.4
Outlets 843 885 42 4.9
Selling space ('000sqm) 2,474.7 2,635.0 n.a. 6.4

Source: Jakarta Post, Indonesian Retail Association, UOB Kay Hian

Acquisitions denote keen interest in the sector. Given the attractive growth potential
in the retail sector, there have been plenty of acquisitions by both foreign and domestic
companies in the past two years. It started with the acquisition of Alfa Retailindo (ALFA)
by giant retailer Carrefour Indonesia in Jan 08. In Oct 08, Makro Indonesia, one of
Indonesia’s retail pioneers, was also acquired by South Korean retailer Lotte Mart. Next
was the acquisition of a 40% stake in Carrefour Indonesia by Trans Corp, the holding
company of Para Group’s Media, in Apr 10. In the same month, CVC Asia Pacific Ltd
completed a deal to buy 98% of Matahari Department Store (LPPF).

10 Retail Sector
Figure 15: Acquisitions In The Retail Sector Over The Past Two Years

Acquirer Acquired Company Value Stake Date

Carrefour Indonesia Alfa Retailindo (ALFA) Rp675b 75% Jan 08

Lotte Mart Makro Indonesia US$292m 100% Oct 08
Trans Corp Carrefour Indonesia US$300m-400m 40% Apr 10
CVC Asia Pacific Ltd Matahari Department Store ~US$880m 98% Apr 10
Source: Various media, UOB Kay Hian

Strong fundamentals for sustainable long-term growth. Indonesia offers strong

growth potential in the retail industry. It has a large population base of 231m people, and
the economy is highly dependent on household consumption, which accounts for 59% of
total GDP. Such an economic structure helped the country weather the global economic
crisis last year and to post the strongest growth in the region. UOB Economic-Treasury
forecasts GDP growth of 6.0% and 6.2% in 2010 and 2011 respectively, up from 4.5%
in 2009.

Figure 16: GDP Growth Indexed (2005 = 100)

150.0

140.0 Indo MY T hai SG

130.0

120.0

110.0

100.0

90.0
2005 2006 2007 2008 2009 2010F 2011F

Source: Bloomberg, UOB Kay Hian

Indonesians the second-most confident people in the world. An interesting survey

by AC Nielsen shows that Indonesians are the second-most confident people in the
world, second only to India, in terms of confidence in job prospects and near-term financial
future. According to the survey, about 70% of Indonesians described their jobs prospects
as excellent or good, above the 57% average for the Asia-Pacific region, while 77% of
them were upbeat about their personal finances over the next 12 months. This indicates
strong and growing optimism, which should translate into higher consumer spending going
forward. Annual disposable income had in fact grown at a 17.2% CAGR in 2004-09.

Retail Sector 11
Figure 17: Consumer Confidence Index By Country
130
120 3Q09 1Q10
110
100
90
80
70
60
50
40 Singapore

Hong Kong

New Zeland
India

Indonesia

South Korea
Australia

China

Malaysia
Vietnam

Thailand

Taiwan

Japan
Philipines

Source: Investor Daily, AC Nielsen, UOB Kay Hian

Figure 18: Per Capita Annual Disposable Income Grew At 15.6% CAGR
(Rpm)
18.0
P er Capita Annual dis pos able income - CAGR 15.6%
16.0

14.0

12.0

10.0

8.0

6.0

4.0
2004 2005 2006 2007 2008 2009

Source: Central Statistics Agency, UOB Kay Hian

12 Retail Sector
TYPES OF MODERN RETAILERS IN INDONESIA

Indonesia’s retail industry comprises modern retailers and traditional retailers, with the
latter also dubbed an “un-organised” market. Modern retailers are further divided into
several categories, including hypermarkets, supermarkets, minimarkets, drugstores,
discount stores, convenience stores, department stores, specialty stores, malls/supermalls/
plazas and trade centres.

Modern retail business started in 1962; rapid growth started after 1998. The
modern retail business in Indonesia was pioneered by Sarinah Department Store in 1962.
We think the industry took a leap in 1998 when the government removed the retail
business from the negative foreign investment list, thus allowing foreign retailers to enter
the market. There were very few foreign retailers before that and SOGO department
store was among the first, opening in early-90. Today, there are several foreign modern
retailers operating in Indonesia, which we believe has intensified competition. At the
same time, foreign players force local ones to improve and expand further.

