Sinarmas Sekuritas Investment Research PT TRISULA

Transcription

Sinarmas Sekuritas Investment Research
PT TRISULA INTERNATIONAL Tbk
PT Trisula International Tbk (TI) is a domestic fashion retail brand
operator and international apparel producer specializing in menswear,
or specifically trousers and suits. TI has gained significant experience
in pants manufacturing and through innovation, commitment to
perform and meticulous attention to details with high efficiency and
strict quality control. TI has built strong trust with its clients which
include the international luxury menswear brand, Hugo Boss, Hart
Schaffner Marx, Perry Ellis, Hush Puppies, Mizuno and other
international brands with significant global presence. In addition, TI
has also established strong retail network and TI is the main
distributor for Jack Nicklaus (casual and golf wear) in Indonesia and it
has 3 brands under its umbrella: Jobb (office/formal wear), Man Club
(young and smart casual wear) and UniAsia (uniform wear tailoring for
employees of State Sponsored Enterprise (SSE) and State-owned
Enterprise (SOE)).
TI intends to raise capital through public offering in the capital
markets and the proceeds will be used to: (1) acquire another
garment manufacturer (affiliates), PT Trisco Tailored Apparel
Manufacturing (Trisco); (2) expand the retail segment by increasing
the number of Points of Sales (POS) and Directly Owned Stores (DOS)
to strengthen its brand awareness and access to its products; (3)
establish strong Research & Development to ensure that its products
are always fashion-forward to meet the ever-demanding consumers;
(4) study and bring another international brands into Indonesia,
thereby expanding its retail presence in Indonesia.
Our valuation for full dilution is in the range of IDR 275-340 per share.
Summary (IDR mn)
Revenue
yoy growth
EBITDA
EBITDA Margin
Pro Forma Net Profit
yoy growth
ROA
ROE
Net Debt/Equity
2012F
563,316
19.23%
62,155
11.03%
30,510
48.8%
9.2%
12.9%
5.8%
2013F
654,976
16.27%
81,011
12.37%
39,713
30.2%
10.4%
14.4%
3.5%
2014F
745,239
13.78%
92,357
12.39%
46,432
16.9%
9.7%
14.5%
net cash
2015F
852,860
14.44%
106,455
12.48%
54,295
16.9%
9.5%
13.3%
net cash
2016F
978,951
14.78%
120,453
12.30%
62,272
14.7%
9.4%
13.5%
net cash
Source: Company data, Sinarmas Sekuritas Research Estimate
1
2017F
1,106,513
13.03%
134,968
12.20%
70,005
12.4%
9.1%
13.4%
net cash
Initial Public Offering (IPO)
Sector
: Manufacturing/Retail
IPO Price Range
Planned Issuance
Warrant issued
Strike Price
:
:
:
:
IDR 250—300
300mn shares
75mn
At IPO Price
Post-IPO shareholders:
PT Karya Dwimunggal Sejahtera 28%
PT Trisula Insan Tiara
42%
Public
30%
Bookbuilding
Effective Date
Offering Period
Allotment Date
Refund Date
Securities Submission date
Proposed Listing Date at IDX
5 June – 7 June 2012
15 June 2012
19 June – 21 June
2012
25 June 2012
27 June 2012
27 June 2012
28 June 2012
Wibowo Ng
Research Analyst
[email protected]
+62-21 392 5550
Image taken from Trisula Rakuten
This is not classified as an objective report.
Please read the disclosure at page 24.
Investment Thesis
IPO Focus
Margin Expansion from the Retail Industry
We estimate that margin will expand in 2012E and 2013E due to expansion in the retail segment and
softening cotton prices amid rising supply from India. Gross margin is expected to increase 192 bps in 2013F
from the current level in 2011 while EBIT margin will increase 135 bps during the same period. While retail
industry tends to have higher gross margin, the advertising and promotional sales activities which comprise
the SG&A might reduce the EBIT margin. However, this effect is temporary and we are confident that based
on TI’s track record in the retail industry, TI is able to optimize the advertising and promotional strategy in
order to maximize return and reduce SG&A.
Rising Middle Class and Working Population
TI’s retail industry targets mainly menswear, in particular office/formal wear, which tends to be more
resilient as it is basic necessities for working male adults. Furthermore, the global menswear is experiencing
tremendous growth due to publicity from fashion magazines, actors, and movies. According to Bain & Co, the
global luxury menswear market is growing at the rate of 14% per annum or nearly double the rate of luxury
women’s wear. We can surmise that the trend exists in the middle and middle-low segment of the society
and we estimate that the pace is even faster considering the price point and the number of population.
Indonesia has one of the youngest population in the world and significant portion of its population is in their
productive age. As they climb the social hierarchy, retail spending is expected to rise which will benefit TI
and other companies in the retail industry. Furthermore, there is certain degree of brand loyalty especially in
the menswear division as men tend to be ‘easy shopper’ as compared to women.
Vertical Integration and Deep Experience in the Garment Industry
TI has deep experience in the garment industry and its trustworthy and expertise has owned the order from
luxury menswear design house with international presence, Hugo Boss, Hart Schaffner Marx, Marks &
Spencer, Next and other global brands. We believe that TI is able to learn the fashion trend from the order it
undertakes, improvise, customize to its signature and apply it to its brands to suit local needs. This gives TI
added advantage which TI can leverage on in order to boost its sales and increase its competitive advantage
by combining current fashion trend with local taste in order to entice shopper. PT Trisula Textile Industries,
an affiliated company and a fully integrated textile manufacturer, supplies fabrics to TI and Trisco, ensuring
constant consistent supply at Trisula’s standard.
