21 September 2010 Initiate Coverage

R E T A I L S E C T O R

Rising Affluence of Indonesians

Retailers are beneficiaries of strong consumer spending. Growing disposableincome will directly benefit retailers given the strong positive correlation betweendisposable income and listed retailers' revenue (R2=0.99). The 16.5% CAGR in annualdisposable income in 2005-09 led to a 15.4% CAGR in listed retailers' aggregate revenue.

Changing consumption patterns. As per capita disposable income had more thandoubled over five years to Rp15.9m (US$1,776) in 2009, lifestyles and consumptionpatterns have also evolved. Spending on non-food items has risen, from 45.4% ofmonthly expenses in 2004 to 49.4% in 2009, and will benefit retailers like RamayanaLestari Sentosa (RALS) and Mitra Adiperkasa (MAPI).

Low penetration rate provides opportunity. The proportion of modern retailers isprojected to increase from 38% of the industry's retail channels in 2009 to 41% in2012, driven by store openings amid rising income and changing lifestyle. Indonesia'sstore penetration rate is also a low 52 stores/1m population, compared with that ofcountries with similar market characteristics, like Malaysia (156 stores/1m) and Thailand(124 stores/1m).

Swelling disposable income. Registering a 17.2% CAGR in 2004-09, disposableincome growth is expected to remain strong on the back of: a) growing of middle-income earners, b) a growing urban population, c) continued increase in foreign anddomestic investments, and d) relocation of foreign factories to Indonesia to improveincome sustainability. High remittance inflow (4.0% CAGR in 2005-09) should alsosupport purchasing power in the middle- to low-income segments.

Burgeoning middle class. The proportion of the middle- and upper-income groupsform 51% of the total surveyed population (in 2009) vs 42% a year ago. It is estimatedthat the number of middle-income earners with an annual per capita income ofUS$15,000 will grow to 36m in the next five years, which is larger than the populationof Malaysia (28m).

Indonesians spending more. Annual per capita private consumption over 2004-09expanded at a 15.0% CAGR to Rp14.2m (US$1,586). Strong car and motorcyclesales that hit monthly record highs in July this year, of 72,130 and 699,411 unitsrespectively, are indicative of Indonesians' propensity to spend.

Top pick is Ramayana Lestari Sentosa. We initiate coverage on the Indonesianretail sector with an OVERWEIGHT rating. We have a BUY on RALS and MAPI, withtarget prices of Rp1,100 and Rp1,920 based on 16.5x and 13.0x 2011F PE respectively.RALS is our top pick due to its convincing recovery story, strong competitive advantageand robust balance sheet. We like MAPI for its operational turnaround, supported bythe growing number of middle-income earrners.

OVERWEIGHT

I N D O N E S I A

Indonesia Research Team (6221) 2993 3916

researchindonesia@uobkayhian.com

Refer to last page for important disclosures.

2 Retail Sector

Contents

Investment Highlights .........................................................................3

Valuation .................................................................................................9

Industry ................................................................................................ 10

Risk Factors ........................................................................................ 14

Stock Picks

- Mitra Adiperkasa ................................................................................. 15

- Ramayana Lestari Sentosa .................................................................. 17

Retail Sector 3

Investment Highlights

Retailers are beneficiaries of strong consumer spending. Growing disposableincome will directly benefit retailers. We run a regression analysis at the 95% confidencelevel. The results show a significant positive correlation (R2 of 0.99) between disposableincome and listed retailers’ aggregate revenue. The 16.5% CAGR in annual disposableincome in 2005-09 led to a 15.4% CAGR in listed retailers’ aggregate revenue.

Indonesians are changing their consumption patterns. The stronger economy hasraised Indonesia’s socio-economic status – per capita disposable income more than doubledfrom Rp7.7m in 2004 to Rp15.9m in 2009 – and led to improving lifestyles and consumptionpatterns. In the same period, per capita expenditure also more than doubled from Rp7.1mto Rp14.2m. Spending on non-food items increased from 45.4% of monthly expenses in2004 to 49.4% in 2009. The rising proportion of urban population, which allocates atleast 54.3% of their monthly expenses on non-food items, will also boost consumption.This will benefit retailers like RALS and MAPI as they focus on the department storesbusiness.

Figure 1: Disposable Income vs Listed Retailers' Aggregate Revenue

Source: Bloomberg, Central Statistics Agency, UOB Kay Hian

R2 = 0.989

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Figure 2: Proportion Non-food Expenditure Increased With Rising Income

Source: Central Statistics Agency

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4 Retail Sector

Modern retailers’ low penetration rate provides another opportunity. Theproportion of modern retailers is projected to increase from 38% of the industry’s retailchannels in 2009 to 41% in 2012, which we believe would be supported by more storeopenings amid rising income and changing lifestyle. Indonesia’s store penetration rate isa low 52 stores/1m population, compared with that of countries with similar marketcharacteristics, like Malaysia (156 stores/1m) and Thailand (124 stores/1m). This provideshuge opportunities for RALS and MAPI which have strong positioning through theirsupermarket arms.

