08 April 2015 Asia Pacific/Indonesia Equity Research Department Stores / Distributors / General Merchandise Stores (Retailing ID (Asia))

Indonesia Retail Sector Priscilla Tjitra 62 21 2553 7906 [email protected] Ella Nusantoro 62 21 255 37917 [email protected]

SECTOR REVIEW

Let's go shopping! Figure 1: Improving inventory days across retailer categories 100 200

Inventory days

90 80

160

70

120

60

80

50

40

40

30

0 4Q14

3Q14

Electronics

2Q14

1Q14

4Q13

3Q13

FMCG

2Q13

1Q13

4Q12

3Q12

Fashion

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

Aggregate

Inventory days (home improvement only)

Research Analysts

Home improvement

Source: Company data, Credit Suisse estimates

■ Margins are still being hit, but inventory improving. Our analysis of 18 listed Indonesian retailers' FY14 financials reveals that margins are still being hit by higher product costs and opex. Since 4Q14, however, inventory days have started improving YoY—for the first time since the fuel price hike, and the rupiah collapse in June 2013. We believe this could be a positive sign for the industry. ■ We prefer fashion and FMCG retailers... Based on our analysis across retailer categories, our preference leans towards: (1) fashion retailers, where inventory days have started normalising since 4Q—with the old stocks out, we believe the stores' discounts should ease, which means likely better margins; and (2) FMCG retailers, which have the highest top-line growth compared with other categories—this in our view is because of the staple nature of their products and expansion into new regions. ■ …to others. For electronics retailers, top-line sales are mainly driven by rupiah adjustments rather than volumes; as most of the products are imported, they are most negatively affected by the rupiah weakness. Homeimprovement retailers: ACES, the biggest player in this category, saw negative SSSG in 4Q and 2M15. Inventory has started declining but it is still high at 170 days. 80% products in the category are imported . ■ Stock picks. We like LPPF for its flexible business model (product-mix innovation) that allows it to maximise margins. We are excited about the developments at MAPI with the upcoming CVC deal. We also like MPPA due to its exposure to growing FMCG retailers. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do

business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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08 April 2015

Focus charts and tables Figure 2: Revenue in 4Q slowed due to Nov-14 fuel hike 35%

23.0% 22.7%

30%

fuel hike Nov-14

22.5% 22.0%

fuel hike Jun-13

20% 15%

21.5% 21.3%

21.3% 21.2%

21.3%

21.1%

21.0%

21.0%

10%

9%

5%

20.5%

0%

20.0%

8.5%

8% 7%

22.2%

25%

Figure 3: Margins are still being hit

7.5%

7.4%

7.4%

6.9%

6.6%

6.3%

6.3%

6%

5.6% 5.5%

5.4%

5.2% 4.7%

5% 3.8%

4%

3.8%

3.3%

3%

4.3%

3.8%

3.8%

2.9%

2.5%

5.2%

3.0%

2.3%

2% 1%

1Q13

2Q13

3Q13

4Q13

1Q14

Revenue YoY

2Q14

3Q14

4Q14

0% 1Q13

2Q13

3Q13

4Q13

EBITDA margin

Gross margin (RHS)

1Q14

2Q14

Op. margin

3Q14

4Q14

Net margin

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

Figure 4: … but inventory days in 4Q have improved since

Figure 5: …across different retailer categories

the post June 2013 fuel hike levels… 100.0 90.0

Inventory days

80.0

77

Average 59 days

62 57

60.0

54

53

75 72

70

68

70.0

79

59

61

64

Inventory days

Average 78 days

77

200

90 80

160

70

120

60 80 50

56

40

40

50.0

30

0

4Q14

Home improvement

3Q14

Fashion

Electronics

2Q14

Aggregate

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

Source: Company data, Credit Suisse estimates

2Q11

1Q11

40.0

Inventory days (home improvement only)

100

92

FMCG

Source: Company data, Credit Suisse estimates

Figure 6: Valuation comparison Ticker

LPPF.JK MPPA.JK ACES.JK MAPI.JK RALS.JK ERAA.JK ECII.JK

Company name

Matahari Dept. Store Matahari Putra Prima Ace Hardware Indonesia Mitra Adiperkasa Ramayana Lestari Erajaya Swasembada Electronic City Weighted average