Acquisition of Trisco
Acquistion of Trisco at discounted price to fair market value proves that the founder is determined to deliver
return to new shareholders. Trisco manufactures uniform apparels, jacket and suits that cater to the service
industry and some of its products are exported to Australia. Due to Trisco’s ability to accept smaller and
more customized/made-to-measure order and its more value-added products that are more expensive in the
market (such as suits, jackets and other formal apparels), the business obtains higher profit margin that will
also contribute to TI once the acquisition is completed.
However, year 2012 will be another challenging year for retail industry due to issues surrounding local and
global markets. For the local markets, rising inflation and issues surrounding limitation of fuel subsidies
which are not commensurate with rising wages and salaries. The risk-off sentiments that we have observed
in the global markets, the exit of Greece from EMU, and faltering US economic growth (key engine for retail
spending) will be key downside risks that will affect our estimate and valuations.
2
IPO Focus
Valuation
We value diluted TI shares in the range of IDR275—340 through combination of Discounted Cash Flow &
Sum-of-the-Parts (DCF-SOTP) analysis, EV/EBITDA and EV/Sales methodology.
DCF-SOTP: we determine the fair value to be in the range of IDR235—340 via DCF-SOTP methodology by
valuing Trisco and TI separately. We assumes WACC to be 14.4%-16.4% with terminal growth rate at 2%4% for both companies and discretely forecast its revenue and cash flow till 2025.
EV/EBITDA and EV/Sales: we shortlist few comparable companies both locally and globally and determine
the average and standard deviation. The price range via this method is determined from the mean ± 0.5σ.
For EV/EBITDA methodology, we determine the price range of IDR250-495 and for EV/Sales multiples, we
obtain the price range of IDR275-580.
Effective Price Range: We obtain the effective price range via overlapping regions from the above 3
methodologies in a ‘football field’ representation. From the cursory glance, the effective range will be the
minimum range from EV/Sales (IDR275) and maximum range from DCF-SOTP (IDR340).
Man Club: Luziana Shirt
UniaAsia: PSH Adikara
JOBB: Damaskus Jacket
Source: Trisula International (Rakuten Store)
“Whether it’s a desire to be as dapper as Don Draper on television’s ‘Mad Men’, a need to look good for job interview
or just hankering for new duds, men have increased their spending on fancy clothes, and executives expect the boom to
continue.” (Reuters)
3
The Retail Industry
IPO Focus
Key Macroeconomic Indicators
4
Indonesia registered one of the fastest growth rates in the Asia Pacific region with nominal GDP growing at
2007-2011 CAGR of 14.0%. Consumer Confidence (CCI) and expectation (CCE) remains relatively resilient
despite slight deterioration. Consumer’ expectation of 6-month income and economic condition remain robust
even though degradation in consumer’s appraisal of current condition for durable goods and employment
condition has been observed due to issues of rising gasoline prices and inflation.
Chart 1: Consumers’ Confidence remains resilient despite
slight deterioration
Chart 2: Consumers’ Appraisal of Present Situation
Source: Bloomberg
Source: Bloomberg
Chart 3: Consumers’ 6-month Expectations
Chart 4: Inflation remains low by historical standards
Source: Bloomberg
Source: Bloomberg
Chart 5: Rising GDP per Capita (USD)
Chart 6: Private Consumption per Capita (USD)
Source: Bloomberg
Source: Economic Intelligence Unit (EIU)
IPO Focus
Nominal GDP per Capita has increased with 2006-10 CAGR of 12.6% with private consumption growing at
10.0% annually from 2007-11. We expect this trend to remain robust as real GDP is expected to grow 5.56.5% in 2012.
Supporting Indicators
Young Population with Low Unemployment Rate
Indonesia’s robust economic growth has been the center of attention by both local and international
corporations. Rising GDP per capita coupled with strong consumer demand, low unemployment rate and low
inflation (by historical standards) serve as backbone supporting the growth in Indonesia. As of August 2011,
unemployment rate is around 6.56% and with rising investment in Indonesia which will further drive
unemployment down and create demand for food and non-food-related products and services. Rising young
population who is currently joining the workforce and working up the social hierarchy will be the key driver
for the demand of apparel goods, especially the office wear (shirt and pants for private sectors and uniforms
for state-owned enterprise). While macroeconomic indicators with both consumer confidence and consumer
expectation of future condition have started to deteriorate due to uncertainties in the global markets, issues
surrounding the reduction of fuel subsidies and rising inflation, we estimate that the local/retail apparel
industry will be more resilient to changes in global markets as menswear, especially office apparels and
uniforms, is basic necessity for working adults. However, growth is expected to be slower as spending on
apparel and clothing is often eclipsed by that of staples/food-related products especially during period of
rising inflation. Nevertheless, the rising GDP per capita, urbanization rate, population and employment rate
will drive discretionary spending and apparels.
Chart 7: Indonesian Population is still young
Chart 8: Unemployment rate remains low
Source: BPS Census 2010
Source: Bloomberg
Chart 9: Monthly Consumer Expenditures by Product Group
Source: BPS
5
IPO Focus
Rising wealth and Apparel Sales
The domestic driven GDP growth indicates significant potential with Indonesia being ranked number 7 in
terms of apparel sales as % of GDP and we estimate that the retail apparel industry to grow inline or even
outpacing GDP growth on the backbone of strong consumption. Currently, retail sales efficiency (measured in
annual sales per sqm) is still below its Asian peers demonstrating growth potential that retailers can tap on
to further increase efficiency. Malls and shopping centers are concentrated in the Jabotabek region and with
the scarcity of land and almost saturated markets, more property developers are looking outside this region
to leverage on untapped potential.
