A Market That Slowed, A Company That Didn't - And A P&L That Didn't Notice The Difference
The prior post closed FY2016 with net income to owners up 33.4% for the year, even as full-year free cash flow turned negative for the first time. This is PT Sumber Alfaria Trijaya Tbk's unaudited interim consolidated financial statements for the six months ended June 30, 2017 - and the operating business is genuinely fine: net revenue grew 13.6% to Rp30,518,795 million, gross profit grew a faster 17.3%, and income from operations grew 13.0% to Rp394,375 million. Indonesia's grocery market, meanwhile, decelerated sharply - total FMCG sales growth fell from 10.2% to 3.7% year-over-year, modern trade slowed from 11.4% to 4.8%, and the minimarket channel itself (Alfamart's own format) slowed from 18.0% to 7.0% - yet Alfamart kept growing at nearly double its own channel's rate, pushing its combined share (with Alfamidi) of Indonesia's minimarket-format modern-trade channel to 37.0% from 35.7% a year earlier, reversing the first full-year share decline this site flagged in the FY2016 post.
None of that shows up in the bottom line. Finance cost jumped 37.0% year-over-year, from Rp232,196 million to Rp318,118 million, on a bank-loan book that widened to six separate lending relationships (see Beyond the Usual), and that alone was enough to drag income before tax down 37.7% and total income for the period down 53.4%, to just Rp38,810 million from Rp83,199 million. What the company's own presentation actually headlines - net income attributable to owners - fell a much gentler 16.4% (Rp90,372 million to Rp75,567 million), and the entire gap between a 53% collapse and a 16% decline is one line: non-controlling interests absorbed a Rp36,757 million loss allocation this half, more than five times the Rp7,173 million loss NCI absorbed in H1 2016. This is the same mechanism the FY2016 post flagged inflating owners'-income growth above the consolidated total - only this time it's not flattering a strong quarter, it's cushioning a genuinely bad one (see Beyond the Usual).
The Prescription
Alfamart's real opportunity here is to stop letting a widening bank-loan book do the work that its own bond market has already shown it can do more cheaply. The Company proved this exact point in the same half: it let its 10.50% Obligasi Tahap I bond mature on June 26, 2017 and refinanced it same-size with an 8.50% coupon bond maturing 2020 - a 200-basis-point improvement on Rp1 trillion of debt, and proof the credit market is pricing the Company's risk at a lower rate than it's currently paying banks. The fix is straightforward: keep terming out short-duration bank revolving credit into bonds at that lower fixed rate, rather than adding a fifth and sixth bank lending relationship in the same half a legacy bond got refinanced cheaper (see Beyond the Usual).
What it should stop doing: continuing to let a single related party fund an unlisted digital subsidiary's growth through repeated, precisely pro-rata capital injections with no independent valuation ever disclosed. PT Amanda Cipta Persada put a further Rp29,388 million into PT Sumber Trijaya Lestari across three separate rounds this half alone, maintaining the exact same 48.98% stake each time - the same arrangement the FY2016 post flagged over the unpriced stake, now in its fifth consecutive round with the same disclosure gap. A company that already refinanced one piece of its balance sheet more cheaply this very half has shown it knows how to fix a financing problem when it wants to - there's no reason the STL related-party pattern should be the one financing arrangement left on autopilot.
Key Financial Metrics
H1 2017 vs. H1 2016 (P&L), and June 2017 vs. Dec 2016 (balance sheet) - consolidated, unaudited
FX: IDR 13,278 = USD 1 (a validated historical exchange rate as of June 30, 2017 - this filing's own notes disclose a July 26, 2017 rate for a subsequent-events sensitivity check, but not a specific June 30, 2017 translation rate, so this post uses an independently validated period-end rate for USD conversions instead).
