Mitra Pinasthika Mustika Flash Note

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1 26 February, 2015 Mitra Pinasthika Mustika Flash Note Willinoy Sitorus A Value Grab, Not a Value Trap 3 reasons why MPMX is a value stock 1. We see conducive macro and industry figures such as BI rate 25 bps cut, low oil price environment and growing 2W Honda market share (2010 s 46% vs 63% in 9M14) to benefit MPMX as a comprehensive automotive play. Note that MPMX is a selling agent of Honda s 2W accounting ~20% of Honda s total national sales. 2. MPMX possesses business mixture of cyclical & recurring income streams such as a.) 2W/4W distribution which is interest rate sensitive & cyclical, b.) Strong cash cow machine from its Federal oil lubricant brand which has fat margins (net margin at ~30% level). 3. Strong presence throughout Indonesia shown from a.)~71% 2W market share in East Java, b.)~23% market share in the oil lubricant industry, c.) 2nd largest rental fleet size in the industry. Where the growth comes from? MPMX has 4 business segments : 1.) 2W/4W distribution (Honda s 2W and Nissan s 4W; 9M14 net profit (NP) contribution of 36%), 2.) 2W oil lubricant (Federal Oil brand; 9M14 NP contribution of 36%), 3.) Automotive services (4W rental provider; 9M14 NP contribution of 9%), 4.) Financing service (financing the auto sector; 9M14 NP contribution of 18%). MPMX is a beneficiary of Honda s rising market share, thus its 2W distribution and oil lubricant segment should be a backbone for MPMX s earnings growth going forward. Negative sentiments overly punished share price We think that the 47% share price drop since its May 13 IPO was due to 1.) Bad investment perception on its Nissan Dealership (Nissan sales below expectation, however Datsun Go sales not part of Nissan in Gaikindo figures), 2. Perception of not so wise expansion move to highly saturated rental business, 3.) Bad timing as IPO was just 1 month before the nation s 44% fuel hike in June 13. However, we see MPMX has proven resilient earnings post earnings hit on the automotive industry in 4Q13. Compelling valuations MPMX is currently trading at 7.1x 2014 (9M14 annualized) with P/BV below 1x. Assuming a conservative 6.6% net profit growth this year (assuming NP growth from 1.5x 2015 GDP), 2015 P/E is at 6.7x P/E, a 59% discount to Auto-related players trading at 16.2x 2015 P/E. Mitra Pinasthika Mustika is an automotive -related company catering to the 4W/2W distribution segment, auto components (lubricant oil), 4W rental and financing related business. Not Rated Company Update Share Price 885 Sector Automotive related Stock Data Reuters Code MPMX.JK MPPA.JK Bloomberg Code MPMX.IJ MPPA.IJ Issued Shares (m) 5,378 4,463 Mkt Cap (Rpbn) 15,973 3,950 Average Avg. Value Daily Daily Trading USD 9.3mn month (Rpbn) 52-Wk range (Rp) Rp3, / Rp1,720 / Major Shareholders PT Saratoga Investama Sedaya 47.6% Morninglight Investment 15.3% Claris Investments 6.8% Public 30.3% Companies Data Stock Price Year end Dec E* 2015E* 2016E* Revenue (IDRbn) 10,777 13,879 16,239 19,558 24,167 Net Profit (IDRbn) EPS (Rp) EPS Growth (%) P/E (x) P/B (x) EV/EBITDA (x) Div Yield (%) * based on Bloomberg consensus PT Trimegah Securities Tbk - FLASH NOTE 1 ( R p ) 1, , , , V o l u m e ( R H S ) P r ic e ( L H S ) - F e b - A p r - J u n - A u g - O c t - D e c- ( m n )

