Apr 26, 2011

MAPI, pricey takeover for Krispy Kreme

Giant retailer with hundreds of licenses PT Mitra Adiperkasa Tbk (MAPI) last week launched Denim Destination-The Ultimate Denim Heaven, a special concenp store inside Debenhams Department Store, Senayan City.
The launch of Denim Destination is aimed to tap demand for stellar premium brand Denim in the middle-up size consumers.
"Denim Destination is created for Denim lovers. They can find variety of range of Denim products," said Fetty Kwartati, Mitra Adiperkasa Corporate Secretary in a press statement submitted to Indonesia Stock Exchange last week.
At end of February, MAPI operated 870 stores in 25 cities in Indonesia. In department store segment, MAPI is holder of British-based Debenhams. In food and beverage, MAPI is holding licenses of  Burger King, Cold Stone, and Starbucks. But, hey...where is Krispy Kreme doughnuts?
Krispy Kreme doughnuts is a US-based doughnut which penetrated Indonesia's market on August 30 2006. The entrance was initiated by the opening of Krispy Kreme's the first outlet was opened at Pondok Indah Mall 2.  
Under a license agreement agreed on July 20 2006 between Krispy Kreme Doughnut Corporation, North Carolina, US, and PT Premier Doughnuts Indonesia, a sister company of MAPI. Nowadays, Krispy Kreme manages 9 outlets which are in Pondok Indah Mall 2, Senayan City, Plaza Senayan, Grand Indonesia,
Kelapa Gading Mall, Pejaten, Soekarno Hatta airport terminal 1A, 1B, dan 2F.
In Indonesia, Krispy Kreme offers varieties of doughnuts, including the signature Original Glazed doughnut and several others that are iced, glazed, and filled with cream.
Under the license agreement, which is guaranteed by MAPI, Premier Doughnuts shall pay royalty and other fees and should purchase the essential materials from Krispy Kreme or from suppliers approved by Krispy Kreme.
However, on October 6 2010, MAPI and PT Premier Capital Investment, a wholly owned subsidiary, acquired 80,000 shares in Premier Doughnuts Indonesia, Krispy Kreme license holder,  at Rp75 billion from PT Lumbung Nusantara and PT Resource Java. Who are the sellers?
You could not find anything about Lumbung Nusantara and Resource Java via Google search. Who are they?
In a company research published by CLSA on March 29, MAPI generated Rp725 billion operating cashflow last year, but shows only Rp24 billion net increase in cash. The company used the money to invest in fixed assets, acquire Krispy Kreme, and debt repayments,
MAPI acquired Premier Doughnuts at Rp75 billion. The purchase price was set at 10x EBITDA, relatively high, remembering that MAPI only trades at 6x EBITDA. Fair value of net assets acquire is Rp33 billion, while the remaining of Rp42 billion is goodwill.
"We are less keen on Krispy Kreme's pricey acquisition. Though Krispy Kreme has a good brand name in the US, its presence was overshadowed by a local doughnut company Jco when the doughnut craze was first started in 2006," said the report.
JCo currently has near to 100 outlets while Krispy Kreme manages 10 outlets on smaller scale.
"We would expect no impact from Krispy Kreme's takeover to earnings, but will adjust up this year's capex estimates to accomodate management plan to open 10 more Krispy Kreme stories," CLSA said.
2010 Performance
MAPI posted a 22.61% increase in net income to Rp201.07 billion or Rp121 per share last year from Rp163.99 billion or Rp99 per share in the previous year.
Operating income rose 45.94% to Rp449.09 billion from Rp307.72 billion. Operating margin improved to 9.53% from 7.48%.Gross profit increased 15.53% to Rp2.37 trillion from Rp2.06 trillion. Net revenue grew 14.59% to Rp4.71 trillion from Rp4.11 trillion.
At end of 2010, PT Satya Mulia Gema Gemilang controls 58.83% shareholding in MAPI and public shareholders own 51.17% stake.
Satya Mulia Gemilang is also a 24.83% stake holder in PT Polychem Indonesia Tbk (ADMG), a polyester products maker. Polychem is also 28.91% owned by Indonesia's largest tire maker PT Gajah Tunggal Tbk (GJTL). Satya Mulia was 99.99% controlled by PT Mitralestari Adiperkasa and F.X. Boyke Gozali owned 0.01%. Previously, Boyke Gozali was MAPI's Vice President Commissioner.
On last Friday, MAPI gained 2.65% to Rp2,900 per share, reflecting 23.96x price to earning ratio.

Disclosure: No position at the stock mentioned above.

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