Figure 3: Penetration Of Modern Retail Stores vs Population

Source: Indonesian Retailers Association, Nielsen Indonesia, Bloomberg, UOB Kay Hian

Indonesia

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DISPOSABLE INCOME GROWTH WILL REMAIN STRONG

We think the drivers of disposable income growth are as follows: a) a growing number ofmiddle-income earners, b) a growing urban population, c) a continued increase in domesticand foreign direct investments, and d) relocation of foreign factories to Indonesia.

a) Growing number of middle-income earners will benefit modern retailers.The middle-income group is the retailers’ largest target segment, especially for mid-high department store operators like MAPI. We believe growth in this segment willincrease retailers’ revenue and thereby improve modern retailers’ low penetrationrate (Figure 3) through more store openings. It is estimated that the number ofmiddle-income earners with an annual per capita income of US$15,000 will grow ata 14.9% CAGR to 36m in the next five years, which is larger than the population ofMalaysia (28m). At the same time, AC Nielsen Survey also shows a shifting trendtowards higher spending by the middle- and upper-income groups, with the proportionincreasing from 42% of the total population surveyed in 2008 to 51% in 2009.

Retail Sector 5

b) Attractive demographics. Indonesia has a large proportion of its population in theproductive age profile, a declining unemployment rate and a growing urban population.About 38% of the population falls within the productive age profile of 20-54 yearsold. The unemployment rate is also on the decline, down from 11.2% in 2005 to 7.9%in 2009. At the same time, the proportion of urban population is also expected toreach 59% by 2015 from 54% currently, translating into 3.7m people moving into thecities p.a.. Such an attractive population landscape would raise purchasing powerand stimulate a change in consumer lifestyle in favour of modern retailers.

Figure 4: Rising Expenditure By Higher-income Groups

Source: Nielsen Media Research, Media Index, Mitra Adiperkasa

Social Economy Status Total number of people Growth Proportion (%)2008 2009 (%) 2008 2009

A Above Rp3m 3,509,840 4,085,550 16.4 8.0 9.0B Rp2.0-3.0m 6,142,220 8,171,000 33.0 14.0 18.0C1 Rp1.5-2.0m 8,774,600 10,894,800 24.2 20.0 24.0C2 Rp1.0-1.5m 11,845,710 11,348,750 (4.2) 27.0 25.0D Rp0.7-1.0m 9,213,330 7,717,150 (16.2) 21.0 17.0E Below Rp0.7m 4,387,300 3,177,650 (27.6) 10.0 7.0

Figure 5: Indonesia's Huge Productive Age Profile

Source: Central Statistics Agency, UOB Kay Hian

21,37420,38220,618

21,19621,121

20,62719,698

18,06716,179

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6 Retail Sector

Figure 6: Indonesia's Growing Urban Population

Source: United Nations, UOB Kay Hian

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c) Continued increase in foreign direct investments. Foreign direct investments(FDI) should continue to increase as Indonesia’s sovereign rating has been upgradedseveral times by global credit rating agencies. It is now just 1-2 notches belowinvestment grade. Higher FDI, particularly in labour-intensive sectors likemanufacturing, will increase employment and lift purchasing power.

Figure 7: Rising FDI

Source: Indonesia Investments Coordinating Board, UOB Kay Hian

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d) Relocation of foreign factories to Indonesia will improve income. The relocationof foreign factories will boost workers’ purchasing power. According to the chairmanof the Indonesia Investment Coordinating Board (BKPM), Indonesia boastscompetitive advantages in terms of low wages, abundant natural resources, and ahuge domestic market. These stand in contrast to rising wages in China and politicaluncertainty in Thailand. The Jakarta Globe reported that the Indonesian FootwearAssociation (Aprisindo) had said six footwear manufacturers would relocate fromChina and Vietnam to Indonesia this year, investing a total of US$550m, and another20 are expected next year. Relocations are also said to be taking place in the textile,electronics and automobile sectors.

Retail Sector 7

PURCHASING POWER

Purchasing power has recovered. Purchasing power of the mid-low and lower-endsegments has started to recover since early this year, as can be seen in the recovery inRALS’ same-store sales growth (SSSG) from -1.8% in Dec 09 to 13.0% in Jul 10.Recovery is also seen in the middle- to upper-income segments. We use MAPI’s SSSGas an indicator, which we believe is suitable given its premium retail brands. MAPI’sSSSG rose from 4% in Dec 09 to 9% in Mar 10. At the same time, car and motorcyclesales in July have also reached new highs, reflecting the recovery in purchasing power.