Chart 10: Apparel Sales as % of GDP
Chart 11: Sales Efficiency: Annual Sales per sqm (2011) in USD
Source: Euromonitor International, JPMorgan Cazenove
Chart 12: Department Store Density per mn of Urban
Population
Chart 13: Population Demographics by Expenditure per day
Source: World Bank, Sinarmas Sekuritas Estimate
Chart 14: Income Demographics: Rising population with annual income of USD1,500-3,000
Source: AC Nielsen
6
Competitive advantage
IPO Focus
Exports/Garments
PT Trisula International, through its subsidiaries PT Trisula Garmindo Manufacturing (TGMand PT Trimas
Sarana Garment Industry (Trimas), positions itself as the expert in menswear design and manufacturing. Key
clients of TGM include the internationally-renowned menswear brand, Hugo Boss, Hart Schaffner & Marx
whose suits and pants were worn by then-Senator Barrack Obama in his campaign for presidency in 2008,
during his acceptance speech as President of the United States and 2009 President Inaugural Address, Perry
Ellis, Marks & Spencer, NEXT and other brands with international presence. Trimas primarily caters to
Japanese market with all its line of production (6½ lines) are used to produced apparel for exports to Japan.
Its key clients include Mizuno and Hush Puppies Japan. Trimas’ production excellence and trustworthiness
become the center of attention by Japanese apparels company to the extent that the Japanese firms are
willing to purchase new machineries/equipment for Trimas to boost its production efficiency.
In this highly competitive industry, it takes more than low cost to attract international clients. Clients favor
quality, care and commitment - that the firm is able to deliver products of quality above their expectation with
highly-innovative and avant-garde designs while still keeping in touch with reality and at the same time the
firm is highly-committed not to copy/mass produce clients’ designs and sell them to the secondary markets/
outlet. For menswear, functional is no longer the only factor as male consumers increasingly become fashionconscious that comfort, luxury and cutting/designs play integral parts in their decision-making process, even
for a simple office wear. Trisula, with its rich heritage combining the Japanese technology, meticulous stitching
and in-vogue French/Italian designs, is able to uphold their commitment to offer products of high standards at
competitive pricings.
Chart 15: Competitive Advantages of Trisula’s Garments/Exports Division
Source: Company data, Sinarmas Sekuritas Research
7
Retail Division
IPO Focus
Competition in the retail menswear ready-to-wear division is highly cut-throat with competition arising from
other local brands, international brands, factory outlet and imports from China and South Korea that are being
sold via online shops or facebook®. Product differentiation is highly dependent on price, style, comfort and
design with price and comfort, in our opinion, being the decisive factor for the purchase. Menswear design for
office wear is highly limited to cutting (slim-fit, regular and comfort) with mostly use polyester, viscose and
rayon as key materials due to its wrinkle-resistant and stain-resistant. The use of fabrics coated with waterrepellent polymer (Nano-tex) will be the key trend in the future as consumers are demanding more functional
wear that require less treatment/care (wrinkle-free, iron-free and stain-resistant). Trisula offers high-quality
clothing that appeals to the consumers and fashion forward.
Casual and Office Apparel – Red Ocean
Ready-to-wear Uniform – Blue Ocean
Based on our survey to selected department store, UniAsia® is probably the only brand that sells ready-towear uniform that caters to the state-owned enterprise (SOE) or state-sponsored enterprise (SSE). We view
that, due to regulatory enforcement requiring all employees of SOE to wear designated uniform, the ready-towear uniform is a ‘blue ocean’ and Trisula, through its UniAsia® and its expertise in modernizing the look and
cutting of uniform, has taken the opportunity to establish presence in this industry.
Chart 16: Products Breakdown by Brands and their respective competitors
Source: Company data, Sinarmas Sekuritas Research
8
Competitive Forces: Porter 5 Forces on the Retail Segment
IPO Focus
Chart 17: Competitive Analysis Framework—Porter’s 5 Forces
Source: Michael Porter, Sinarmas Sekuritas Research
The apparel industry landscape is highly competitive and buyers are faced with many options to choose from. In
addition, the availability of cheap airfares to Singapore and Hong Kong presents great threat to local retail
industry. Indonesia has been consistently ranked number 1 in terms of International Visitors Arrival at Singapore
with a total of 1.9mn tourists visiting Singapore in the first 3 quarters of 2011.Based on Singapore Tourism
Board data, Indonesian tourists spent a total of SGD223.1mn on retail therapies alone in 2Q2011 and
SGD218.7mn in 3Q2011, with January-September 2011 totaling to SGD634.2mn .
Chart 18: International Visitors Arrival (Top 10 markets)
USA
Jan-Dec 2010
Jan-Sep 2010
Jan-Sep 2011
Thailand
Hong Kong SAR
Chart 19: Tourism Receipts from Indonesian Visitors from
Jan-Sep 2011; 100% = SGD2.1bn
Shopping
Accommodation
Japan
Food & Beverage
Others
30%
Philippines
45%
India
Australia
Malaysia
PR China
9%
Indonesia
16%
0
1000
2000
Thousands
Source: Singapore Tourism Board
9
Source: Singapore Tourism Board
Figure excludes Sightseeing, Entertainment and Gaming
IPO Focus
The cheaper pricing, albeit it is no longer the case as SGD has been appreciating against IDR recently, and the
availability of more options are key factors that attract Indonesian tourists to shop in Singapore. Furthermore,
the Japanese Global Giants, Fast Retailing Co Ltd, with UNIQLO under its umbrella and the Swedish Hennes &
Mauritz AB, which are all well-known for their trendy and yet affordable clothing lines and their frequent
collaboration with international renowned designers such as U+J (UNIQLO with Jil Sander), H&M with Lanvin
(Alber Elbaz), H&M with Jimmy Choo and others are present in Singapore. Due to their aggressive pricing,
UNIQLO and H&M tend to target middle-high to middle-low income and we believe that by leveraging on their
superior brand equities and competitive pricing, their presence will significantly heighten the already intense
competitive landscape in the local retail industry and it has the potential to threaten the survivability of small
retailers with limited brand equity. H&M and UNIQLO have penetrated Singapore’s market and despite their
higher than regional (Hong Kong) pricing, they attract long queue for a week since their opening debut.