Rating Mcap

O O U O N N O

Price Target price US$ (LC) (LC) mn 4,361 19,400 19,400 1,719 4,150 4,700 945 715 630 767 6,000 6,500 421 770 830 202 905 1,100 141 1,375 1,600

P/E (x) 15E

EPS growth (%) 16E 15E 16E

29.5 38.1 21.1 48.6 14.9 8.4 12.2 30.5

22.9 30.9 18.2 25.7 13.8 7.7 7.9 23.2

35.1 5.7 4.9 176.4 3.4 10.8 15.7 36.1

29.0 23.5 15.9 89.3 7.8 8.1 54.2 30.7

PEG (x)

Net margin (%)

15E

16E

15E

16E

0.9 2.7 2.1 0.4 2.7 0.9 0.4 1.4

0.7 2.2 1.8 0.2 2.5 0.8 0.2 1.2

20.8 3.7 11.2 1.5 6.0 2.1 6.0 13.2

22.4 3.9 11.2 2.5 6.1 2.2 6.9 14.2

3M ADTV US$ mn 5.2 10.5 1.3 0.6 0.7 1.0 0.2 5.0

Prices as of 7 April 2015. Source: Company data, Credit Suisse estimates

Indonesia Retail Sector

2

08 April 2015

Let's go shopping! Our analysis of 18 listed Indonesian retailers'1 FY14 financials reveals that margins are still being hit by higher product costs and opex pressure. Retailers have seen higher inventory days as a result of slower sales from a softer purchasing power post fuel price hike and the rupiah collapse in June 2013. Since 4Q14, however, inventory days have started improving. We believe this is a positive sign for the industry. Based on our analysis across retailer categories, our preference leans towards fashion and FMCG retailers. Our conclusions: (1) Fashion retailers: Inventory days of the fashion retailers have started improving since 4Q (on average 62 days). With the old stocks out, we believe the stores' discounts should ease, which means likely better margins. (2) FMCG retailers: FMCG retailers have the highest top-line growth of 18% YoY compared with other retail categories. We believe this is owing to the staple nature of their products (SSSG: 5-6%) and the fact that they are expanding into new markets. We don’t see higher inventory days in 4Q as a threat, as we believe this is due to stores expansion, especially beyond the Java region. (3) Electronics retailers: We believe that top-line sales growth for electronics retailers is coming mostly from rupiah adjustments rather than volumes. Since 4Q, inventory has improved as retailers/distributors removed old stocks before newer model launches at the beginning of the year. As most products are imported, electronic retailers are most negatively affected by the rupiah depreciation. (4) Home improvement retailers: ACES, the biggest player in this category, saw negative SSSG in 4Q, and into 2015. Inventory days have started improving but they are still high in our view, i.e., over 170 days.

We like fashion and FMCG retailers Among the fashion and FMCG retailers, we prefer Matahari Department Store (LPPF), Mitra Adiperkasa (MAPI), and Matahari Putra Prima (MPPA): ■

Matahari Department Store (LPPF): We like Matahari for its more resilient middle class focus, and flexible business model that allows it to maximise margins. Some initiatives on the product mix such as increasing the proportion of direct purchases (versus consignment) and introducing new private label brands to cater to a broader customer base have improved its gross margins and offset the higher opex pressure. We believe LPPF has a strong balance sheet to sustain the lean times due to its net cash position.

■

Mitra Adiperkasa (MAPI): We are excited about the developments at MAPI, with the spin-off of its sports division (MAA) into CVC. We believe that the deal will expedite the company's margins turnaround, given the immediate interest cost saving upon the Rp1.5 tn cash inflow receipt. We also expect CVC to potentially turn around the business in the coming years, given that the deal's valuation at 30x P/E is not inexpensive.

■

Matahari Putra Prima (MPPA): Due to its exposure to growing FMCG retailers, we like MPPA, which shows improving margins from bigger economies of scale and continued operating efficiency. In 2015, management will carry on its strategy of focusing on bottom-line rather than just top-line growth. It aims to increase gross margin by about 10-20 bp YoY this year, coming from a more concerted promotions strategy (focus on 200 common household basket items).

1

The18 listed Indonesian retailers are: LPPF, RALS, BATA, MAPI, MPPA, HERO, AMRT, MIDI, RANC, ACES, CSAP, KOIN, ECII, TELE, ERAA, GLOB, TRIO, and MTDL.