| Metric | H1 2017 (IDR) | H1 2017 (USD) | H1 2016 (IDR) | YoY |
|---|---|---|---|---|
| Net Revenue | Rp30,518,795M | ~$2,298.6M | Rp26,870,277M | ✅ +13.6% |
| Gross Profit | Rp5,900,437M | ~$444.4M | Rp5,030,132M | ✅ +17.3% |
| Income from Operations ("Operating Income") | Rp394,375M | ~$29.7M | Rp348,918M | ✅ +13.0% |
| Finance Cost | Rp318,118M | ~$24.0M | Rp232,196M | ⚠️ +37.0% |
| Income Before Tax | Rp38,901M | ~$2.9M | Rp87,448M | ⚠️ -55.5% |
| Income for the Period (total) | Rp38,810M | ~$2.9M | Rp83,199M | ⚠️ -53.4% |
| Net Income (attributable to owners) | Rp75,567M | ~$5.7M | Rp90,372M | ⚠️ -16.4% |
| EPS | Rp1.82 | ~$0.00014 | Rp2.18 | ⚠️ -16.5% |
| EBITDA» (Operating Income + D&A) | Rp1,551,690M | ~$116.9M | Rp1,306,791M | ✅ +18.7% |
| Balance sheet metric | June 2017 (IDR) | June 2017 (USD) | Dec 2016 (IDR) | Change |
|---|---|---|---|---|
| Total Assets | Rp23,677,726M | ~$1,783.6M | Rp19,474,367M | ⚠️ +21.6% |
| Total Liabilities | Rp18,502,822M | ~$1,393.6M | Rp14,179,604M | ⚠️ +30.5% |
| Total Equity (attributable to owners) | Rp5,032,711M | ~$379.1M | Rp5,137,354M | ⚠️ -2.0% |
| Total Cash | Rp2,119,861M | ~$159.6M | Rp936,614M | ✅ +126.3% |
| Net Cash from Operations (H1) | Rp1,575,801M | ~$118.7M | Rp519,944M (H1 2016) | ✅ +203.1% |
| Capital Expenditures (H1) | Rp821,646M | ~$61.9M | Rp1,098,188M (H1 2016) | ✅ -25.2% |
"Adjusted EBITDA»" still isn't a metric Alfamart reports; the EBITDA line above is Income from Operations plus depreciation and amortization (Rp1,157,315M for H1 2017, per the segment note), matching the company's own presentation-deck figure and the convention used in every prior post here.
Free cash flow» (operating cash flow minus capex) swung to +Rp754,155M in H1 2017, from -Rp578,244M in H1 2016 - net cash from operations more than tripled while capex actually fell 25.2%, a genuine reversal of the negative-FCF pattern the FY2016 post flagged as the first full-year negative print on record. This is the good half of a bifurcated story: the cash-generation engine is working better than ever, even as the P&L above it got hit by financing costs.
Debt-to-Equity Ratio (DER)» (interest-bearing debt, including finance leases and consumer financing, over equity attributable to owners, computed directly from this filing's own balance-sheet columns): 1.76x at June 2017, up from 1.31x at December 2016 - a genuine re-leveraging in a single half, continuing the trend flagged in every prior post rather than stabilizing at the FY2016 level. Net gearing (net debt over the same equity base) was 1.34x, up from 1.13x at December 2016. Both remain comfortably inside the 2.5x interest-bearing-debt-to-equity covenant attached to the Company's own bonds (see Beyond the Usual), which the Company confirms it was in compliance with as of both period-ends.
ROAA» / ROAE» (half-year, not annualized, using net income attributable to owners over average total assets and average equity attributable to owners, the same basis as every prior post here): approximately 0.35% / 1.49% in H1 2017, down from the previously reported 0.46% / 1.95% in H1 2016 - both declining in line with owners' net income. The Company's own presentation shows a much lower 0.18% / 0.74% for the same period, because its version of the ratio uses total income for the period (before the owners/NCI split) rather than owners' net income - the same distinction driving the headline gap discussed above.
Key Operational Metrics
- Total store network: 14,674 stores as of June 2017 (11,132 company-owned, 3,542 franchise), up from 13,745 at the end of 2016 - a net addition of 929 stores in six months, faster than H1 2016's 713 net adds. By brand: 13,168 Alfamart, 1,366 Alfamidi, 104 Dan+Dan, 36 Lawson. Permanent employees: 46,741, up 11.0% from 42,115 at the end of 2016 - continuing to track store-count growth closely.
- Warehouses: 41 nationwide (32 for Alfamart, 8 for Alfamidi, 1 for Dan+Dan), up from 40 at the end of 2016, with a new depo opened in Bengkulu to support the existing Palembang warehouse.
- Market share: Alfamart's own share of the minimarket-format modern-trade channel rose to 31.5% from 30.5% a year earlier, and Alfamidi's to 5.5% from 5.1%, taking the combined group share to 37.0% from 35.7% - a genuine acceleration against the FY2016 post's finding that full-year 2016 group share (35.4%) had actually slipped for the first time on record.
- Industry backdrop: total Indonesian grocery sales growth slowed from 10.2% to 3.7% year-over-year, and the minimarket channel itself slowed from 18.0% to 7.0% - Alfamart's 13.6% revenue growth nearly doubled the pace of the channel it competes in, which is the real story behind the market-share gains above; this is a company taking share in a decelerating market, not one riding a rising tide.
