Elevator Pitch:
Map Aktif Adiperkasa (MAPA) is a leading Indonesian sporting goods multi-chain retailer that has great economic franchises to help international brands get a presence in the region. The company has a long runway to grow by increasing penetration in Indonesia and by expanding into some attractive markets in Southeast Asia. The business also boasts of high margins and high ROE/ROIC. With a forward P/E ratio of 16x against my 18% projected 3-year revenue growth rate, the stock is reasonably priced. Under IDR 750 it would be a strong buy.
Price: $0.06 IDR 960
Market Cap: $1.738B IDR 27,363.8B
P/E (NTM): 16.16
Dividend Yield: 0.4%
Feb 7, 2024
Company:
- MAP Aktif (MAPA) is a market leader in Indonesian sporting goods retailing with 60%+ market share and 1300+ locations mostly in Indonesia.
- With exclusive rights to notable brands like Skechers, Reebok, Converse, Crocs, and New Balance, MAP Aktif establishes a strong market presence. It also offers Nike, Adidas, and Puma products, albeit non-exclusively. Its operations span across four main segments: sports, leisure, golf, and kids.
Country and Industry:
- Indonesia has a ~5% GDP growth and a rapidly expanding middle class, driving up the demand for international brands. The inflation pressure in Indonesia subsides and Indonesian rupiahs/British pounds is stable.
- Sports retailing is still much under-penetrated in Indonesia, with Indonesian sports goods retail selling space still a small fraction (10%+) of that in China and in developed countries.
Competitive advantage:
- The company has economic franchises, either exclusive or non-exclusive, to many international brands, the “retention rate” of which is high. International operators are not allowed to own 49%+ of a business in retail sector and stores less than 400sqm. Such entry barrier is unlikely to disappear any time soon.
- The company has a leading market share of 60%+. As a result, the new entrants can hardly attack their turfs and the company has become the first choice of cooperation from those international operators.
- Operating a diversified portfolio through both multi-brand and mono-brand chains, it minimizes brand-specific risks, such as those associated with changing fashion trends.
Drivers for profitability:
- Strategically expanding operations for leading brands in highly populated ASEAN countries with strong GDP fundamentals.
- Increasing its store footprint within the Indonesian market.
- Securing new contracts with more international brands.
Financials:
- No long-term debt. 20%+ ROE and ROIC. 0.4% dividend yield with a minimal payout ratio.
Management:
- The CEO Michael David Capper was already an industry veteran with 16 years of experience in the UK before he joined MAPA. The president Virendra Prakesh Sharma is the founder of the parent company Mitra Adiperkasa, a very successful entrepreneur in Indonesian retail industry. The management doesn’t have significant ownership in MAPA stocks, which is a negative.
Valuation:
- 16.16x forward P/E ratio and 9.45x EV/EBITDA.
- Assume that the company grows its revenue at 18% CAGR (10% from domestic store count growth and online channels; 5% from increasing sales per sqm- price increases and store maturity; 3% from growing overseas operations) in the next 3 years. Assign a 18x terminal P/E (historical level before COVID) and 10% net margin 3 years out (1.2% lower than LTM), the IRR would be in the high teens.
Risks:
- The international expansion could be a mixed bag, despite satisfactory initial outcomes.
- The potential threat brought about by e-commerce, mitigated by a low penetration of sport retailing and the development of the company’s own online channels.