Indonesia Retail Sector

3

08 April 2015

Margins are still being hit… The aggregate revenue across retailers grew 16% YoY, versus the reported headline inflation of 8% in FY14. We believe the volume component of this top-line growth is fairly weak, considering there was also price adjustment due to the 14% YoY depreciation of the rupiah. Gross margin dropped some 25 bp YoY as the retailers could not fully pass on the costs increase to customers. Operating margins dropped further 61 bp YoY, on the back of rising salaries, utilities as well as distribution costs. Net margin was down 63 bp YoY; additional pressure may come from interest costs. Looking at the quarterly numbers, 3Q usually is the strongest for retailers (due to Lebaran spending); this explains the QoQ decline. If we compare YoY, 4Q revenue was up 12% YoY and gross margins were quite stable. Deterioration in net margins appears to have come from higher opex pressure and financing costs. Figure 7: Retailers' margins hurt by higher product costs and opex pressure* (Rp bn) Revenue COGS Gross profit Opex Operating profit Net profit Margins: Gross profit Operating profit Net profit

12M13 12M14

YoY

4Q13

1Q14

2Q14

146,501 170,463 114,766 133,967 31,735 36,496 23,811 28,324 7,923 8,172 5,338 5,145

16.4% 40,659 38,253 41,379 16.7% 32,004 30,227 32,640 15.0% 8,654 8,026 8,739 19.0% 6,476 6,571 6,965 3.1% 2,178 1,456 1,774 -3.6% 1,539 876 1,187 bps chg 21.7% 21.4% (25) 21.3% 21.0% 21.1% 5.4% 4.8% (61) 5.4% 3.8% 4.3% 3.6% 3.0% (63) 3.8% 2.3% 2.9%

% to FY: Revenue Gross profit Operating profit

3Q14

4Q14

QoQ

YoY

45,212 45,619 0.9% 35,178 35,922 2.1% 10,033 9,698 -3.3% 7,482 7,306 -2.4% 2,551 2,391 -6.3% 1,735 1,348 -22.3% bp chg 22.2% 21.3% (93) 5.6% 5.2% (40) 3.8% 3.0% (88)

12.2% 12.2% 12.1% 12.8% 9.8% -12.4% bp chg (3) (11) (83)

27.8% 22.4% 24.3% 26.5% 26.8% 27.3% 22.6% 24.4% 26.3% 26.8% 27.5% 22.0% 23.9% 27.5% 26.6%

*data based on LPPF, RALS, BATA, MAPI, MPPA, HERO, AMRT, MIDI, RANC, ACES, CSAP, KOIN, ECII, TELE, ERAA, GLOB, TRIO, and MTDL. Source: Company data

Fashion retailers: 4Q margins still relatively weak Consumer spending growth in fashion in 2014 grew 14%, slower than in previous years (versus average of past three years ~20%). 3Q was the peak season for fashion retailers due to Lebaran spending. In 4Q, revenue rose 9% YoY, while margins were still weaker YoY. We suspect the lower gross margins were due to stores discounting to flush out old inventories. Figure 8: Fashion retailers—FY14 and quarterly results* (Rp bn)

12M13 12M14

Revenue COGS Gross profit Opex Operating profit Net profit

23,392 11,677 11,715 8,716 2,999 1,913

Margins: Gross profit Operating profit Net profit

50.1% 48.9% 12.8% 11.4% 8.2% 7.5%

26,618 13,602 13,016 9,983 3,033 2,007

YoY 13.8% 16.5% 11.1% 14.5% 1.1% 4.9%

4Q13 5,990 2,991 2,999 2,394 605 377

1Q14 5,546 2,874 2,672 2,234 439 251

2Q14 6,393 3,243 3,150 2,469 681 433

3Q14 8,161 4,187 3,974 2,687 1,287 980

4Q14 6,517 3,298 3,219 2,594 625 344

QoQ

YoY

-20.1% 8.8% -21.2% 10.3% -19.0% 7.4% -3.4% 8.4% -51.4% 3.3% -64.9% -8.8%

bps chg bps chg bps chg (118) 50.1% 48.2% 49.3% 48.7% 49.4% 70 (67) (143) 10.1% 7.9% 10.7% 15.8% 9.6% (618) (51) (64) 6.3% 4.5% 6.8% 12.0% 5.3% (672) (102)