Figure 8: RALS' SSSG Has Recovered Since Early-10

Source: Ramayana Lestari Sentosa, UOB Kay Hian

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High remittance inflow is positive for mid- and low-income segments. The inflowof foreign remittance to Indonesia will have a positive impact on purchasing power in themid- and low-income segments as their income is highly dependent on the money sentback by their relatives (mostly children) overseas. Workers’ remittance plays a moresignificant role in Indonesia than in other countries in the region due to the much largernumber of Indonesian workers overseas (Figure 9). In 2005-09, workers’ remittanceinflow increased at a 4.0% CAGR to Rp50.7t, representing 0.9% of gross domesticproduct (GDP) in 2009.

Figure 9: Immigrant Labour Population In Selected Host Countries

Source: Asian Development Bank 2006

Host Home Hong Kong, China Japan Malaysia Singapore

Phillipines 141,720 185,200 250,000 90,000Indonesia 107,960 22,800 1,000,000 60,000Malaysia >1,000 9,000 - 165,000Total 249,680 217,000 1,250,000 315,000

8 Retail Sector

High commodity prices will also boost purchasing power. Indonesians are enjoyingrising incomes, partly from the increase in commodity prices, as 42% of the total workforceis employed in resources-related sectors. Strong commodity prices will thus have apositive impact on purchasing power, particularly for those in non-Java islands. Therenminbi appreciation is also a positive catalyst as it could make Indonesia’s exportsmore competitive.

Figure 10: Main Beneficiaries of Workers Remittance

Source: Asian Development Bank 2006

Host Home Hong Kong, China Japan Malaysia Singapore

Indonesia 50% parent 61% parent 81% spouse 66% parentMalaysia - 87% parent - 74% parentPhillipines 49% parent 53% parent 50% parent 58% parent

Figure 11: Workers' Remittance Inflow To Indonesia

Source: CEIC

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Figure 12: About 42% Of Workforce In Resources-related Sectors

Source: Central Statistics Agency

Resources-related 42.3Manufacturing 12.1Construction 4.4Others 41.2

Retail Sector 9

Valuation

We have an OVERWEIGHT rating on the Indonesian retail sector, with RALS as ourtop pick due to its convincing recovery story, strong competitive advantage and robustbalance sheet. Our valuations are derived from a PE ratio methodology, with targetprices being pegged to the PE multiplier set within the historical trading mean and 2011Fas the valuation base year.

Mitra Adiperkasa (BUY/Rp1,530/Target: Rp1,920). Our Rp1,920 target price isbased on 13.0x 2011F PE, higher than the stock’s historical trading mean of 10.0x sincethe initial public offering (excluding 2007-08), as we have seen a re-rating on the stockon the back of operational turnaround, supported by the growing number of middle-income earners. We initiate coverage with BUY recommendation.

Ramayana Lestari Sentosa (BUY/Rp900/Target: Rp1,100). Our Rp1,100 targetprice is based on 16.5x 2011F PE, which is still within its five-year mean of 15.5x. We re-initiate coverage with a BUY recommendation. RALS is also our top pick, for itsconvincing recovey story, strong competitive advantage and stronger net cash positionwithout underlying debts.

Figure 13: Regional Peer Comparison

* Local currencySource: Bloomberg, UOB Kay Hian

Mkt Cap Price TP -------- PE (x) --------Company Ticker (US$m) Rec. 21 Sep 10* LC* 2009 2010F 2011F

IndonesiaMitra Adiperkasa MAPI IJ 283.2 BUY 1,530 1,920 15.5 12.3 10.3Ramayana Lestari RALS IJ 708.9 BUY 900 1,100 19.0 20.1 13.5Average 496.1 17.3 16.2 11.9

Hong KongGolden Eagle 3308 HK 5,142.6 BUY 20.6 20.8 35.6 28.0 20.7Intime 1833 HK 2,273.6 BUY 10.0 10.4 45.9 30.9 24.2Lianhua Supermarket 980 HK 2,504.1 BUY 31.3 35.0 33.1 25.4 20.5Lifestyle Int'l Ltd 1212 HK 4,152.2 HOLD 19.2 11.6 25.9 23.3 20.0Parkson Retail 3368 HK 5,195.8 SELL 14.4 11.1 38.2 33.6 27.2Average 3,853.7 35.7 28.2 22.5

10 Retail Sector

Industry

SECTOR OUTLOOK

Growing number of retail outlets indicates industry optimism. There has beengrowing interest in Indonesia’s modern retail sector, as seen in the 1,681 new outlets(+25.6% yoy) opened last year. At the same time, department stores also expanded by42 (+4.9% yoy). The continued strengthening of Indonesia’s fundamentals offersattractive growth potential, and we believe there is more room for retailers’ expansion.We expect major retailers to open more than 1,400 new outlets this year, reflecting theiroptimism over the growth potential.

