Midi Utama Indonesia (MIDI.IJ Rp 404; BUY; TP Rp 600) Tapping into local demand; Forecast 20.5% FY24-26F Net Profit CAGR, Initiate with Buy rating

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Midi Utama Indonesia (MIDI IJ)

Tapping into local demand; Forecast 20.5% FY24-26F Net Profit CAGR, Initiate with Buy rating

The urban active lifestyles trend has driven consumers’ seeking daily necessities locally, benefiting MIDI as the biggest supermarket chain.
We forecast +20.5% net profit CAGR in FY24-26F on the back of expected expansion (850 stores in the next 3 years) and improving margins.
Initiate with a Buy rating and DCF-based TP of Rp600; Margin upside from mature Alfamidi stores, product mix and Lawson restoration.

Thriving neighborhood supermarket, with ample room for growth

Amid increased urbanization, more active lifestyles, and traffic congestion in big cities, Indonesian consumers are increasingly opting to shop locally for daily necessities instead of visiting supermarkets in shopping malls. This is reflected in minimarket stores’ strong 7% CAGR in FY18-23. Within this segment, Alfamidi’s stores have emerged as a viable option for consumers seeking a broader range of products.

The biggest supermarket chain in Indonesia

Alfamidi is the biggest supermarket chain in the country, with a total of 2,208 stores (2,265 including Midi Super and Fresh) by the end of Mar24. Going forward, we see plenty of room for further expansion as MIDI is well placed to tap new areas, especially outside Java. In FY23, Java accounted for 60% of total revenue while the remainder came from outside Java. The outside Java’ revenue reported strong FY19-23 CAGR of 17.4% versus 7% for Java.

Robust FY24-26F net profit CAGR of 20.5%

We forecast MIDI store expansion CAGR of 6.8% in FY24-26F, mainly driven by Alfamidi. Combined with productivity improvements (5% CAGR in revenue/store), we estimate FY24-26F revenue CAGR of 12%. FY24-26F gross margin improvements (a higher fresh/frozen/non-food contribution) and greater efficiency will support FY24-26F net profit CAGR of 20.5%.

Initiate coverage with a Buy rating and DCF-based TP of Rp600

We like MIDI given that it has plenty of room for growth and margin improvements. We initiate coverage on the stock with a DCF-based TP of Rp600 (implying FY24F PE of 27.3x). Key risks include lower-than-expected store expansion/store productivity, a longer period for Lawson restoration, and higher-than-expected opex.

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