Together with the already present Inditex’s Zara (which is able to provide designers’ runway RTW designs at
street-wear pricing) , Marks & Spencer, Next, the smaller brands will feel the strain and pressure and in order
to compete, pricing must be aggressive.
The menswear design, especially the office/formal wear, is fairly standard with little product differentiation.
The differentiation usually takes place in the quality of materials, stitching details (hand-sewn or machinesewn), embellishment (sequin, embroidery), patterns, cuttings (bespoke/made-to-measure, slim-fit, relaxedfit and regular fit), buttons and cuffs (French cuff, mother-of-pearl design and others). TI’s target market is
the medium to medium-low income segment which tend to be relatively price-conscious and they tend to
prioritize price and comfort over other factors. This further reduce the product differentiation level to pricing,
patterns and cuttings.
We expect aggressive pricing competition and promotional discounts through
collaboration with credit card companies (as of publication, Jack Nicklaus Plaza Indonesia is offering 15%
discount with CIMB) and end-of-season sales in order to increase sales, reducing profitability and margin.
Furthermore, TI uses stain-resistant fabric (Nanotex) on some of its products, safety pocket to provide extra
layer of safety on pockets and Maxpander (invisible elastic waste bands on office pants) which will appeal to
young executives seeking for easy maintenance apparels.
Supplier wise, TI is able to leverage on its more established, affiliated company in textile industry, PT Trisula
Textile Industries which provides constant supply of fabrics at competitive pricings. The textile company is able
to source its fibers from China and as such, we view that TI has strong bargaining position from its suppliers.
Trisula’s extensive networks allow TI to leverage on their connections
The acquisition of Trisco will further strengthen the uniform branding of TI. Trisco is specialized in
manufacturing jackets, suits/blazers, made-to-measure uniform and corporate apparels. Its key clients include
Marina Bay Sands Singapore, Sands Macao, Singapore Airlines Ground Crew, CIMB and other corporations/
banking institutions. Trisco has presence in Singapore, Indonesia, Australia and other Asia Pacific countries. It
aims to provide customized tailoring services that accepts small orders making it one of the preferred uniform
tailors in Asia Pacific. The acquisition, in our opinion, should be smooth and full integration is expected within
weeks of acquisition without any major problems. Furthermore, we expect the acquisition to be EPS-accretive
to TI and any cost savings, especially in the promotional and marketing development, will be realized easily.
Based on our calculations, TI acquired 50% stake of Trisco at 13% discount to Trisco’s fair value (we value
Trisco at IDR62.4bn with its 50% stake at IDR31.2bn; Independent Appraisal’s valuation on 50% stake of
Trisco is at IDR29.2bn). Acquisition at discount rarely happens in global markets and we can account this to
the fact that both TI and Trisco are partly owned by the same ultimate shareholders, Dedie Suherlan and Kiky
Suherlan. They are willing to accept discount to valuation to provide a higher return to new shareholders and
attract shareholders to invest in TI. This also showcases that its founder cares about the company and their
potential shareholders.
10
Acquisition of Trisco might introduce AUD FX risk which, in our opinion, is a significant risk considering the
fact that AUD has rapidly depreciated against USD to level below parity within 1 month. Trisco produced
suits, blazers, pants and formal apparels for majority of Australian corporate wear market. Further
depreciation of AUD against IDR will affect balance sheet of Trisco, and thus TI, and FX losses have to be
factored in the Income Statement affecting TI’s net income. However, according to the management team,
Trisco will change its nature of transaction to USD by July 2012 to synchronize the FX income stream to its
parent company and minimize FX risk.
Chart 20: Trisco’s AUD exposure through Receivables and Payables in IDR equivalents
Billions IDR
IPO Focus
Risk Analysis
Adverse economic conditions.
Trisula Garment/Exports business is highly susceptible to global demands and during period of distress,
demand for apparels might diminish and this will impact Trisula’s financial performance. For the domestic
markets, period of high inflation often results in people spending less on discretionary products such as
apparels which might hamper its revenue growth. Significant promotional sales/discount to entice customers
to purchase might also reduce the margin and thus its profitability.
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
2009
2010
Account Receivables
2011
Account Payables
Source: Company data
Rising commodity prices.
Garment and textiles industry are highly susceptible to increase in prices of cotton and crude oil (as crude oil
is the raw materials for the manufacturing of polyester, nylon and other synthetic fibers). Rising commodity
prices might affect Trisula’s margin if it is not accompanied by increase in selling prices. For garments/
exports business, we estimate that cost transfer is always possible and pricing adjustment is on per batch
basis. Based on Indonesia Textile Association, almost 70% of total energy is derived from electricity and the
removal of 18% cap on basic electricity tariff will result in 16%-17% rise in production cost. While we are
highly confident that this cost can partially be transferred to buyer, this will potentially affect the competitive
advantage of Trisula, and in general Indonesian textile companies. Rising cost might also result in margin
compression, affecting its profitability and even its survivability.