*Data based on LPPF, RALS, BATA, and MAPI. Source: Company data

Indonesia Retail Sector

4

08 April 2015

Figure 9: Matahari Dept. Store leads on same-store-sales growth SSG*

3M14

6M14

9M14

FY14

4Q14

LPPF RALS MAPI

9.3% 7.5% 12.0%

12.6% 7.0% 9.0%

11.3% 1.3% 10.0%

10.7% 0.6% 9.0%

8.7% -0.2% 8.0%

*Fashion retailers that reported SSSG data. Source: Company data

FMCG retailers: Better top-line growth supported by stores expansion Among the fast-moving consumer goods (FMCG) retailers, minimarket operators saw topline growth of around 20% YoY in FY14, while the bigger-box retailers—the hypermarkets—saw slightly lower growth of around 15% YoY. Overall, their top line grew faster than that of the fashion retailers, which, in our view, was due to the staple nature of their products and the faster expansion (stores roll-out) as these modern retailers entered new markets. While gross and operating margins relatively held up, we believe financing cost pressure (to support expansion) led to a slight decline in net profit growth YoY. Figure 10: FMCG retailers—FY14 and quarterly results* (Rp bn)

12M13 12M14

Revenue COGS Gross profit Opex Operating profit Net profit

64,976 52,503 12,474 10,698 1,776 1,251

Margins: Gross profit Operating profit Net profit

19.2% 19.6% 2.7% 2.5% 1.9% 1.6%

76,602 61,612 14,990 13,055 1,935 1,220

YoY

4Q13

1Q14

2Q14

3Q14

4Q14

QoQ

YoY

17.9% 17,656 17,067 18,659 20,524 20,352 -0.8% 17.3% 14,097 13,751 15,138 16,566 16,157 -2.5% 20.2% 3,559 3,316 3,522 3,958 4,195 6.0% 22.0% 2,926 3,146 3,250 3,433 3,226 -6.0% 9.0% 633 170 272 526 969 84.3% -2.5% 454 139 238 367 476 29.6%

15.3% 14.6% 17.9% 10.3% 53.0% 4.9%

bps chg bps chg bps chg 37 20.2% 19.4% 18.9% 19.3% 20.6% 133 45 (21) 3.6% 1.0% 1.5% 2.6% 4.8% 220 117 (33) 2.6% 0.8% 1.3% 1.8% 2.3% 55 (23)

*data based on MPPA, HERO, AMRT, MIDI, MDRN, and RANC Source: Company data

Figure 11: Lower same-store sales in 4Q could be temporary impact of Nov-14 fuel hike SSSG*

3M14

6M14

9M14

FY14

4Q14

MPPA AMRT

10.2% 9.6%

9.2% 7.4%

6.7% 6.5%

5.4% 6.2%

1.0% 5.0%

*FMCG retailers that reported SSSG data. Source: Company data, Credit Suisse estimates

Electronics (gadget) retailers/distributors: Top-line growth from ASP adjustments We suspect that top-line growth for electronics came from weak rupiah adjustment to ASP, rather than volumes. Handset distributors' top line grew ~15% YoY, in line with the rupiah depreciation. They saw higher opex from retail store expansions and working capital financing hurt bottom line.

Indonesia Retail Sector

5

08 April 2015

Figure 12: Electronic retailers and distributors—FY14 and quarterly results* (Rp bn)

12M13 12M14

Revenue COGS Gross profit Opex Operating profit Net profit

46,804 54,528 16.5% 13,831 12,639 13,141 13,423 15,326 14.2% 10.8% 42,230 49,396 17.0% 12,592 11,422 11,903 12,156 13,915 14.5% 10.5% 4,574 5,132 12.2% 1,239 1,216 1,238 1,267 1,411 11.3% 13.8% 2,201 2,740 24.5% 577 588 605 701 846 20.7% 46.6% 2,373 2,391 0.8% 662 628 633 566 564 -0.3% -14.8% 1,558 1,232 -20.9% 472 321 355 244 312 28.2% -33.8%

Margins: Gross profit Operating profit Net profit

9.8% 5.1% 3.3%

9.4% 4.4% 2.3%

YoY

bps chg (36) (68) (107)

4Q13

9.0% 4.8% 3.4%

1Q14

9.6% 5.0% 2.5%

2Q14

9.4% 4.8% 2.7%

3Q14

9.4% 4.2% 1.8%

4Q14

QoQ

YoY

9.2% 3.7% 2.0%

bps chg bps chg (23) 24 (53) (110) 22 (137)