Traditional stores still dominate, but modern retailers are expanding. The retail
industry is dominated by traditional stores with a 62% market share. However, the trend
is gradually moving in favour of modern retail stores, driven by rising socio-economic
levels, a growing economy and synergy from deeper penetration by modern retailers. At
the same time, modern retailers offer lower and more competitive prices than traditional
markets, due to their stronger bargaining power over suppliers, who then give them more
discounts and longer credit payment terms. The market share of modern retailers is
estimated to increase to 41% by 2012.

Figure 19: Traditional vs Modern Retailers

100%
35.3 36.3 36.9 38.1 39.0 40.0 41.0
80%

60% 64.7 63.7 63.1 61.9 61.0 60.0 59.0

40%

20%

0%
2006 2007 2008 2009F 2010F 2011F 2012F

T raditional Stores Modern Stores

Source: Indonesia Retailer Association, Nielsen Indonesia

Rising convenience store trend. There is also a growing trend in the mini market
and convenience store segment, most likely due to their accessibility in housing
developments and residential areas. Consumers can save time as they can buy groceries
and mobile phone vouchers in the same store. The latest newcomer to this segment is 7-
Eleven Stores, brought in by Modern Internasional (MDRN) in Mar 09.

Retail Sector 13
Risk Factors
Surge in inflation. A significant surge in inflation could hit retailers through a potential
decline in revenues as a result of weakening consumer purchasing power. Retailers’
costs may rise on lower margins if they are unable to fully pass on the higher costs and
operating expenses. In Aug 10, inflation reached 6.4% yoy, which could mean full-year
inflation could easily surpass the central bank’s target of 5.3% yoy.

Intense competition. The growing interest in the retail sector amid Indonesia’s strong
growth potential will result in intense competition. Foreign chains have been strengthening
their footholds in Indonesia. This could affect retailers’ revenue and profitability.

Regulatory risks. Unfavourable changes in regulations will affect the industry. These
regulations could involve monopoly/oligopoly, modern retail stores expansion rules, working
hours, promotional activities and purchasing terms, minimum space requirements and
power-saving measures.

Operational risks. Retail operations could be interrupted by several factors, including

inventory disruptions, labour strikes, power outages, fires and natural disasters.

Social and political risks. These risks include riots, demonstrations, bombings and
other violent acts.

14 Retail Sector
 Mitra Adiperkasa

BACKGROUND
Mitra Adiperkasa (MAPI) is a leading lifestyle retailer and distributor, targeting the BUY
middle- and upper-income segments. It offers a diversified range of goods which
covers sports, fashion, department stores, food & beverage (F&B) and lifestyle products. Share Price Rp1,530
Target Price Rp1,920
Upside +25.5%
OUTLOOK/RECOMMENDATION
Company Description
z Significant operational improvements in 1H10. Operating profit jumped 51.7% Mitra Adiperkasa operates high-end
yoy to Rp185.9b in 1H10, with improvements seen in the department stores, specialty department stores in Indonesia, as well as
stores and F&B segments. Total operating margin was 8.7% (1H09: 6.2%) on higher specialty stores and F&B outlets.
sales productivity and operational efficiency. We expect the momentum to continue
for the rest of the year, driven by the following: a) higher SSSG, b) a better Stock Data
GICS sector Consumer Discretionry
merchandising strategy and product mix, and c) efficiency in promotional activities Bloomberg ticker: MAPI IJ
helped by more joint promotions with banks. Shares issued (m): 1,660.0
Market cap (Rpb): 2,539.8
z New strategy will enhance growth and profitability. MAPI will not acquire any Market cap (US$m): 283.2
more new brands for the rest of this year and next, and will focus on strengthening 3-mth avg t'over (US$m): 0.7
existing brands in the specialty store and F&B segments. These two segments
Price Performance
contributed 82% of 2009 operating profit and 69% of revenue. We think this strategy
52-week high/low Rp1,600/Rp445
will improve MAPI's cash flow generation. For specialty stores, expansion will 1mth 3mth 6mth 1yr YTD
focus on sports retailing which is characterised by low capital expenditure and high 37.8 125.0 115.5 264.3 146.8
returns, as well as Marks & Spencer and Zara in the fashion segment. Within F&B,
MAPI will strengthen the performance of Burger King and Domino's Pizza through Major Shareholders (%)
Satya Mulia Gema Gemilang 58.8
new store openings.
z Better earnings visibility. The proportion of foreign-denominated debt has declined, FY10 NAV/Share (Rp) 887
FY10 Net Debt/Share (Rp) 427
plunging from 70% in Sep 09 to 19% as of Jun 10, as a result of debt refinancing.
This will improve earnings visibility through lower foreign currency exposure. We
also expect net gearing to decline to 48% in Dec 10 from 75% currently, and MAPI to Price Chart
swing into net cash position by 2014. This will also increase profitability as more (lcy) M ITRA ADIPERKASA TBK PT M itra Adiperkasa Tbk Pt/ JCI Index (%)
than one-third of its operating profit is currently allocated for interest payments. 1600
350
1400
z Initiate with BUY. We initiate coverage with a BUY and target price of Rp1,920, 300
1200
based on 13.0x 2011F PE, higher the stock's historical mean of 10.0x since the initial 1000
250