- Amortization of prepaid rent (the cost of long-term store and warehouse leases) grew 26.0% to Rp538,995M from Rp427,840M, modestly ahead of the 13.1% net store-count growth rate - the lease-commitment horizon itself is unchanged, still running out to 2035 as first disclosed at H1 2016.
Segment Performance
Alfamart reports the same three geographic segments as every prior post - Jabodetabek (greater Jakarta), Java excluding Jabodetabek, and Outside Java.
| Segment | Revenue (H1 2017) | Revenue (H1 2016) | YoY | Segment Income (H1 2017) | Segment Income (H1 2016) | YoY | Margin (2017 vs 2016) |
|---|---|---|---|---|---|---|---|
| Jabodetabek | Rp12,101,340M | Rp11,651,962M | ✅ +3.9% | Rp494,569M | Rp446,325M | ✅ +10.8% | 4.09% vs 3.83% |
| Java (excl. Jabodetabek) | Rp11,215,430M | Rp9,397,302M | ✅ +19.3% | Rp474,735M | Rp378,395M | ✅ +25.5% | 4.23% vs 4.03% |
| Outside Java | Rp7,205,279M | Rp5,822,288M | ✅ +23.8% | Rp53,418M | Rp21,744M | ✅ +145.7% | 0.74% vs 0.37% |
Outside Java more than doubled segment income growth (+145.7%) off the still-small base this site has tracked since the first post - margin nearly doubled too (0.37% to 0.74%), though it remains by a wide margin the thinnest-margin region, five reports running.
Java excluding Jabodetabek continued the recovery the FY2016 post found reversing in H2 2016 - segment income growth (+25.5%) again outpaced Jabodetabek's, and margin expanded to 4.23% from 4.03%, putting it back ahead of Jabodetabek on margin for the first time since the very first report.
Jabodetabek grew segment income the slowest of the three (+10.8%) for a fourth consecutive period, but margin still expanded (3.83% to 4.09%) - the flagship market keeps growing more profitable per store even as its growth rate keeps lagging the other two regions.
Segments Compared
Revenue and income growth rank the same way they have in every period covered here - Outside Java fastest, Java ex-Jabodetabek second, Jabodetabek slowest - but the distance between them widened sharply this half. Outside Java's segment income grew more than 13 times faster than Jabodetabek's (145.7% versus 10.8%), the largest gap between the fastest- and slowest-growing segment across all five periods on this site. Combined segment income across all three regions grew 20.8% (Rp846,464M to Rp1,022,722M), but unallocated corporate overhead - the line first flagged in the FY2015 post - grew faster still, 26.3% (Rp497,546M to Rp628,347M), the fifth consecutive period this line has outgrown the segment income sitting beneath it.
Beyond the Usual
A widening non-controlling-interest loss is doing the work of cushioning a much worse consolidated profit decline
Total income for the period fell 53.4% year-over-year, from Rp83,199 million to Rp38,810 million - but net income attributable to owners of the parent fell only 16.4% (Rp90,372 million to Rp75,567 million), because non-controlling interests absorbed a Rp36,757 million loss allocation this half, versus Rp7,173 million a year earlier - a 412% increase in the loss allocated away from owners. The filed statement does not attribute this to a single subsidiary, but it is the same mechanism the FY2016 post found inflating net-income-to-owners growth (+33.4%) well above total income growth (+19.3%) for the full year, driven by a related party's stake in a loss-making e-commerce subsidiary. That mechanism has not been resolved - it has grown roughly five times larger - and this half it is not flattering a strong headline, it is masking how much worse the consolidated profit decline actually was. A reader relying only on the "net income attributable to owners" line the Company's own presentation headlines would see a 16% decline; the business as a whole saw a 53% one.
The e-commerce subsidiary's related-party funding pattern continued, still unpriced
PT Amanda Cipta Persada put a further Rp29,388 million into e-commerce subsidiary PT Sumber Trijaya Lestari across three more pro-rata rounds this half, keeping its stake at exactly 48.98% - the same arrangement with the same disclosure gap flagged in fuller detail at FY2016.
The bank-loan book widened to six separate lending relationships, including one entirely new lender
Short-term bank loans grew to Rp5,148,737 million from Rp3,179,025 million at December 2016 (+62.0%), and the lender list widened in the process: the Company drew a new Rp600,000 million revolving facility from The Bank of Tokyo-Mitsubishi UFJ (a lender the subsidiary level already used, but new at the Company level) and a brand-new Rp500,000 million facility from PT Bank Sumitomo Mitsui Indonesia, a lender that hadn't appeared in any prior filing covered on this site. Existing facilities from Bank Mandiri grew too (Rp900,000 million to Rp1,500,000 million at the Company level), while Bank Central Asia stayed essentially flat. This continues the re-leveraging trend first flagged at H1 2016 and still unresolved at FY2016 - only now it's not just more debt from the same three banks, it's more lenders entirely, a wider set of counterparties relying on continued short-term rollover.