*Data based on ECII, ERAA, GLOB, TRIO, TELE and MTDL Source: Company data

Figure 13: ECII saw slower electronic demand in 4Q SSG

3M14

6M14

9M14

FY14

4Q14

ECII

7.6%

7.2%

5.2%

5.1%

4.8%

Source: Company data, Credit Suisse estimates

Home-improvement retailers: Top line supported by expansion ACES saw 17% YoY FY14 top-line growth, supported by its new stores expansion (SSSG was just 3%), while other home-improvement distributors' top line grew ~10% YoY. Gross margin was lower in 4Q on both QoQ and YoY basis, indicating possible higher discounts to boost top line. Figure 14: Home-improvement retailers—FY14 and quarterly results* (Rp bn)

12M13 12M14

YoY

4Q13

1Q14

2Q14

3Q14

4Q14

Revenue COGS Gross profit Opex Operating profit Net profit

11,329 12,715 12.2% 8,356 9,358 12.0% 2,972 3,358 13.0% 2,197 2,545 15.8% 775 813 4.9% 616 686 11.4%

3,181 2,324 857 579 278 236

3,002 2,180 822 603 219 164

3,186 2,356 829 641 189 162

3,104 2,270 834 662 172 144

3,425 2,552 873 639 233 216

Margins: Gross profit Operating profit Net profit

26.2% 26.4% 6.8% 6.4% 5.4% 5.4%

QoQ

YoY

10.3% 7.6% 12.4% 9.8% 4.6% 1.8% -3.4% 10.4% 35.6% -16.1% 49.9% -8.6%

bp chg bp chg bp chg 17 26.9% 27.4% 26.0% 26.9% 25.5% (139) (146) (45) 8.7% 7.3% 5.9% 5.5% 6.8% 127 (193) (4) 7.4% 5.5% 5.1% 4.6% 6.3% 166 (112)

*data based on ACES, CSAP and KOIN Source: Company data

Figure 15: ACES saw negative same-store-sales growth in 4Q on the back of lower customer store traffic SSG

3M14

6M14

9M14

FY14

4Q14

ACES

6.0%

6.2%

4.7%

3.1%

-2.0%

Source: Company data, Credit Suisse estimates

Indonesia Retail Sector

6

08 April 2015

…but inventory is improving Indonesian retailers have notably seen a higher inventories level as a result of slower sales on the back of a slowdown in private consumption post the subsidised fuel price hike, and the rupiah collapse in June 2013. Our analysis of the 18 listed Indonesian retailers suggests that inventory turnover has showed some improvement in 4Q. This could mean a positive sign for the industry. Figure 16: Inventory turnover starts to improve YoY…

Figure 17: …across different categories…

100.0 90.0

77

Inventory days

77

Average 59 days

62 57

60.0

54

53

75 72

70

68

70.0

79

59

61

64

Inventory days

Average 78 days

80.0

200

90 80

160

70

120

60 80 50

56

40

40

50.0

30

0 4Q14

Home improvement

3Q14

Fashion

Electronics

2Q14

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

Aggregate

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

40.0

Source: Company data, Credit Suisse estimates

Inventory days (home improvement only)

100

92

FMCG

Source: Company data, Credit Suisse estimates

Fashion retailers: Inventory days have started to come down; potentially lower store discounts ahead Inventory days of the fashion retailers have started normalising since 4Q (on average 62 days). With the old stocks out, we believe the store discounts should ease, which means likely better gross margins. Figure 18: Inventory days slightly down from last year

Figure 19: WC days slightly up because of shorter payable days 25.0

100.0

90

90.0

82 77

71

70

70.0 60.0

Average 60 days 59 55

53

55

54

64

62

61

59

62

55

Working capital days

Inventory days

80.0

20.0

Average 70 days

21

20

19 15

15.0

13

12

11

12

11

10.0

7

5.0

6 4

4

2

-

50.0

0

-2

(5.0)

40.0

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

4Q14

3Q14

2Q14

1Q14

Indonesia Retail Sector

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

7

08 April 2015

FMCG retailers: Inventory days higher due to expansion that supports top-line growth FMCG retailers saw a higher inventory days trend. We believe this is due to new stores expansion, especially to new markets outside the Java region. The expansion generally helps top-line growth; thus we don’t see it as a threat. Figure 20: Inventory days up because of expansion

