Matahari to open eight hypermarkets

Matahari to open eight hypermarkets

Bloomberg, Jakarta

PT Matahari Putra Prima, Indonesia's biggest retailer by sales, plans to open eight hypermarkets this year, stepping up competition for retail sales with Carrefour SA and Dairy Farm International Holdings Ltd.

Matahari expects hypermarkets -- a combination of department stores and supermarkets -- will account for as much as half of Indonesian retail sales within five years, Noel Trinder, who runs Matahari's supermarket business, said last night. He said they account for about 30 percent at present.

Consumer spending is driving an economy that grew about 4 percent last year and will expand as much as 5 percent in 2004. Still, competition is fierce, and about 11 foreign retailers have set up operations in Indonesia in the past five years to take advantage of rising domestic consumption in the world's fourth most populous nation.

"I'm not convinced," said Alvin Pattisahusiwa, who helps oversee the equivalent of $2 billion of Indonesian assets, including stocks, for MeesPierson Finas Investment Management in Jakarta.

"The concern with Matahari has always been its management's lack of transparency and its lack of focus."

He doesn't own Matahari stock, which has fallen 14 percent this year.

Matahari, which will convert three of its existing supermarkets into hypermarkets, will compete with ventures run by Carrefour, Europe's largest retailer, PT Hero Supermarket and the Hong Kong-based Dairy Farm.

The company operates 82 supermarkets and department stores with a total area of 752,000 square meters. According to a report last year by Indonesia's Investment and Banking Research Agency, total retail outlets almost doubled from 780 outlets in 1998 to around 1,400 outlets in 2002.

Matahari, which earns two-thirds of sales from department store operations, will spend between Rp 70 billion (US$8.3 million) and Rp 200 billion for expansion this year, Trinder said.

"The company's aggressive plan to move to the hypermarket business is going to push up costs and hurt profit," said Rani Sofjan, an analyst at Mandiri Securities in Jakarta. She has a "sell" recommendation on the stock.

Still, Matahari said profit margins will increase two percentage points this year as it benefits from higher sales volumes and last year's closure of 15 less-profitable outlets.

Matahari is "inefficient" because its operating margin is lower than the 10 percentage point margin for PT Ramayana Lestari Sentosa, the country's second-biggest retailer, said Laksono Widodo, an analyst at ING Financial Markets in Jakarta, who has a "sell" on the stock.

"It remains to be seen whether the company can improve margins at all with the new strategy," he said.

Matahari's profit rose 4 percent to Rp 105.3 billion in 2002. Profit probably rose 10 percent last year, Matahari President Benjamin Mailool said last night. "Much of it was generated in the fourth quarter," as Indonesians spent more on clothes, communal feasts and for charity during the Muslim's holy month of Ramadan, which fell in November.

In the nine months to September, profit rose to Rp 52 billion from Rp 51 billion in the previous year.