Figure 14: Expanding Number Of Modern Retailers

Source: Jakarta Post, Indonesian Retail Association, UOB Kay Hian

------ Change yoy -----No of outlets 2008 2009 (units) (%)

Minimarket 6,132 7,778 1,646 26.8Indomart 3,093 3,812 719 23.2Alfamart 2,736 3,450 714 26.1Yomart 162 257 95 58.6Circle-K 141 259 118 83.7

Hypermarket 130 150 20 15.4Carrefour 42 49 7 16.7Hypermart 43 47 4 9.3Giant 26 35 9 34.6Lottemart (Makro) 19 19 - -

Supermarket 305 320 15 4.9Hero + Giant 105 107 2 1.9Ramayana 104 105 1 1.0Superindo 57 69 12 21.1Foodmart 25 25 - -Carrefour Express 14 14 - -

Total 6,567 8,248 1,681 25.6

Department storesSales (US$m) 2,488 2,622 n.a. 5.4Outlets 843 885 42 4.9Selling space ('000sqm) 2,474.7 2,635.0 n.a. 6.4

Acquisitions denote keen interest in the sector. Given the attractive growth potentialin the retail sector, there have been plenty of acquisitions by both foreign and domesticcompanies in the past two years. It started with the acquisition of Alfa Retailindo (ALFA)by giant retailer Carrefour Indonesia in Jan 08. In Oct 08, Makro Indonesia, one ofIndonesia’s retail pioneers, was also acquired by South Korean retailer Lotte Mart. Nextwas the acquisition of a 40% stake in Carrefour Indonesia by Trans Corp, the holdingcompany of Para Group’s Media, in Apr 10. In the same month, CVC Asia Pacific Ltdcompleted a deal to buy 98% of Matahari Department Store (LPPF).

Retail Sector 11

Strong fundamentals for sustainable long-term growth. Indonesia offers stronggrowth potential in the retail industry. It has a large population base of 231m people, andthe economy is highly dependent on household consumption, which accounts for 59% oftotal GDP. Such an economic structure helped the country weather the global economiccrisis last year and to post the strongest growth in the region. UOB Economic-Treasuryforecasts GDP growth of 6.0% and 6.2% in 2010 and 2011 respectively, up from 4.5%in 2009.

Figure 15: Acquisitions In The Retail Sector Over The Past Two Years

Source: Various media, UOB Kay Hian

Acquirer Acquired Company Value Stake Date

Carrefour Indonesia Alfa Retailindo (ALFA) Rp675b 75% Jan 08Lotte Mart Makro Indonesia US$292m 100% Oct 08Trans Corp Carrefour Indonesia US$300m-400m 40% Apr 10CVC Asia Pacific Ltd Matahari Department Store ~US$880m 98% Apr 10

Figure 16: GDP Growth Indexed (2005 = 100)

Source: Bloomberg, UOB Kay Hian

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Indonesians the second-most confident people in the world. An interesting surveyby AC Nielsen shows that Indonesians are the second-most confident people in theworld, second only to India, in terms of confidence in job prospects and near-term financialfuture. According to the survey, about 70% of Indonesians described their jobs prospectsas excellent or good, above the 57% average for the Asia-Pacific region, while 77% ofthem were upbeat about their personal finances over the next 12 months. This indicatesstrong and growing optimism, which should translate into higher consumer spending goingforward. Annual disposable income had in fact grown at a 17.2% CAGR in 2004-09.

12 Retail Sector

Figure 17: Consumer Confidence Index By Country

Source: Investor Daily, AC Nielsen, UOB Kay Hian

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Figure 18: Per Capita Annual Disposable Income Grew At 15.6% CAGR

Source: Central Statistics Agency, UOB Kay Hian

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Retail Sector 13

TYPES OF MODERN RETAILERS IN INDONESIA

Indonesia’s retail industry comprises modern retailers and traditional retailers, with thelatter also dubbed an “un-organised” market. Modern retailers are further divided intoseveral categories, including hypermarkets, supermarkets, minimarkets, drugstores,discount stores, convenience stores, department stores, specialty stores, malls/supermalls/plazas and trade centres.

Modern retail business started in 1962; rapid growth started after 1998. Themodern retail business in Indonesia was pioneered by Sarinah Department Store in 1962.We think the industry took a leap in 1998 when the government removed the retailbusiness from the negative foreign investment list, thus allowing foreign retailers to enterthe market. There were very few foreign retailers before that and SOGO departmentstore was among the first, opening in early-90. Today, there are several foreign modernretailers operating in Indonesia, which we believe has intensified competition. At thesame time, foreign players force local ones to improve and expand further.