Chart 22: Average Industrial Electricity Tariff (IDR/kWh)
Chart 21: Cotton, WTI Brent Crude
120
110
100
90
80
70
60
50
01/09
07/09
01/10
Cotton (Uscents/lb)
Source: Bloomberg
11
07/10
01/11
07/11
01/12
WTI Crude Oil (USD/barrels)
Source: PLN
Rising Wages and Rental fees
The garment industry is highly-labor intensive and as such it is relatively sensitive to rising labor cost.
However, direct labor and salaries only made up of 3%-5% of COGS and the management team is fairly
confident that these costs can be transferred to buyer in order to maintain gross margin of 20%-25%.
For the retail segment, rising wages, raw materials and rental fees will severely affect the profitability of this
segment as cost transfer to consumers without sacrificing market share in highly competitive industry is
highly unlikely. Retail segment tends to have higher gross margin in the range of 35%-40% and rising costs
might decrease gross margin to the range of 25%-35%. Nevertheless, prudent management of human
resources, effective use of materials and reduction of redundancies will increase efficiency and thus
profitability margin.
Chart 23: COGS breakdown
Billions IDR
IPO Focus
Trends & Fashions
Fashion industry tends to be very volatile and the company must keep up with the current or set the new
trend, if possible, in order to maintain its presence in the industry. Advertisement, fashion shows and other
marketing materials are cost upfront and the firm must selectively utilize it to realize desired outcome.
250
200
150
100
50
-
2009
Direct Labour
2010
Salaries
Raw materials
2011
Others
Source: Company Data
Execution Risk on Distribution Channels
For the retail industry, TI strategically plans to accelerate its retail expansion to 350 points-of-sales (POS)
from the current 165 POS by 2015 to boost retail sales. Risk arises if TI is unable to operate the stores
carefully and rising competition or specific in-store promotion resulting in cannibalism among the stores.
Inventory overrun which potentially lead to mark downs will destroy brand image and thus TI must plan its
inventory requirements carefully and only assign aggressive markdowns for specific events or festivities and
on inventories from prior seasons. Furthermore, we are more concern on the lack of strategy on how the
company will add new POS effectively which intensify the execution risk of the company. While having a target to reach is good, it will be waste of resources if it does not have clear cut strategy on how to reach the
target. Using the IPO proceeds to pay for the company’s learning costs might potentially be valuedestructive to the new shareholders.
12
IPO Focus
Competition
The level of industry competition in both retail and garments exports is extremely high with China being
the main exporter in the global apparels. Indonesian retail sector is dominated by brands franchised/
brought in by PT Mitra Adi Perkasa Tbk (MAP) that include global brands such as Inditex’s Zara, Massimo
Dutti, Stradivarius, UK’s Marks & Spencer and other renowned international brands. Consequently, the
playing field is highly cut-throat and it is purely based on ‘the survival of the fittest’. Fortunately, the current absence of other global giants such as Fast Retailing’s UNIQLO and H&M provides temporary respite
to small fashion apparel retailers.
The availability of cheap air ticket to Singapore and Hong Kong further threaten the retail industry in Indonesia. Singapore, due to its close proximity to Indonesia, frequent promotions from budget airlines, its
annual ‘Great Singapore Sales’ event and tourists’ tax refund policies, has attracted shoppers from Indonesia.
Chart 24: Cotton Apparel Exports price per unit (USD)
Source: US Dept. of Commerce, Bloomberg
13
Chart 25: Average Exports Value (T12M) per unit (USD)
Chart 26: Cotton Apparel Exports Value
Chart 28: Value of Indonesia Clothing Exports
Source: WTO
Source: WTO
Chart 29: Top 10 clothing exporters by value
Chart 30: Monthly Salaries rate Comparison
Source: WTO
Source: Planet Retail (2010), JPMorgan Cazenove
IPO Focus
Chart 27: Value of China Clothing Exports
The global apparel manufacturing industry is highly competitive with China being the leader in the apparel
export market by value. Indonesia ranked 6th by value of apparel exports and it will be steep uphill climb for
Indonesia because cost of production in Indonesia is higher as evidenced from the higher average price per
unit of cotton apparel exported and higher monthly salaries as compared to other countries such as China and
Bangladesh. In order to circumvent the competition, Trisula must maneuver through the landscape and
provide value-added products and services at competitive pricing which consequently might introduce
additional cost resulting in lower margin.
14
IPO Focus
Financial
Income Statement
We estimate that revenue will grow 15% 2011-2017F CAGR. This growth is mainly driven by the expansion
in the retail/locals (2011-2017F CAGR of 23%) while the garments/exports business will grow at 14% within
the same period. The real estate business is considered insignificant because TI leases this real estate to its
own affiliates and despite the management claims that there is no transfer of pricing, post-intercompany
transaction elimination, the real estate business yields negative margin. However, owning the real estate
boosts the asset base of the company and it can be collateralized for loans with banks. Furthermore, the
designs of the building reflects Trisula futuristic designs, a key point that will impress its clients.