Figure 21: Working capital days up because of inventory 30.0

85.0 80.0

20.0

52

52

54

56

11

10.0 5.0

5

4

4

10

5

0 (5.0)

40.0

(10.0)

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

Source: Company data, Credit Suisse estimates

-4

1Q11

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

8

0

45.0

1Q11

9

18

16 17

-

48

48

47

52

15.0

2Q13

60.0

17

1Q13

60

60

55.0

66

64 64

Average 52 days

65.0

67

Working capital days

71

70.0

Inventory days

25.0

Average 67 days

75.0

50.0

25

79

Source: Company data, Credit Suisse estimates

Electronics (including gadgets) retailers/distributors: Improved inventory days at the handset players We believe electronic retailers such as ECII and handset distributors (ERAA, TRIO, and TELE) are removing old stocks and preparing for new product launches, which generally come in 1Q-2Q15. These retailers are negatively affected by the rupiah depreciation. Figure 22: Inventory days are significantly down in 4Q…

Figure 23: …and lower working capital days too 120.0

90.0 Average 64 days 75 76

80.0

Inventory days

42

Average 44 days 46 45 46 47

46 35

40.0

30

30.0

80.0

74

90

84

78

69

74

70 72 72

4Q12

52

50.0

56

97 100

92

3Q12

54

Working capital days

70.0 60.0

100.0

66 66 68

64

94 86

85

60.0 40.0

20.0

20.0 10.0

-

-

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

Home-improvement retailers: Improvement seen in inventory days ACES, the biggest home improvement retailer proxy, saw negative SSSG in 4Q into January and February 2015. Inventory days have shown improvement but they are still high at 170 days. Given 80% of the products are imported, we see continued risk to gross margins.

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Figure 24: Inventory days start to show improvement

Figure 25: WC days flat as payable days are shorter 200

250.0 Average 170 days

Inventory days

200.0

150.0 107 100.0 62 50.0

73

82

137

126

Average 85 days

102

90

153

160 173

Working capital days

199 194 186 192

185

180

112

73

46

155

140 115

120 100

20

20

99

68 54

54

60

113 93

87 71

80

40

-

177

162

31

0

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

4Q14

3Q14

2Q14

1Q14

Indonesia Retail Sector

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

1Q11

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

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08 April 2015

Appendix I: Monthly productivity analysis Figure 26: ACES—inventory days have started trending down; efficiency came from better employee productivity in 4Q (Rp mn/sqm)

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14 QoQ% YoY%

Revenue Gross profit Operating profit Opex Area/employee Working capital: A/R days A/P days Inventory days WC days

1.265 0.608 0.157 0.452 23

1.231 0.594 0.147 0.448 24

1.303 0.658 0.189 0.469 25

1.339 0.685 0.244 0.441 25

1.248 0.616 0.188 0.428 25

1.216 0.584 0.147 0.438 25

1.301 0.620 0.166 0.454 26

1.254 0.605 0.218 0.387 27

6 13 110 103

4 15 123 111

2 26 150 126

2 36 207 173

4 35 214 183

1 14 223 210

1 17 216 201

2 17 201 186

-4% -2% 31% -15% 5%

-6% -12% -11% -12% 6%

Source: Company data, Credit Suisse estimates

Figure 27: MAPI—inventory days started trending down, following significant stores discounts; margins improvement to follow (Rp mn/sqm)

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14 QoQ% YoY%

Revenue Gross profit Operating profit Opex Area/employee Working capital: A/R days A/P days Inventory days WC days

1.219 0.595 0.071 0.524 31

1.237 0.630 0.104 0.526 32

1.358 0.659 0.108 0.551 32

1.443 0.733 0.120 0.613 31

1.369 0.637 0.063 0.574 28

1.402 0.676 0.085 0.591 28

1.588 0.682 0.032 0.650 29

1.573 0.749 0.083 0.665 29

13 67 176 123

13 72 192 134

11 93 212 130

11 90 220 141

14 77 211 147

12 80 213 145

11 64 188 135

11 66 184 129

-1% 10% 158% 2% 0%

9% 2% -31% 9% -9%

Source: Company data, Credit Suisse estimates

Figure 28: LPPF continues to see better stores productivity (Rp mn/sqm)