Traditional stores still dominate, but modern retailers are expanding. The retailindustry is dominated by traditional stores with a 62% market share. However, the trendis gradually moving in favour of modern retail stores, driven by rising socio-economiclevels, a growing economy and synergy from deeper penetration by modern retailers. Atthe same time, modern retailers offer lower and more competitive prices than traditionalmarkets, due to their stronger bargaining power over suppliers, who then give them morediscounts and longer credit payment terms. The market share of modern retailers isestimated to increase to 41% by 2012.

Figure 19: Traditional vs Modern Retailers

Source: Indonesia Retailer Association, Nielsen Indonesia

64.7 63.7 63.1 61.9 61.0 60.0 59.0

35.3 36.3 36.9 38.1 39.0 40.0 41.0

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Rising convenience store trend. There is also a growing trend in the mini marketand convenience store segment, most likely due to their accessibility in housingdevelopments and residential areas. Consumers can save time as they can buy groceriesand mobile phone vouchers in the same store. The latest newcomer to this segment is 7-Eleven Stores, brought in by Modern Internasional (MDRN) in Mar 09.

14 Retail Sector

Risk Factors

Surge in inflation. A significant surge in inflation could hit retailers through a potentialdecline in revenues as a result of weakening consumer purchasing power. Retailers’costs may rise on lower margins if they are unable to fully pass on the higher costs andoperating expenses. In Aug 10, inflation reached 6.4% yoy, which could mean full-yearinflation could easily surpass the central bank’s target of 5.3% yoy.

Intense competition. The growing interest in the retail sector amid Indonesia’s stronggrowth potential will result in intense competition. Foreign chains have been strengtheningtheir footholds in Indonesia. This could affect retailers’ revenue and profitability.

Regulatory risks. Unfavourable changes in regulations will affect the industry. Theseregulations could involve monopoly/oligopoly, modern retail stores expansion rules, workinghours, promotional activities and purchasing terms, minimum space requirements andpower-saving measures.

Operational risks. Retail operations could be interrupted by several factors, includinginventory disruptions, labour strikes, power outages, fires and natural disasters.

Social and political risks. These risks include riots, demonstrations, bombings andother violent acts.

Retail Sector 15

Mitra Adiperkasa

Share Price Rp1,530Target Price Rp1,920Upside +25.5%

Company DescriptionMitra Adiperkasa operates high-enddepartment stores in Indonesia, as well asspecialty stores and F&B outlets.

Stock DataGICS sector Consumer DiscretionryBloomberg ticker: MAPI IJShares issued (m): 1,660.0Market cap (Rpb): 2,539.8Market cap (US$m): 283.23-mth avg t'over (US$m): 0.7

Price Performance52-week high/low Rp1,600/Rp4451mth 3mth 6mth 1yr YTD37.8 125.0 115.5 264.3 146.8

Major Shareholders (%)Satya Mulia Gema Gemilang 58.8

FY10 NAV/Share (Rp) 887FY10 Net Debt/Share (Rp) 427

Price Chart

Source: Bloomberg

Analyst

Indonesia Research Team+ 6221 2993 3916researchindonesia@uobkayhian.com

BUYBACKGROUND

Mitra Adiperkasa (MAPI) is a leading lifestyle retailer and distributor, targeting themiddle- and upper-income segments. It offers a diversified range of goods whichcovers sports, fashion, department stores, food & beverage (F&B) and lifestyle products.

OUTLOOK/RECOMMENDATION

Significant operational improvements in 1H10. Operating profit jumped 51.7%yoy to Rp185.9b in 1H10, with improvements seen in the department stores, specialtystores and F&B segments. Total operating margin was 8.7% (1H09: 6.2%) on highersales productivity and operational efficiency. We expect the momentum to continuefor the rest of the year, driven by the following: a) higher SSSG, b) a bettermerchandising strategy and product mix, and c) efficiency in promotional activitieshelped by more joint promotions with banks.

New strategy will enhance growth and profitability. MAPI will not acquire anymore new brands for the rest of this year and next, and will focus on strengtheningexisting brands in the specialty store and F&B segments. These two segmentscontributed 82% of 2009 operating profit and 69% of revenue. We think this strategywill improve MAPI's cash flow generation. For specialty stores, expansion willfocus on sports retailing which is characterised by low capital expenditure and highreturns, as well as Marks & Spencer and Zara in the fashion segment. Within F&B,MAPI will strengthen the performance of Burger King and Domino's Pizza throughnew store openings.

Better earnings visibility. The proportion of foreign-denominated debt has declined,plunging from 70% in Sep 09 to 19% as of Jun 10, as a result of debt refinancing.This will improve earnings visibility through lower foreign currency exposure. Wealso expect net gearing to decline to 48% in Dec 10 from 75% currently, and MAPI toswing into net cash position by 2014. This will also increase profitability as morethan one-third of its operating profit is currently allocated for interest payments.

