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.