public offering (excluding 2007-08), as we have seen a re-rating on the back of 800 200

operational turnaround, supported by the growing number of middle-income earners. 600 150

The main risk is potential short-term pressure arising from a surge in inflation due to 400 100

rising food prices and electricity tariffs. 200 50

30
Volume
20
Key Financials 10

Year to 31 Dec (Rpb) 2008 2009 2010F 2011F 2012F 0

Sep 09 Nov 09 Jan 10 Mar 10 May 10 Jul 10 Sep 10

Net turnover 3,468.0 4,112.2 4,777.5 5,435.4 5,910.3

EBITDA 479.3 540.4 629.6 709.4 758.0 Source: Bloomberg
Operating profit 303.3 307.7 368.1 440.2 481.8
Net profit (rep./act.) (69.8) 164.0 206.3 245.8 293.9
Net profit (adj.) (69.8) 164.0 206.3 245.8 293.9 Analyst
EPS (Rp) (42.0) 98.8 124.3 148.1 177.0
P/E (x) (36.4) 15.5 12.3 10.3 8.6 Indonesia Research Team
P/BV (x) 2.3 2.0 1.7 1.5 1.3 + 6221 2993 3916
Dividend yield (%) 0.8 0.0 1.3 1.6 1.9 researchindonesia@uobkayhian.com
Net margin (%) (2.0) 4.0 4.3 4.5 5.0
Net debt/(cash) to equity (%) 97.3 71.4 48.1 34.1 21.3
Interest cover (x) 7.5 5.0 6.5 8.2 11.1
ROE (%) (5.9) 13.6 14.9 15.6 16.3
Consensus net profit - - 188.5 234.5 288.6
UOBKH/Consensus (x) - - 1.09 1.05 1.02

Source: Mitra Adiperkasa, Bloomberg, UOB Kay Hian

Retail Sector 15
Profit & Loss Balance Sheet

Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F

Net turnover 4,112.2 4,777.5 5,435.4 5,910.3 Fixed assets 1,116.8 1,054.5 987.5 920.8
EBITDA 540.4 629.6 709.4 758.0 Other LTassets 422.7 472.3 481.6 488.9
Deprec.&amort. 232.7 261.5 269.2 276.2 Cash/ST investment 189.7 256.8 294.9 61.6
EBIT 307.7 368.1 440.2 481.8 Othercurrentassets 1,650.3 1,942.6 2,198.5 2,432.7
Total other non-operating income 79.7 (0.6) (30.3) (26.1) Total assets 3,379.4 3,726.3 3,962.5 3,904.1
Associate contributions 3.2 3.7 4.2 4.5 ST debt 516.9 496.8 797.2 401.4
Netinterestincome/(expense) (108.8) (96.1) (86.4) (68.4) Other current liabilities 753.2 997.8 1,123.9 1,213.1
Pre-tax profit 281.8 275.1 327.7 391.8 LT debt 592.5 469.0 69.0 69.0
Tax (117.8) (68.8) (81.9) (98.0) Other LT liabilities 228.7 289.8 294.9 298.5
Minorities (0.0) (0.0) (0.0) (0.0) Shareholders' equity 1,288.0 1,472.9 1,677.4 1,922.1
Net profit 164.0 206.3 245.8 293.9 Minority interest 0.0 0.0 0.0 0.0
Netprofit(adj.) 164.0 206.3 245.8 293.9 Total liabilities & equity 3,379.4 3,726.3 3,962.5 3,904.1