2 Figure 1. Large exposure to East Java (~70% market share in the 2W market there) (u n its) 1 0 0,0 0 0, % 8 0,0 0 0, ,0 0 0, % % % % %.8 % % % 4 0,0 0 0, % %.0 % % 2 0,0 0 0, % % N a tio n a l 2 W p o p u la tio n E a st Ja v a % o f E a st Ja v a to to ta l n a tio n a l (R H S ) Figure 2. A beneficiary of rising Honda s 2W market share % 8 0 % 2 % 2 % 2 % 2 % 2 % 5 % 5 % 4 % 4 % 4 % 3 2 % 3 2 % 3 1 % 3 2 % 3 1 % 6 0 % 4 0 % 6 0 % 6 1 % 6 3 % 6 2 % 6 3 % 0 % 9 M M Q 1 H 9 M H o n d a Y a m a h a S u z u k i K a w a s a k i Source: Gaikindo Figure 3. Thanks to the Honda s rising portion in the scooter segment % 8 % 9 % 1 0 % 9 % 8 % 8 0 % 6 0 % 7 3 % 7 3 % 7 2 % 7 2 % 7 5 % 4 0 % 0 % 1 9 % 1 9 % 1 8 % 1 7 % 9 M M Q 1 H 9 M C u b S c o o t e r S p o r t s & o t h e r s Source: Gaikindo PT Trimegah Securities Tbk - FLASH NOTE 2

3 Figure 4. A beneficiary of rising Honda s 2W market share % 6 0 % 5 0 % 4 6 % 5 3 % 5 8 % 6 1 % 6 4 % 6 4 % 4 0 % 3 0 % 1 8 % 1 5 % 1 8 % 1 9 % 2 1 % 2 1 % 1 0 % 0 % F F H o n d a m a r k e t s h a r e t o n a t i o n a l s a l e s M P M ' s m a r k e t s h a r e f r o m H o n d a s a l e s Source: Gaikindo, company, TRIM Research Figure 5. Although Nissan s 4W market share fell, Nissan s market share below separates Datsun Go which MPMX starts distributing back in Jun % 5 % 5 % 4 % 4 % 3 % 3 % 2 % 2 % 1 % 5 % 5 % 4 % 3 % 3 % 9 M M Q 1 H 9 M N i s s a n m a r k e t s h a r e Source: Gaikindo, company, TRIM Research Figure 6. Capex allocated for Nissan was quite big (IDR600bn) as it included land acquisition. ~200 Nissans sold in 2014 and the company targets 6,000 units to be sold this year. ( u n i t s ) J a n ' F e b ' M a r ' A p r ' M a y ' J u n ' J u l ' A u g ' S e p ' O c t ' N o v ' D e c ' J a n ' 1 5 PT Trimegah Securities Tbk - FLASH NOTE 3

4 Figure 7. MPMX plans to reduce capex target for Nissan by half yet expansion of 10 dealers to continue via leasing land/building suggests healthier cash flow & balance sheet No. Nissan Dealership Start of sales 1 Tanjung Priok - Jakarta Mar' 14 2 Pluit - Jakarta Jul' 14 3 Alam Sutera - Tangerang Oct' 14 4 Cilacap - C. Java Oct' 14 5 Tambun - Bekasi Oct' 14 6 Tanjong Pinang - Riau Nov' 14 7 Kenjeran - Surabaya Dec' 14 8 Bengkulu Jan' 15 Source: Company Figure 8. Strong market share in oil lubricants (Federal Oil and MPM oil) 2 4 % 2 3 % 2 3 % 2 3 % 2 2 % 2 2 % 2 2 % 2 1 % 2 1 % 2 1 % M * O il lu b r ic a n t m a r k e t s h a r e Source: TRIM Research Figure 9. MPMX has strong cash cow oil lubricant segment (stable earnings with fat margins) which can support its other business ( I D R b n ) % 1 8 % % 1 6 % 1 6 % 1 5 % % Q Q Q Q Q 2 Q 3 Q 1 8 % 1 6 % % 1 2 % 1 0 % 8 % 6 % 4 % 2 % 0 % O i l l u b r i c a n t r e v e n u e N e t m a r g i n ( R H S ) PT Trimegah Securities Tbk - FLASH NOTE 4

