Several interrelated factors are expected to lead to higher revenue and net profit of Matahari Department Store in 2016: (1) Indonesia's inflation rate has been under control at around 4 - 5 percent (y/y), (2) Indonesia's economic growth is expected to accelerate to 5.3 percent (y/y) in 2016 hence giving rise to growing purchasing power, (3) consumer confidence is improving, and (4) same-store sales is expected to grow. As such, Sinarmas Securities expects the company's revenue to rise 4 percent (y/y) to IDR 9.4 trillion (approx. USD $712 million) in 2016. Meanwhile net profit is estimated to rise 21 percent (y/y) to IDR 2.1 trillion (approx. USD $163 million) over the same period.

Also UOB Kay Hian Securities is optimistic about Matahari Department Store's financial earnings in the years ahead, supported by the opening of new stores in Indonesian cities. So far, the opening of new stores has been a success because Matahari is one of the few modern retail stores and therefore has to face limited competition. Based on a recent report from UOB Kay Hian Securities, a new Matahari store will collect USD $4 million in sales in the first year of operation. This figure rises to around USD $10 million in annual sales after five years.

This implies revenue growth at a 16.6 percent compound annual growth rate (CAGR) and a potential net profit growth at 35 percent CAGR provided that the new stores post a net profit margin of 5 percent in the first year.

Up to the end of 2015 Matahari Department Store owned 142 stores across the bigger cities of Indonesia but mostly centered in the capital city of Jakarta or in satellite cities around Jakarta (Bogor, Depok, Tangerang and Bekasi). The stores on Java account for around 62 percent of the company's total sales nationwide. Fifty-seven stores are located outside Indonesia's most populous island of Java.

One of the strengths of Matahari Department Store is that it has a wide distribution network across the Indonesian archipelago. This will make it very tough for newcomers to compete with Matahari for market share. Another strength is that it has zero debt after having paid off a IDR 700 billion bank loan in 2015. With internal cash reserves at IDR 1 trillion (approx. USD $76 million) the company does not need external funds to finance its (modest) expansion plans.

UOB Kay Hian Securities set its target price for Matahari Department Store's shares at IDR 21,200 per share. On Thursday (15/04) shares of Matahari fell 1.37 percent to IDR 17,950 per piece. So far this year, its shares have climbed 12.72 percent.

Future Projection Matahari Department Store's Financial Highlights:

      2014     2015    2016F    2017F    2018F
Net Revenue  7,925.5  9,006.9  9,368.0 10,389.0 11,590.0
Gross Profit  5,028.6  5,627.0  6,045.0  6,692.0  7,475.0
Net Income  1,490.1  1,780.0  2,149.0  2,469.0  2,851.0
Gross Margin (%)
   63.7    63.0    64.5    64.4    64.5
Net Margin (%)
   18.4    19.8    22.9    23.8    24.6
ROE (%)
  913.3   160.9    90.9    69.6    61.1
ROA (%)    42.6    45.8    41.7    37.6    35.3

in billion IDR rupiah unless otherwise stated
Source: Sinarmas Securities (15/04/2016)