Cash Flow Key Matrics

Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F Year to 31 Dec (%) 2009 2010F 2011F 2012F

Operating 340.1 487.8 468.8 522.1 Profitability

Pre-taxprofit 281.8 275.1 327.7 391.8 EBITDAmargin 13.1 13.2 13.1 12.8
Tax (117.8) (68.8) (81.9) (98.0) Pre-taxmargin 6.9 5.8 6.0 6.6
Deprec.&amort. 232.7 261.5 269.2 276.2 Netmargin 4.0 4.3 4.5 5.0
Workingcapitalchanges (125.3) (85.7) (128.9) (143.9) ROA 4.6 5.8 6.4 7.5
Otheroperatingcashflows 68.7 105.7 82.8 96.0 ROE 13.6 14.9 15.6 16.3
Investing 45.7 (245.7) (213.1) (216.0)
Capex(growth) (213.4) (194.1) (196.9) (204.2) Growth
Investments 198.3 (2.3) (3.2) (0.8) Turnover 18.6 16.2 13.8 8.7
Proceeds from sale of assets 0.0 0.0 0.0 0.0 EBITDA 12.7 16.5 12.7 6.9
Others 60.8 (49.4) (13.0) (11.0) Pre-taxprofit n.a. (2.4) 19.1 19.6
Financing (474.3) (175.0) (217.7) (539.4) Netprofit n.a. 25.8 19.1 19.6
Dividend payments 0.0 (32.8) (41.3) (49.2) Netprofit(adj.) n.a. 25.8 19.1 19.6
Issue of shares (3.5) 11.3 0.0 0.0 EPS n.a. 25.8 19.1 19.6
Proceedsfromborrowings 0.0 0.0 0.0 0.0
Loanrepayment (261.2) (145.1) (99.4) (395.8) Leverage
Others/interestpaid (209.5) (8.5) (77.0) (94.5) Debt to total capital 86.1 65.6 51.6 24.5
Net cash inflow (outflow) (88.5) 67.1 38.1 (233.2) Debt to equity 86.1 65.6 51.6 24.5
Beginning cash & cash equivalent 278.2 189.7 256.8 294.9 Net debt/(cash) to equity 71.4 48.1 34.1 21.3
Ending cash & cash equivalent 189.7 256.8 294.9 61.6 Interestcover(x) 5.0 6.5 8.2 11.1

Price Range
2007 2008 2009 2010*

Price (Rp)
High 940 680 640 1,600
Low 600 360 250 600
PE (x)
High 13.5 n.a. 6.5 12.9
Low 8.6 n.a. 2.5 4.8
* Forecast PE