Table 1: P&L Assuming Completion of Acquistion (mn IDR)
Revenue
2009*
297,157
294,197
248,211
45,986
2,960
2010*
383,448
29.04%
381,048
326,095
54,953
2,400
2011*
472,454
23.21%
470,131
408,145
61,986
2,323
2012F
563,316
19.23%
560,876
486,660
74,216
2,440
2013F
654,976
16.27%
652,415
563,974
88,440
2,562
2014F
745,239
13.78%
742,550
633,157
109,393
2,690
2015F
852,860
14.44%
850,036
711,484
138,552
2,824
2016F
978,951
14.78%
975,986
800,228
175,757
2,965
2017F
1,106,513
13.03%
1,103,399
885,161
218,238
3,114
yoy growth rate (RHS)
Garments
Export
Locals
Real Estate
COGS
Garments
Real Estate
236,972
234,808
2,164
313,732
311,415
2,317
364,573
362,074
2,500
431,673
429,074
2,599
492,891
490,202
2,690
558,557
555,778
2,779
636,416
633,544
2,872
731,281
728,310
2,971
826,967
823,890
3,077
Gross Profit
Gross Profit Margin
60,185
20.25%
69,716
18.18%
107,881
22.83%
131,642
23.37%
162,085
24.75%
186,682
25.05%
216,443
25.38%
247,670
25.30%
279,546
25.26%
SG&A
Total SG&A
38,964
38,964
46,381
46,381
61,341
61,341
76,876
76,876
88,739
88,739
102,976
102,976
119,686
119,686
138,076
138,076
156,718
156,718
EBIT
EBIT Margin
21,221
7.14%
23,335
6.09%
46,540
9.85%
54,766
9.72%
73,346
11.20%
83,707
11.23%
96,757
11.35%
109,594
11.20%
122,828
11.10%
Non-Operating Income
Net Interest Income
Interest Income
Interest expenses
Gains on Sales of Fixed Assets
FX Gains (Losses)
Others
-2,360
-4,117
573
4,690
0
1,565
192
-82
-3,129
125
3,254
0
2,521
526
-4,076
-3,691
199
3,890
364
-1,775
1,026
-3,407
-3,407
187
3,593
0
0
0
-5,063
-5,063
280
5,343
0
0
0
-5,119
-5,119
663
5,782
0
0
0
-6,198
-6,198
972
7,170
0
0
0
-6,921
-6,921
1,258
8,179
0
0
0
-8,320
-8,320
1,671
9,991
0
0
0
PBT
18,862
23,253
42,464
51,360
68,283
78,587
90,560
102,673
114,509
Income Tax Expenses
Income Tax Rate
5,079
26.93%
5,826
25.05%
9,196
21.66%
12,840
25%
17,071
25%
19,647
25%
22,640
25%
25,668
25%
28,627
25%
PAT
Minority Interests
Pro Forma Net Profit
net margin
13,783
4,478
9,305
3.13%
17,428
6,237
11,190
2.92%
20.3%
33,268
12,763
20,505
4.34%
83.23%
38,520
8,010
30,510
5.42%
48.8%
22,500
8,010
51,212
11,499
39,713
6.06%
30.2%
28,214
11,499
58,940
12,508
46,432
6.23%
16.9%
33,924
12,508
67,920
13,625
54,295
6.37%
16.9%
40,670
13,625
77,005
14,733
62,272
6.36%
14.7%
47,539
14,733
85,881
15,877
70,005
6.33%
12.4%
54,128
15,877
6,722
27,943
9.40%
6,462
29,797
7.77%
6,597
53,137
11.25%
7,389
62,155
11.03%
7,665
81,011
12.37%
8,650
92,357
12.39%
9,697
106,455
12.48%
10,859
120,453
12.30%
12,139
134,968
12.20%
1,269.30
13.6%
8,214.00
73.4%
2,122.00
10.3%
4,918.09
16.1%
9,235.54
23.3%
10,845.18
23.4%
12,730.79
23.4%
14,640.83
23.5%
16,487.93
23.6%
Yoy growth rate
Buyer's Standalone PF Net Income
Accretion/(Dilution)
Depreciation
EBITDA
EBITDA Margin
Payout
Payout Ratio
Source: Company Data, Sinarmas Sekuritas Research
*: indicates Trisco Acquisition has been factored in
15
IPO Focus
Chart 31: Revenue Breakdown by Segment
Chart 32: Margin Expansion from acquisition of TRISCO and expansion in Retail segment
Chart 33: 2011 Pre-elimination Gross Profit breakdown
and its respective margin
Retail
Property
Chart 34: 2011 Pre-elimination EBIT breakdown and its
respective margin
Retail
Garment
Gross
Margin:
33.4%
16
Garment
EBIT
Margin:
5.5%
Gross
Margin:
42%
Gross
Margin:
12.5%
Property
EBIT
Margin: 4%
EBIT
Margin:
32.4%
IPO Focus
17
Return on Capital Analysis
We estimate the Return on Capital Employed (ROCE) to be in the range of 17% with ROIC/WACC consistently above 1.1x throughout 2012F-2017F. In comparison to its local peers, Trisula is among the cheapest
(assuming the IPO takes place at the highest range of IDR300 per share) by P/E with relatively high ROIC/
WACC, ROCE and 3-year EPS CAGR (excluding extraordinary items). The undervaluation in the IPO pricing
will be one of the key factors to entice investor to invest in the shares.