Initiate with BUY. We initiate coverage with a BUY and target price of Rp1,920,based on 13.0x 2011F PE, higher the stock's historical mean of 10.0x since the initialpublic offering (excluding 2007-08), as we have seen a re-rating on the back ofoperational turnaround, supported by the growing number of middle-income earners.The main risk is potential short-term pressure arising from a surge in inflation due torising food prices and electricity tariffs. 200

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Key Financials

Year to 31 Dec (Rpb) 2008 2009 2010F 2011F 2012F

Net turnover 3,468.0 4,112.2 4,777.5 5,435.4 5,910.3EBITDA 479.3 540.4 629.6 709.4 758.0Operating profit 303.3 307.7 368.1 440.2 481.8Net profit (rep./act.) (69.8) 164.0 206.3 245.8 293.9Net profit (adj.) (69.8) 164.0 206.3 245.8 293.9EPS (Rp) (42.0) 98.8 124.3 148.1 177.0P/E (x) (36.4) 15.5 12.3 10.3 8.6P/BV (x) 2.3 2.0 1.7 1.5 1.3Dividend yield (%) 0.8 0.0 1.3 1.6 1.9Net margin (%) (2.0) 4.0 4.3 4.5 5.0Net debt/(cash) to equity (%) 97.3 71.4 48.1 34.1 21.3Interest cover (x) 7.5 5.0 6.5 8.2 11.1ROE (%) (5.9) 13.6 14.9 15.6 16.3Consensus net profit - - 188.5 234.5 288.6UOBKH/Consensus (x) - - 1.09 1.05 1.02

Source: Mitra Adiperkasa, Bloomberg, UOB Kay Hian

16 Retail Sector

Profit & Loss Balance Sheet

Cash Flow

Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F

Net turnover 4,112.2 4,777.5 5,435.4 5,910.3EBITDA 540.4 629.6 709.4 758.0Deprec. & amort. 232.7 261.5 269.2 276.2EBIT 307.7 368.1 440.2 481.8Total other non-operating income 79.7 (0.6) (30.3) (26.1)Associate contributions 3.2 3.7 4.2 4.5Net interest income/(expense) (108.8) (96.1) (86.4) (68.4)Pre-tax profit 281.8 275.1 327.7 391.8Tax (117.8) (68.8) (81.9) (98.0)Minorities (0.0) (0.0) (0.0) (0.0)Net profit 164.0 206.3 245.8 293.9Net profit (adj.) 164.0 206.3 245.8 293.9

Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F

Fixed assets 1,116.8 1,054.5 987.5 920.8Other LT assets 422.7 472.3 481.6 488.9Cash/ST investment 189.7 256.8 294.9 61.6Other current assets 1,650.3 1,942.6 2,198.5 2,432.7Total assets 3,379.4 3,726.3 3,962.5 3,904.1ST debt 516.9 496.8 797.2 401.4Other current liabilities 753.2 997.8 1,123.9 1,213.1LT debt 592.5 469.0 69.0 69.0Other LT liabilities 228.7 289.8 294.9 298.5Shareholders' equity 1,288.0 1,472.9 1,677.4 1,922.1Minority interest 0.0 0.0 0.0 0.0Total liabilities & equity 3,379.4 3,726.3 3,962.5 3,904.1

Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F

Operating 340.1 487.8 468.8 522.1Pre-tax profit 281.8 275.1 327.7 391.8Tax (117.8) (68.8) (81.9) (98.0)Deprec. & amort. 232.7 261.5 269.2 276.2Working capital changes (125.3) (85.7) (128.9) (143.9)Other operating cashflows 68.7 105.7 82.8 96.0Investing 45.7 (245.7) (213.1) (216.0)Capex (growth) (213.4) (194.1) (196.9) (204.2)Investments 198.3 (2.3) (3.2) (0.8)Proceeds from sale of assets 0.0 0.0 0.0 0.0Others 60.8 (49.4) (13.0) (11.0)Financing (474.3) (175.0) (217.7) (539.4)Dividend payments 0.0 (32.8) (41.3) (49.2)Issue of shares (3.5) 11.3 0.0 0.0Proceeds from borrowings 0.0 0.0 0.0 0.0Loan repayment (261.2) (145.1) (99.4) (395.8)Others/interest paid (209.5) (8.5) (77.0) (94.5)Net cash inflow (outflow) (88.5) 67.1 38.1 (233.2)Beginning cash & cash equivalent 278.2 189.7 256.8 294.9Ending cash & cash equivalent 189.7 256.8 294.9 61.6