16 Retail Sector
 Ramayana Lestari Sentosa

BACKGROUND
Ramayana Lestari Sentosa (RALS) is a leading department store operator in the mid-tier
BUY
to low-end retail segment. It offers products ranging from clothing, shoes, bags, toys,
Share Price Rp900
and stationery to housewares. RALS also runs a supermarket business. Target Price Rp1,100
Upside +22.2%
OUTLOOK/RECOMMENDATION
Company Description
z Start of an aggressive year. We expect RALS to add a net 80,000sqm in 2010, which Ramayana Lestari Sentosa operates mid-
will be its second-most aggressive annual expansion, vs an average of 45,682sqm low segment department stores in
p.a. since 1995. Four new stores will open in 2H10, of which three will be in 4Q10. Indonesia.
About 60% of the stores are located outside of Java, which enjoy higher gross
margins and less competition. With an improving economy, RALS is likely to achieve Stock Data
GICS sector Consumer Discretionary
its 10% SSSG target this year. We have been seeing a significant recovery in SSSG Bloomberg ticker: RALS IJ
since early this year, with a 13% growth in Jul 10. Shares issued (m): 7,096.0
Market cap (Rpb): 6,386.4
z Supermarket restructuring will improve margins. RALS' 1H10 net profit was Market cap (US$m): 712.1
below consensus due to higher-than-expected increases in operating expenses which 3-mth avg t'over (US$m): 0.7
rose to 29.3% of net revenue, up from 25.6% in 2009. This was due to the following:
Price Performance
a) higher salaries on new hirings for supermarket restructuring and new store 52-week high/low Rp1,010/Rp540
openings, and b) higher utilities due to unusually low base effect (costs savings in 1mth 3mth 6mth 1yr YTD
2009 amid low purchasing power and store openings). The supermarket restructuring 3.4 (3.2) (2.2) 36.4 45.2
is expected to improve sales during the non-Idul Fitri months, and raise gross margin
by 2ppt to 16% through better merchandising. In 2H10, we expect margins to Major Shareholders (%)
Ramayana Makmursentosa 56.0
improve, driven by the Idul Fitri and year-end holidays.
FY10 NAV/Share (Rp) 373
z Main beneficiary of rising disposable income. Given its mid-tier to low-income
FY10 Net Cash/Share (Rp) 135
target markets, RALS should be the biggest beneficiary among retailers of rising
disposable income. This is because its target consumers are more price-sensitive Price Chart
than those in the middle- and upper-income segments. Higher purchasing power RAM AYANA LESTARI SENTOSA PT
(lcy) (%)
should translate into higher SSSG, and eventually result in higher operating leverage 1100
Ramayana Lest ari Sent osa Pt /JCI Index
170
due to a lower operating expenses-to-sales ratio. 160
1000
150
z Re-initiate coverage with BUY. We re-initiate coverage with a BUY call and a target 900 140

price of Rp1,100, based 16.5x 2011F PE, which is still within its five-year mean of 800
130
120
15.5x. Additional appeal comes from its strong net cash position without underlying 700 110

debts. The main risk is potential short-term pressure arising from a surge in inflation 600
100
90
on rising food prices and electricity tariffs. 500 80
60
Volume
40

20
Key Financials
0
Sep 09 Nov 09 Jan 10 Mar 10 May 10 Jul 10 Sep 10
Year to 31 Dec (Rpb) 2008 2009 2010F 2011F 2012F
Net turnover 4,407.6 4,310.4 4,944.3 5,492.3 6,118.3 Source: Bloomberg
EBITDA 350.8 441.2 496.5 687.4 777.0
Operating profit 416.6 366.5 317.6 486.8 553.4
Net profit (rep./act.) 429.7 334.8 315.5 470.9 539.5 Analyst
Net profit (adj.) 429.7 334.8 315.5 470.9 539.5
EPS (Rp) 60.8 47.4 44.7 66.7 76.4 Indonesia Research Team
P/E (x) 14.8 19.0 20.1 13.5 11.8 + 6221 2993 3916
P/BV (x) 2.7 2.5 2.4 2.2 2.0 researchindonesia@uobkayhian.com
Dividend yield (%) 3.4 3.4 2.8 2.6 3.9
Net margin (%) 9.8 7.8 6.4 8.6 8.8
Net debt/(cash) to equity (%) (38.6) (33.0) (36.3) (40.6) (44.1)
ROE (%) 19.0 13.8 12.3 16.9 17.5
Consensus net profit - - 394.0 476.7 565.4
UOBKH/Consensus (x) - - 0.80 0.99 0.95