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14 QoQ% YoY%

Revenue Gross profit Operating profit Opex Area/employee Working capital: A/R days A/P days Inventory days WC days

0.559 0.354 0.094 0.260 59

0.643 0.420 0.155 0.265 59

1.026 0.659 0.354 0.306 58

0.679 0.445 0.164 0.281 59

0.611 0.382 0.109 0.273 66

0.740 0.474 0.178 0.296 67

1.094 0.693 0.371 0.322 67

0.736 0.477 0.189 0.288 68

3 45 31 (11)

3 74 51 (20)

1 31 28 (2)

1 55 31 (23)

3 45 37 (6)

1 76 58 (16)

1 31 32 1

1 55 37 (16)

-33% -31% -49% -11% 1%

8% 7% 15% 2% 15%

Source: Company data, Credit Suisse estimates

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Figure 29: MPPA—operating efficiency led to improved margins (Rp mn/sqm)

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14 QoQ% YoY%

Revenue Gross profit Operating profit Opex Area/employee Working capital: A/R days A/P days Inventory days WC days

1.615 0.256 0.025 0.232 47

1.641 0.253 0.033 0.220 48

1.754 0.276 0.076 0.200 52

1.647 0.269 0.078 0.192 52

1.608 0.272 0.042 0.230 48

1.668 0.280 0.056 0.225 47

1.827 0.321 0.098 0.223 49

1.683 0.301 0.124 0.177 51

2 66 73 10

2 69 88 21

1 54 78 26

1 72 83 11

3 69 87 21

1 80 101 21

1 51 85 34

1 62 86 26

-8% -6% 26% -20% 3%

2% 12% 59% -7% -1%

Source: Company data, Credit Suisse estimates

Figure 30: RALS—stable 4Q situation from last year (Rp mn/sqm)

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

Revenue Gross profit Operating profit Opex Area/employee Working capital: A/R days A/P days Inventory days WC days

0.370 0.135 0.011 0.124 56

0.471 0.158 0.021 0.138 45

0.732 0.431 0.277 0.144 0.102 (0.001) 0.176 0.144 59 70

0.395 0.136 0.011 0.126 67

0.491 0.166 0.014 0.152 67

0.659 0.416 0.252 0.131 0.086 (0.013) 0.166 0.144 70 78

1 102 126 25

1 120 149 30

2 92 123 33

2 114 148 36

2 66 73 9

1 85 82 (1)

2 64 67 5

4Q14 QoQ% YoY% -37% -48% n.m. -13% 12%

-3% -9% n.m. -1% 11%

1 85 77 (6)

Source: Company data, Credit Suisse estimates

Figure 31: ECII—inventory days improving; newer stores still yet to improve stores productivity (Rp mn/sqm)

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14 QoQ% YoY%

Revenue Gross profit Operating profit Opex Working capital: A/R days A/P days Inventory days WC days

4.289 0.802 0.406 0.397

5.480 1.101 0.566 0.535

3.670 0.689 0.144 0.544

4.292 0.948 0.511 0.437

2.518 0.480 0.115 0.365

2.839 0.567 0.105 0.462

2.537 0.478 0.096 0.382

3.378 0.646 0.183 0.463

3 39 52 16

4 46 66 24

3 58 83 28

1 51 101 52

4 26 96 73

3 20 90 73

2 11 84 75

1 20 74 55

33% 35% 90% 21%

-21% -32% -64% 6%

Source: Company data, Credit Suisse estimates

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Companies Mentioned (Price as of 07-Apr-2015) Ace Hardware Indonesia (ACES.JK, Rp715) Catur Sentosa (CSAP.JK, Rp585) Electronic City (ECII.JK, Rp1,375) Erajaya Swasembada (ERAA.JK, Rp905) Global Teleshop (GLOB.JK, Rp1,195) Hero Supermarket (HERO.JK, Rp2,000) Kokoh Inti (KOIN.JK, Rp350) Matahari Department Store (LPPF.JK, Rp19,400, OUTPERFORM, TP Rp19,400) Matahari Putra Prima (MPPA.JK, Rp4,150, OUTPERFORM[V], TP Rp4,700) Metrodata Elec (MTDL.JK, Rp700) Midi Utama ID (MIDI.JK, Rp770) Mitra Adiperkasa (MAPI.JK, Rp6,000, OUTPERFORM[V], TP Rp6,500) Ramayana Lestari Sentosa (RALS.JK, Rp770) Sepatu Bata (BATA.JK, Rp1,080) Sumber Alfaria (AMRT.JK, Rp565) Supra Boga (RANC.JK, Rp414) Tiphone Mobile (TELE.JK, Rp950) Trikomsel Oke (TRIO.JK, Rp1,905)