5 Figure 10. Financial & margins breakdown based on business segments, 1Q13 3Q14 (IDR bn) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Distribution 2,695 2,942 3,024 2,947 2,940 3,559 3,474 Consumer parts Automotive services Financial services Elimination Total revenue 3,233 3,548 3,530 3,568 3,642 4,206 4,164 (IDR bn) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Distribution Consumer parts Automotive services Financial services Elimination Total gross profit (IDR bn) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Distribution Consumer parts Automotive services Financial services Elimination Op. profit (IDR bn) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Distribution Consumer parts Automotive services Financial services Elimination Net profit Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 GP margin Distribution 5.9% 5.9% 5.7% 5.9% 5.8% 5.6% 5.8% Consumer parts 29.2% 29.4% 29.1% 27.6% 28.2% 27.9% 29.5% Automotive services 37.3% 35.1% 36.8% 28.5% 31.8% 31.8% 25.0% Financial services 61.1% 66.6% 61.9% 56.7% 63.1% 66.5% 64.1% Elimination 1.6% 2.4% 6.9% -4.5% 3.2% 5.3% 4.3% GP margin 14.8% 15.1% 14.1% 14.3% 15.1% 14.1% 14.1% Op. margin Distribution 3.0% 2.6% 2.7% 1.9% 2.7% 2.4% 2.6% Consumer parts 21.5% 20.5% 23.3% 15.1% 22.2% 19.8% 23.6% Automotive services 26.8% 24.2% 29.5% 19.6% 23.5% 23.0% 17.4% Financial services 14.5% 17.5% 15.6% 13.7% 14.3% 15.6% 7.8% Elimination -0.9% -1.1% 24.1% -37.8% 0.0% 2.8% 1.4% Op. margin 7.8% 7.5% 5.4% 7.8% 7.6% 6.6% 6.4% Net margin Distribution 2.6% 2.3% 2.5% 1.8% 2.5% 2.1% 2.3% Consumer parts 16.0% 15.4% 17.9% 11.4% 16.0% 16.0% 18.9% Automotive services 9.1% 9.1% 8.2% 40.7% 6.6% 7.9% 2.6% Financial services 13.5% 15.2% 14.5% 13.7% 12.8% 13.8% 7.1% Elimination -1.1% -1.0% -0.6% 34.0% 0.0% 2.8% 2.3% Net margin 5.7% 5.3% 5.6% 4.1% 5.4% 4.6% 4.3% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Revenue contribution Distribution 83.4% 82.9% 85.7% 82.6% 80.7% 84.6% 83.4% Consumer parts 12.0% 10.4% 10.2% 9.2% 11.4% 9.5% 9.4% Automotive services 5.9% 8.0% 6.9% 6.3% 7.6% 7.7% 8.6% Financial services 7.2% 6.9% 7.2% 8.4% 8.0% 7.0% 7.3% Elimination -8.4% -8.1% -9.9% -6.6% -7.8% -8.9% -8.8% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 GP contribution Distribution 32.9% 32.3% 34.4% 34.2% 31.0% 33.9% 34.3% Consumer parts 23.6% 20.3% 21.0% 17.8% 21.2% 18.8% 19.8% Automotive services 14.8% 18.5% 18.0% 12.5% 15.9% 17.5% 15.3% Financial services 29.6% 30.2% 31.5% 33.4% 33.5% 33.2% 33.4% Elimination -0.9% -1.3% -4.9% 2.0% -1.6% -3.4% -2.7% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 OP contribution Distribution 32.5% 29.1% 42.0% 20.0% 28.2% 31.3% 34.3% Consumer parts 33.0% 28.3% 43.8% 17.8% 33.3% 28.6% 35.1% Automotive services 20.2% 25.6% 37.6% 15.7% 23.4% 27.1% 23.5% Financial services 13.3% 15.9% 20.7% 14.8% 15.1% 16.7% 9.0% Elimination 1.0% 1.2% -44.1% 31.7% 0.0% -3.7% -2.0% Source: Company PT Trimegah Securities Tbk - FLASH NOTE 5

6 Figure 11. Peers comparison Ticker Market cap PER (x) PBV (x) EV/EBITDA (x) ROE (x) (USDm) Auto distributors Astra International ASII IJ Equity 25, Indomobil Sukses Internasional IMAS IJ equity Auto components/distributor Selamat Sempurna SMSM IJ equity Gajah tunggal GJTL IJ equity Astra Otoparts AUTO IJ equity 1, Nipress** NIPS IJ Equity Simple average Weighted average Weighted average (excl. ASII IJ) Mitra Pinasthika MPMX IJ Equity MPMX discount to sector (excluding ASII IJ) -63.2% -62.1% -68.2% -68.7% -62.0% -61.6% -4.9% -12.0% Source: Bloomberg, TRIM research * Excluding ASII ** TRIM research Figure 12. Milestone Founded by William Soeryadjaya as 2W distribution business FKT was established MPMMmotor 1st retail outlet was opened Acquired initial shareholding in SAF, originally established Mulia was established; distribution business was transferred from MPM to mulia Present Jan '12 May '12 Dec '12 May '13 Aug '13 Acquired MPMrent and MPMfinance MPMinsurance was established JACCS acquired significant minority shares in SAF + Listed in IDX, Ticker : MPMX MPMauto was established, signed Dealer and Service Agreement with Nissan Source: Bloomberg, TRIM research * Excluding ASII ** TRIM research PT Trimegah Securities Tbk - FLASH NOTE 6