Source: Ramayana Lestari Sentosa, Bloomberg, UOB Kay Hian

Retail Sector 17
Profit & Loss Balance Sheet

Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F

Netturnover 4,310.4 4,944.3 5,492.3 6,118.3 Fixed assets 944.4 1,015.4 1,079.2 1,136.2
EBITDA 441.2 496.5 687.4 777.0 Other LTassets 505.9 526.7 544.7 565.3
Deprec.&amort. 74.7 178.9 200.7 223.6 Cash/ST investment 823.7 954.6 1,191.1 1,422.8
EBIT 366.5 317.6 486.8 553.4 Othercurrentassets 956.4 953.5 1,014.1 1,098.4
Total other non-operating income (26.7) 5.1 10.7 11.4 Total assets 3,230.3 3,450.2 3,829.1 4,222.7
Netinterestincome/(expense) 64.3 58.2 71.0 86.5 ST debt 0.0 0.0 0.0 0.0
Pre-taxprofit 404.1 380.9 568.5 651.3 Other current liabilities 626.2 692.9 754.0 839.5
Tax (69.4) (65.4) (97.6) (111.8) LT debt 0.0 0.0 0.0 0.0
Minorities 0.0 0.0 0.0 0.0 Other LT liabilities 110.4 124.7 138.0 154.9
Net profit 334.8 315.5 470.9 539.5 Shareholders' equity 2,493.8 2,632.7 2,937.2 3,228.3
Netprofit(adj.) 334.8 315.5 470.9 539.5 Minority interest 0.0 0.0 0.0 0.0
Total liabilities & equity 3,230.3 3,450.2 3,829.1 4,222.7

Cash Flow Key Matrics

Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F Year to 31 Dec (%) 2009 2010F 2011F 2012F

Operating 290.3 577.3 684.5 780.2 Profitability

Pre-taxprofit 404.1 380.9 568.5 651.3 EBITDAmargin 10.2 10.0 12.5 12.7
Tax (69.4) (65.4) (97.6) (111.8) Pre-taxmargin 9.4 7.7 10.4 10.6
Deprec.&amort. 74.7 178.9 200.7 223.6 Netmargin 7.8 6.4 8.6 8.8
Workingcapitalchanges (97.3) 44.6 (2.7) (3.7) ROA 10.7 9.4 12.9 13.4
Otheroperatingcashflows (21.9) 38.2 15.7 20.7 ROE 13.8 12.3 16.9 17.5
Investing (184.6) (270.7) (282.4) (301.2)
Capex(growth) (182.0) (249.9) (264.4) (280.6) Growth
Investments 34.3 0.0 0.0 0.0 Turnover (2.2) 14.7 11.1 11.4
Proceeds from sale of assets 0.0 0.0 0.0 0.0 EBITDA 25.8 12.5 38.4 13.0
Others (36.9) (20.8) (18.0) (20.6) Pre-taxprofit (22.5) (5.7) 49.2 14.6
Financing (189.0) (175.6) (165.6) (247.3) Netprofit (22.1) (5.7) 49.2 14.6
Dividendpayments (219.0) (176.6) (166.5) (248.4) Netprofit(adj.) (22.1) (5.7) 49.2 14.6
Issue of shares 29.4 0.0 0.0 0.0 EPS (22.1) (5.7) 49.2 14.6
Proceedsfromborrowings 0.0 0.0 0.0 0.0
Loanrepayment 0.0 0.0 0.0 0.0 Leverage
Others/interestpaid 0.6 1.0 0.8 1.2 Debt to total capital 0.0 0.0 0.0 0.0
Net cash inflow (outflow) (83.3) 130.9 236.5 231.7 Debt to equity 0.0 0.0 0.0 0.0
Beginning cash & cash equivalent 907.0 823.7 954.6 1,191.1 Net debt/(cash) to equity (33.0) (36.3) (40.6) (44.1)
Ending cash & cash equivalent 823.7 954.6 1,191.1 1,422.8

Price Range
2007 2008 2009 2010*

Price (Rp)
High 1,110 860 710 1,010
Low 770 450 380 640
PE (x)
High 21.4 14.1 15.0 22.8
Low 14.8 7.4 8.0 14.5
* Forecast PE

18 Retail Sector
 This page has been left blank intentionally.

Retail Sector 19
As of 21 September 2010, the analyst and his / her immediate family do not hold positions in the securities recommended
in this report.

We have based this document on information obtained from sources we believe to be reliable, but we do not make any
representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness.
Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change
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