Disclosure Appendix Important Global Disclosures I, Priscilla Tjitra, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for Matahari Department Store (LPPF.JK) LPPF.JK Date 11-Dec-13 17-Feb-14 04-Aug-14 18-Sep-14 29-Oct-14

Closing Price (Rp) 10,850 13,575 14,750 16,700 15,150

Target Price (Rp) 10,000 16,800 17,700 19,900 19,400

Rating N* O

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L O U T PERFO RM

3-Year Price and Rating History for Matahari Putra Prima (MPPA.JK) MPPA.JK Date 27-May-14 05-Mar-15

Closing Price (Rp) 2,840 4,065

Target Price (Rp) 3,600 4,700

Rating O*

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

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3-Year Price and Rating History for Mitra Adiperkasa (MAPI.JK) MAPI.JK Date 01-May-12 01-Nov-12 27-Mar-13 24-Sep-13 12-Dec-13 19-May-14 04-Aug-14 03-Nov-14 01-Apr-15

Closing Price (Rp) 6,900 6,400 8,350 6,350 5,550 5,350 5,125 5,175 5,900

Target Price (Rp) 8,400 8,100 8,100 7,300 4,900 4,500 4,100 3,400 6,500

* Asterisk signifies initiation or assumption of coverage.

Rating O N * U

O O U T PERFO RM N EU T RA L U N D ERPERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +1015% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution

Rating

Versus universe (%)

Of which banking clients (%)

Outperform/Buy* 44% (53% banking clients) Neutral/Hold* 38% (50% banking clients) Underperform/Sell* 16% (43% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Indonesia Retail Sector

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Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-andanalytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Price Target: (12 months) for Matahari Department Store (LPPF.JK) Method: Our target price of Rp19,400 for Matahari Department Store is based on a DCF (discounted cash flow) valuation. We assume 13.0% WACC (weighted average cost of capital; 8% risk-free rate, 1.0x beta, and 5% risk premium). The implied multiples are 29x FY15E price to earnings ratio (P/E). Risk:

Key risks to our Rp19,400 target price for Matahari Department Store include competition from both existing and incoming players, risk of meeting expansion target, regulatory risks and macro risks of Indonesia.

Price Target: (12 months) for Mitra Adiperkasa (MAPI.JK) Method: Our target price of Rp6,500 for Mitra Adiperkasa is based on DCF valuations. We assume 10.1% WACC (8% risk-free rate, 0.9x beta, and 5% risk premium). The implied multiples are 28.0x FY16E price to earnings ratio (P/E). Risk:

Key risks to our Rp6,500 target price for Mitra Adiperkasa include principal risks, forced into cannibalisation by the property boom, competition from both existing and new players, regulatory risks, and macro risks.

Price Target: (12 months) for Matahari Putra Prima (MPPA.JK) Method: Our end 2015 target price of Rp4,700 for MPPA is based on a DCF (discounted cash flow) valuation. We assume a 12% WACC (weighted average cost of capital; 8% risk-free rate, 0.8 beta, and 5% risk premium). This implies a 2.2x PEG, a premium to regional average as it generates higher earnings CAGR compared to regional peers. Risk:

Key risks to our Rp4,700 target price include: (1) execution of planned store expansion, (2) entrance to a new region, (3) rising salary and wages, (4) rising rental prices, (4) competition with the industry and from other modern retail formats, (5) regulatory risk, and (6) Indonesia macroeconomic stability risk.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names

The subject company (MAPI.JK, ERAA.JK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (MAPI.JK, ERAA.JK) within the next 3 months. Credit Suisse may have interest in (LPPF.JK, MAPI.JK, MPPA.JK, ACES.JK, ECII.JK, ERAA.JK, RALS.JK) As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (ECII.JK). For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (LPPF.JK, MAPI.JK, MPPA.JK, ACES.JK, ECII.JK, ERAA.JK, RALS.JK) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

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Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (ECII.JK) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. PT Credit Suisse Securities Indonesia .................................................................................................................................................Priscilla Tjitra For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

CS0799

Indonesia Retail Sector

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