7 Figure 13. The 2W auto sector got hit back in 2012 due to DP regulation. Now we positive sentiment from BI s recent 25bps rate cut and low oil price environment and % 27.0% 22.0% 17.0% 12.0% 7.0% 2.0% -3.0% -8.0% -13.0% Feb' 15 2W industry growth GDP growth, y-o-y (RHS) BI rate 9.5% 8.5% 7.5% 6.5% 5.5% 4.5% Source: BPS, Gaikindo Figure 14. This applies the same for 4W 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% De-correlate on tighter DP regulation Feb' 15 4W industry growth GDP growth, y-o-y (RHS) BI rate 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% Source: BPS, Gaikindo PT Trimegah Securities Tbk - FLASH NOTE 7

8 Income Statement (IDRbn) Year end Dec Revenue 7,725 8,453 10,777 13,879 Gross profit ,618 2,024 Opr. profit EBITDA ,235 Growth (%) na 12% 156% 31% Net int. inc/(exp) Share in NI of associates 0 4 Pre-tax profit Tax Minority int Extra. Items Reported net profit Growth (%) na 3% 70% 41% Balance Sheet (IDRbn) Year end Dec Cash and equivalents ,192 1,103 Other curr. asset 730 1,040 3,070 3,771 Net fixed asset ,772 2,644 Other non-curr. asset ,036 3,703 Total asset 1,838 2,590 9,070 11,220 ST debt ,887 3,303 Other curr liab ,175 LT debt ,250 2,236 Other LT Liab Total Liabilities 1,036 1,687 7,233 6,826 Minority interest Shareholders Equity ,580 4,144 Total liabilities & equity 1,838 2,590 9,070 11,220 Key Ratio Analysis Interim results Year end Dec Profitability Gross Margin 9.2% 10.3% 15.0% 14.6% Opr Margin 3.8% 3.9% 6.9% 6.5% EBITDA Margin 4.3% 4.4% 8.8% 8.9% Net margin 2.8% 2.6% 3.5% 3.8% ROAE na 28.7% 30.9% 18.4% ROAA na 9.9% 6.4% 5.2% Stability Current ratio (x) na Net Debt to Equity (x) na Net Debt to EBITDA (x) na Year end Dec 3Q13 4Q13 1Q14 2Q14 3Q14 Sales 3,530 3,568 3,642 4,206 4,163 Gross Profit Opr. Profit Net profit Core profit Gross Margins (%) 14.1% 14.3% 15.1% 14.1% 14.1% Opr. Margins (%) 98.0% 54.2% 78.4% 67.8% 60.0% Net Margins (%) 4.8% 3.2% 4.2% 3.1% 2.8% Core Margins (%) 4.8% 3.4% 4.3% 3.5% 2.9% Interest Coverage (x) na Efficiency A/R (days) na Inventory turnover (days) na A/P (days na PT Trimegah Securities Tbk - FLASH NOTE 8

9 PT Trimegah Securities Tbk Gedung Artha Graha 18 th Floor Jl. Jend. Sudirman Kav Jakarta 12190, Indonesia t f DISCLAIMER This report has been prepared by PT Trimegah Securities Tbk on behalf of itself and its affiliated companies and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. This report has been produced independently and the forecasts, opinions and expectations contained herein are entirely those of Trimegah Securities. While all reasonable care has been taken to ensure that information contained herein is not untrue or misleading at the time of publication, Trimegah Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided solely for the information of clients of Trimegah Securities who are expected to make their own investment decisions without reliance on this report. Neither Trimegah Securities nor any officer or employee of Trimegah Securities accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. Trimegah Securities and/or persons connected with it may have acted upon or used the information herein contained, or the research or analysis on which it is based, before publication. Trimegah Securities may in future participate in an offering of the company s equity securities.