Price Range

2007 2008 2009 2010*

Price (Rp)High 940 680 640 1,600L o w 600 360 250 600

PE (x)High 13.5 n.a. 6.5 12.9L o w 8.6 n.a. 2.5 4.8

Key Matrics

Year to 31 Dec (%) 2009 2010F 2011F 2012F

ProfitabilityEBITDA margin 13.1 13.2 13.1 12.8Pre-tax margin 6.9 5.8 6.0 6.6Net margin 4.0 4.3 4.5 5.0ROA 4.6 5.8 6.4 7.5ROE 13.6 14.9 15.6 16.3

GrowthTurnover 18.6 16.2 13.8 8.7EBITDA 12.7 16.5 12.7 6.9Pre-tax profit n.a. (2.4) 19.1 19.6Net profit n.a. 25.8 19.1 19.6Net profit (adj.) n.a. 25.8 19.1 19.6EPS n.a. 25.8 19.1 19.6

LeverageDebt to total capital 86.1 65.6 51.6 24.5Debt to equity 86.1 65.6 51.6 24.5Net debt/(cash) to equity 71.4 48.1 34.1 21.3Interest cover (x) 5.0 6.5 8.2 11.1

* Forecast PE

Retail Sector 17

Ramayana Lestari Sentosa

Share Price Rp900Target Price Rp1,100Upside +22.2%

Company DescriptionRamayana Lestari Sentosa operates mid-low segment department stores inIndonesia.

Stock DataGICS sector Consumer DiscretionaryBloomberg ticker: RALS IJShares issued (m): 7,096.0Market cap (Rpb): 6,386.4Market cap (US$m): 712.13-mth avg t'over (US$m): 0.7

Price Performance52-week high/low Rp1,010/Rp5401mth 3mth 6mth 1yr YTD3.4 (3.2) (2.2) 36.4 45.2

Major Shareholders (%)Ramayana Makmursentosa 56.0

FY10 NAV/Share (Rp) 373FY10 Net Cash/Share (Rp) 135

Price Chart

Source: Bloomberg

Analyst

Indonesia Research Team+ 6221 2993 3916researchindonesia@uobkayhian.com

BUYBACKGROUND

Ramayana Lestari Sentosa (RALS) is a leading department store operator in the mid-tierto low-end retail segment. It offers products ranging from clothing, shoes, bags, toys,and stationery to housewares. RALS also runs a supermarket business.

OUTLOOK/RECOMMENDATION

Start of an aggressive year. We expect RALS to add a net 80,000sqm in 2010, whichwill be its second-most aggressive annual expansion, vs an average of 45,682sqmp.a. since 1995. Four new stores will open in 2H10, of which three will be in 4Q10.About 60% of the stores are located outside of Java, which enjoy higher grossmargins and less competition. With an improving economy, RALS is likely to achieveits 10% SSSG target this year. We have been seeing a significant recovery in SSSGsince early this year, with a 13% growth in Jul 10.

Supermarket restructuring will improve margins. RALS' 1H10 net profit wasbelow consensus due to higher-than-expected increases in operating expenses whichrose to 29.3% of net revenue, up from 25.6% in 2009. This was due to the following:a) higher salaries on new hirings for supermarket restructuring and new storeopenings, and b) higher utilities due to unusually low base effect (costs savings in2009 amid low purchasing power and store openings). The supermarket restructuringis expected to improve sales during the non-Idul Fitri months, and raise gross marginby 2ppt to 16% through better merchandising. In 2H10, we expect margins toimprove, driven by the Idul Fitri and year-end holidays.

Main beneficiary of rising disposable income. Given its mid-tier to low-incometarget markets, RALS should be the biggest beneficiary among retailers of risingdisposable income. This is because its target consumers are more price-sensitivethan those in the middle- and upper-income segments. Higher purchasing powershould translate into higher SSSG, and eventually result in higher operating leveragedue to a lower operating expenses-to-sales ratio.

Re-initiate coverage with BUY. We re-initiate coverage with a BUY call and a targetprice of Rp1,100, based 16.5x 2011F PE, which is still within its five-year mean of15.5x. Additional appeal comes from its strong net cash position without underlyingdebts. The main risk is potential short-term pressure arising from a surge in inflationon rising food prices and electricity tariffs.

Key Financials

Year to 31 Dec (Rpb) 2008 2009 2010F 2011F 2012F

Net turnover 4,407.6 4,310.4 4,944.3 5,492.3 6,118.3EBITDA 350.8 441.2 496.5 687.4 777.0Operating profit 416.6 366.5 317.6 486.8 553.4Net profit (rep./act.) 429.7 334.8 315.5 470.9 539.5Net profit (adj.) 429.7 334.8 315.5 470.9 539.5EPS (Rp) 60.8 47.4 44.7 66.7 76.4P/E (x) 14.8 19.0 20.1 13.5 11.8P/BV (x) 2.7 2.5 2.4 2.2 2.0Dividend yield (%) 3.4 3.4 2.8 2.6 3.9Net margin (%) 9.8 7.8 6.4 8.6 8.8Net debt/(cash) to equity (%) (38.6) (33.0) (36.3) (40.6) (44.1)ROE (%) 19.0 13.8 12.3 16.9 17.5Consensus net profit - - 394.0 476.7 565.4UOBKH/Consensus (x) - - 0.80 0.99 0.95