Table 2: Return on Capital and ROE Anaysis
2009
ROIC
17.8%
ROCE
19.5%
ROIC/WACC
1.15
IC as % of Capital Employed
100%
2010
12.6%
15.1%
0.82
100%
2011
18.2%
25.6%
1.18
100%
2012F
17.1%
17.0%
1.11
99%
2013F
19.6%
19.4%
1.27
99%
2014F
19.6%
17.5%
1.27
89%
2015F
17.6%
17.4%
1.14
99%
2016F
17.6%
17.3%
1.14
99%
2017F
17.3%
17.2%
1.12
99%
DuPont Analysis
EBIT Margin
Interest Burden
Tax & Minorities Burden
Total Asset Turnover
Financial Leverage
ROE (Sinarmas Sekuritas Research)
6.09%
1.00
0.75
1.79
1.92
15.7%
9.85%
0.91
0.78
1.98
1.75
24.4%
9.72%
0.94
0.59
1.69
1.41
12.9%
11.20%
0.93
0.58
1.71
1.39
14.4%
11.23%
0.94
0.59
1.56
1.49
14.5%
11.35%
0.94
0.60
1.53
1.37
13.3%
11.20%
0.94
0.61
1.53
1.38
13.5%
11.10%
0.93
0.61
1.52
1.39
13.4%
7.14%
0.89
0.73
1.81
2.15
18.1%
Chart 35: P/E vs 3-yr EPS CAGR (ex XO Items)
Chart 36: Current P/E vs ROCE
Source: Bloomberg, Sinarmas Sekuritas Research Estimate
Chart 37: P/E vs ROIC/WACC ratio
Chart 38: Comparison of ROCE, ROIC and ROIC/WACC
IPO Focus
Valuation
SOTP-DCF Valuation
Target price was derived via sum-of-the-part analysis. For the main company, we discretely forecast growth
rate of each division till 2025 and assume constant long term terminal growth rate of 3%. DCF-based
methodology is appropriate because of the availability and visibility of its revenue and earnings and there is
lagging period for investment in new equipment and manufacturing facility and DCF allows us to discretely
forecast the revenue generated. We assume the WACC to be 15.4% to adjust for higher risk of private
companies.
For Trisco, we discretely forecast its revenue growth rate till 2025 and assume constant long term terminal
growth rate of 3%. Similar to TI, we assume WACC to be 15.4%
Table 3: DCF Output Summary
WACC
Terminal Growth rate
NPV
15.4%
3.0%
325,169
Total Cash
Total Debt
Minority Interest
Enterprise Value
7,671
59,812
2,433
270,596
Fair value of TRISCO (50% stake)
Total Enterprise Value
29,086
299,682
Shares Issued (including fully exercised warrants)
1075
on per share basis
278.77
Source: Company data, Sinarmas Sekuritas Estimate
Comparables Analysis—EV/EBITDA and EV/Sales
For this methods, we short-listed few local and global comparable companies and determine the EV/Sales
and EV/EBITDA. The price range was determined from 0.5 standard deviation (σ) from the mean.
Table 4: Comparables Valuation Summary
EV/EBITDA
-0.5σ
Average
+0.5σ
EV/Sales
-0.5σ
Average
+0.5σ
Multiples
6.6
9.20
11.8
0.8
1.1
1.5
TI
243,435
340,099
436,764
277,665
404,543
531,422
EV
TRISCO (50%)
87,038
121,599
156,161
80,264
116,940
153,617
Source: Company data, Sinarmas Sekuritas Estimate
18
TOTAL
330,473
461,699
592,925
Net Cash
(60,549)
(60,549)
(60,549)
Minority Interest
2,433
2,433
2,433
Equity Value
267,491
398,717
529,943
357,929
521,484
685,039
(60,549)
(60,549)
(60,549)
2,433
2,433
2,433
294,947
458,502
622,057
per share
248.83
370.90
492.97
274.37
426.51
578.66
IPO Focus
Table 5: Comparable Companies
EV/EBITDA
T12M
7.8
23.8
10.2
7.9
8.3
17.7
12.6
LFY
0.6
2.0
0.8
1.5
0.9
0.6
1.1
EV/Revenue
T12M
0.6
1.9
0.8
1.5
0.9
0.6
1.1
Ricky Putra
Mitra Adi Perkasa
Pan Brothers
Golden RetailIndonesia
Ramayana Lestari
Matahari Putra Prima
Local Average
Global Comparables
Men's Wearhouse
JOS A Bank Clothing
Casual Male Retail
Ross Stores Inc
American Eagle
Chico's FAS
Abercombie & Fitch
Guess? Inc
Gap Inc
Aeropostale Inc
Urban Outfitter
Ralph Lauren Corp
RICY IJ
MAPI IJ
PBRX IJ
GOLD IJ
RALS IJ
MPPA IJ
LFY
6.6
12.8
11.6
7.1
8.4
17.7
10.7
MW US
JOSB US
CMRG US
ROST US
AEO US
CHS US
ANF US
GES US
GPS US
ARO US
URBN US
RL US
5.7
5.4
5.1
11.0
5.0
7.1
8.1
4.4
6.9
9.3
9.8
11.3
5.7
5.4
5.1
10.5
5.0
6.8
8.1
4.4
6.9
6.2
8.8
9.5
0.7
1.0
0.4
1.6
0.6
1.1
0.8
0.8
0.9
0.7
1.6
2.1
0.7
1.0
0.4
1.5
0.6
1.0
0.8
0.8
0.9
0.7
1.5
1.8
Fast Retailing Co Ltd
9983 JP
10.2
9.7
1.8
1.6
Hennes & Mauritz AB
HMB SS
15.7
15.6
3.4
3.3
Giordano International
Esprit Holdings
Bossini International
709 HK
330 HK
592 HK
7.1
5.1
3.6
7.1
23.4
3.6
1.3
0.4
0.3
1.3
0.4
0.3
Benetton
BEN IM
5.9
6.4
0.7
0.7
NEXT plc
Marks & Spencer plc
NXT LN
MKS LN
7.0
5.5
7.0
5.5
1.5
0.7
1.5
0.7
Inditex
Global Average
σ
ITX SM
11.9
7.7
3.1
11.9
8.2
4.5
2.8
1.2
0.8
2.8
1.2
0.8
8.3
3.5
9.2
5.2
1.2
0.7
1.1
0.7
Average Total
σ
Source: Bloomberg, Company data, Sinarmas Sekuritas Estimate
Chart 39: Valuation Summary in “Football field” Representation
Source: Sinarmas Sekuritas Estimate
Assume total dilution or all warrants are exercised yielding 1,075 mn shares outstanding
Fair Value range will be the overlapping region (IDR275-340, assuming full dilution)
19
IPO Focus
Appendix
Proceeds of Funds
65% of the proceeds will be used for expansion in the retail segment and the company plans to bring in new
brand in order to boost its retail revenue. TI plans to boost its number of POS to 350 by 2015. It is, however,
unclear on how the firm will carry it out. Extreme due diligence in order to successfully maneuver in this
highly-competitive retail industry is required prior to expansion. We believe that with significant experience
from their operations in the industry, TI should be more familiar with the industry and it is able to expand
effectively and efficiently.