A 10.50%-coupon, Rp1 trillion bond (Obligasi Berkelanjutan I Tahap I, issued 2014) matured and was repaid in full on June 26, 2017, refinanced the same day with a new, same-size, three-year bond at an 8.50% coupon (Obligasi Berkelanjutan II Tahap I Tahun 2017, maturing May 2020, rated "AA-" by Fitch Ratings Indonesia like every prior tranche) - a 200-basis-point reduction in the cost of that Rp1 trillion for the next three years, and the clearest evidence yet that the Company's own bond investors price its credit risk more cheaply than the banks currently funding its short-term borrowing (see The Prescription above).
Alfamart's 35%-owned Philippines associate, Alfamart Trading Philippines Inc., kept deteriorating: net asset value fell to Rp56,682 million from Rp82,968 million at December 2016 (-31.7%), total liabilities grew to Rp558,625 million from Rp442,039 million (+26.4%) against total assets of Rp615,307 million, and the Company's cumulative share of the associate's losses grew to Rp25,894 million from Rp20,297 million - continuing the reversal the FY2016 post found undoing the associate's brief H1 2016 recapitalization.
Final tax expense - the separate levy on the Company's rental and franchise-related income - grew 13.2% to Rp34,769 million from Rp30,708 million, tracking almost exactly the 13.1% net growth in the store network rather than any change in the underlying tax treatment; income tax expense on ordinary corporate income, by contrast, fell to just Rp91 million from Rp4,249 million, consistent with a much smaller pre-tax profit base after the finance-cost jump detailed above rather than any rate or policy change (the corporate tax rate used was 20.0% in both periods).
Target Valuation Range
Enterprise value ~Rp30.40 trillion (~$2.28B), implying 8.6x EV/EBITDA - the first time this multiple has broken below the ~9.6x-10.7x band seen in every prior period, on a genuine earnings hit rather than a cash-flow divergence the P&L hadn't caught up to. Alfamart isn't overvalued on any multiple in this post's history; whether it's undervalued depends on whether the bank-loan re-leveraging behind this half's profit decline gets resolved the way the bond refinancing above suggests it can be.
Alfamart's shares closed at Rp570 on June 30, 2017. The Company's only stock split (10-for-1, July 2013) predates this quarter and remains reflected in both the filed share count and today's historical price data - no further split has occurred since (confirmed against public split-history records, used only to validate that no adjustment is required, not as a source for any number in this post).
| Market cap → enterprise value | H1 2017 |
|---|---|
| Share price (period-end) | Rp570 |
| Shares outstanding | 41,524,501,700 |
| Market capitalization | Rp23.67 trillion (~$1.78B) |
| Plus: interest-bearing debt | Rp8.85 trillion |
| Less: cash and equivalents | Rp2.12 trillion |
| Enterprise value | Rp30.40 trillion (~$2.28B) |
| Peer-multiple sanity check | FY2016 | H1 2017 | Change |
|---|---|---|---|
| Trailing P/E | ~43.1x | ~40.3x | ✅ down |
| EV/EBITDA | ~9.6x | ~8.6x | ✅ down |
| P/B | ~5.05x | ~4.70x | ✅ down |
Trailing P/E (~40.3x, using TTM net income to owners of ~Rp586,784 million) is lower than every prior period covered here - the market has now re-rated the stock down through two consecutive periods, this time on an actual earnings decline rather than a cash-flow divergence. EV/EBITDA (against TTM EBITDA of ~Rp3,550,890 million) is below the range seen in every prior period, even with interest-bearing debt up 31.5% since December 2016. P/B (book value of ~Rp5,032,711 million equity attributable to owners ÷ 41.52 billion shares) is below every prior period's range too.
No listed domestic peer still exists for a direct minimarket-format comparison - Indomaret remains privately held under the Salim Group. A full DCF still isn't included: five periods of coverage is more of a base than the four available at the last report, but this site will wait for the FY2017 close before attempting one, given how much this half's P&L diverged from both the operating trend and the cash-flow trend covered above. The share price itself moved from Rp625 (December 2016) to Rp570 (June 2017), a 8.8% decline over the half, within a Rp498-Rp625 range across the trailing two years - short of the swing this site treats as warranting its own dedicated section, so it's folded in here rather than given one.
PT Sumber Alfaria Trijaya Tbk's unaudited interim consolidated financial statements as of June 30, 2017 and for the six-month period then ended, and the Company's management presentation for the same period.