Source: Ramayana Lestari Sentosa, Bloomberg, UOB Kay Hian

500

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(lcy)

80

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(%)RAM AYANA LESTARI SENTOSA PT

Ramayana Lestari Sentosa Pt /JCI Index

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60

Sep 09 Nov 09 Jan 10 Mar 10 May 10 Jul 10 Sep 10

18 Retail Sector

Profit & Loss Balance Sheet

Cash Flow

Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F

Net turnover 4,310.4 4,944.3 5,492.3 6,118.3EBITDA 441.2 496.5 687.4 777.0Deprec. & amort. 74.7 178.9 200.7 223.6EBIT 366.5 317.6 486.8 553.4Total other non-operating income (26.7) 5.1 10.7 11.4Net interest income/(expense) 64.3 58.2 71.0 86.5Pre-tax profit 404.1 380.9 568.5 651.3Tax (69.4) (65.4) (97.6) (111.8)Minorities 0.0 0.0 0.0 0.0Net profit 334.8 315.5 470.9 539.5Net profit (adj.) 334.8 315.5 470.9 539.5

Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F

Fixed assets 944.4 1,015.4 1,079.2 1,136.2Other LT assets 505.9 526.7 544.7 565.3Cash/ST investment 823.7 954.6 1,191.1 1,422.8Other current assets 956.4 953.5 1,014.1 1,098.4Total assets 3,230.3 3,450.2 3,829.1 4,222.7ST debt 0.0 0.0 0.0 0.0Other current liabilities 626.2 692.9 754.0 839.5LT debt 0.0 0.0 0.0 0.0Other LT liabilities 110.4 124.7 138.0 154.9Shareholders' equity 2,493.8 2,632.7 2,937.2 3,228.3Minority interest 0.0 0.0 0.0 0.0Total liabilities & equity 3,230.3 3,450.2 3,829.1 4,222.7

Year to 31 Dec (Rpb) 2009 2010F 2011F 2012F

Operating 290.3 577.3 684.5 780.2Pre-tax profit 404.1 380.9 568.5 651.3Tax (69.4) (65.4) (97.6) (111.8)Deprec. & amort. 74.7 178.9 200.7 223.6Working capital changes (97.3) 44.6 (2.7) (3.7)Other operating cashflows (21.9) 38.2 15.7 20.7Investing (184.6) (270.7) (282.4) (301.2)Capex (growth) (182.0) (249.9) (264.4) (280.6)Investments 34.3 0.0 0.0 0.0Proceeds from sale of assets 0.0 0.0 0.0 0.0Others (36.9) (20.8) (18.0) (20.6)Financing (189.0) (175.6) (165.6) (247.3)Dividend payments (219.0) (176.6) (166.5) (248.4)Issue of shares 29.4 0.0 0.0 0.0Proceeds from borrowings 0.0 0.0 0.0 0.0Loan repayment 0.0 0.0 0.0 0.0Others/interest paid 0.6 1.0 0.8 1.2Net cash inflow (outflow) (83.3) 130.9 236.5 231.7Beginning cash & cash equivalent 907.0 823.7 954.6 1,191.1Ending cash & cash equivalent 823.7 954.6 1,191.1 1,422.8

Price Range

2007 2008 2009 2010*

Price (Rp)High 1,110 860 710 1,010L o w 770 450 380 640

PE (x)High 21.4 14.1 15.0 22.8L o w 14.8 7.4 8.0 14.5

Key Matrics

Year to 31 Dec (%) 2009 2010F 2011F 2012F

ProfitabilityEBITDA margin 10.2 10.0 12.5 12.7Pre-tax margin 9.4 7.7 10.4 10.6Net margin 7.8 6.4 8.6 8.8ROA 10.7 9.4 12.9 13.4ROE 13.8 12.3 16.9 17.5

GrowthTurnover (2.2) 14.7 11.1 11.4EBITDA 25.8 12.5 38.4 13.0Pre-tax profit (22.5) (5.7) 49.2 14.6Net profit (22.1) (5.7) 49.2 14.6Net profit (adj.) (22.1) (5.7) 49.2 14.6EPS (22.1) (5.7) 49.2 14.6

LeverageDebt to total capital 0.0 0.0 0.0 0.0Debt to equity 0.0 0.0 0.0 0.0Net debt/(cash) to equity (33.0) (36.3) (40.6) (44.1)

* Forecast PE

Retail Sector 19

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As of 21 September 2010, the analyst and his / her immediate family do not hold positions in the securities recommendedin this report.

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