35% of the proceeds will be used to acquire Trisco (Trisco is partly owned by the founder of TI)
POS: Points of Sales; DOS: Directly Owned Stores
20
Ownership Structure
Pre-IPO Ownership Structure
IPO Focus
Appendix
Post-IPO Ownership Structure with Acquisition of Trisco
21
IPO Focus
Appendix
International Retail Brands Pyramid (our version)
The pyramid is constructed based on approximate price of a dress shirt and/or a pair of trouser. For certain
brands, especially the casual wear segment, short-sleeve shirt/T-shirt and/or casual pants are considered
instead.
Price range is in Indonesian Rupiah based on our survey to selected malls in Jakarta. Prices are stated before
any discount or promotion, if any, to reflect fairness among the brands.
22
IPO Focus
PT Trisula International Tbk
2009
2010
2011
Fiscal Year End
Income Statement (IDR bn)
Sales Revenue
Gross Profit
Operating Income
Depreciation & Amortization
EBITDA
Other non-operating income
Net Interest Income (expense)
Profit before tax
Tax expenses
Profit after tax
Minority Interests
Net Profit
177,611 230,780 288,199
35,712 38,238 52,361
10,208
9,177 13,891
4,698
4,545
4,585
14,906 13,722 18,476
181
310
302
-3,211 -2,457 -3,034
7,179
7,031 11,159
1,882
1,826
2,790
5,297
5,204
8,370
235
126
314
5,062
5,079
8,056
Cash Flow (IDR bn)
Operating Cash Flow
Capex
Property Investment
Free Cash Flow
Investing Cash Flow
Financing Cash Flow
17,617 -26,631
636
3,749
128
0
16,854 -30,380
-763
-3,748
-16,410 35,794
2009
Trisco
2010
2011
119,546 152,668 184,255
24,473 31,478 55,520
11,013 14,158 32,649
3,280
3,174
3,284
14,293 17,332 35,933
1,576
2,736
-688
-906
-672
-656
11,683 16,223 31,305
3,197
3,999
6,407
8,486
12,223 24,898
0
0
0
8,486
12,223 24,898
-3,865
5,806
260
-9,930
-5,141
9,262
6,723
3,750
0
2,973
-3,750
-4,930
9,183
1,871
0
7,312
-1,871
-4,639
17,634
2,305
0
15,329
390
-13,867
7,671
2,697
5,370
9,527
2013F
Post-Acquisition of Trisco
2014F
2015F
2016F
2017F
563,316 654,976 745,239 852,860 978,951
131,642 162,085 186,682 216,443 247,670
54,766 73,346 83,707 96,757 109,594
7,389
7,665
8,650
9,697
10,859
62,155 81,011 92,357 106,455 120,453
0
0
0
0
0
-3,407 -5,063 -5,119 -6,198 -6,921
51,360 68,283 78,587 90,560 102,673
12,840 17,071 19,647 22,640 25,668
38,520 51,212 58,940 67,920 77,005
8,010
11,499 12,508 13,625 14,733
30,510 39,713 46,432 54,295 62,272
1,106,513
279,546
122,828
12,139
134,968
0
-8,320
114,509
28,627
85,881
15,877
70,005
-13,486 31,802 57,038 64,904 67,040
9,836
11,138 12,371 13,793 15,418
146
154
269
282
237
-23,468 20,510 44,398 50,829 51,385
-46,888 -22,873 -45,724 -28,919 -32,579
76,983
242
23,024
6,036
-168
84,374
17,096
187
67,092
-36,468
5,984
36,997
108,811 156,100 196,604
257,646
Balance Sheet (IDR bn)
Cash & cash equivalents
2,391
7,806
Account Receivables and other
21,729 33,217
receivables
Inventories
31,250 51,112
Other Current assets
4,935
6,855
Net fixed assets
26,507 27,094
Other Non-Current Assets
19,829 18,201
Total Assets
106,640 144,284
Short term Liabilities
57,908 65,150
Long term Liabilities
1,659
2,675
Total Liabilities
59,566 67,825
Shareholders’ Equity
44,881 74,090
Minority Interest
2,192
2,369
Total Equity & Liabilities
106,640 144,284
38,790
12,956
15,095
13,316
68,027
73,249
88,815
98,235
118,266
127,888
64,906
6,103
29,912
17,863
165,246
76,958
3,966
80,924
81,889
2,433
165,246
17,602
3,596
20,196
643
57,691
27,026
1,385
28,411
29,280
0
57,691
23,800
4,869
19,476
781
69,390
32,465
2,057
34,523
34,867
0
69,390
26,684
3,785
19,289
378
72,979
18,693
2,280
20,972
52,006
0
72,979
122,948
14,733
51,647
38,158
332,511
90,368
6,036
96,404
196,622
39,485
332,511
150,814
17,711
55,121
35,315
382,207
99,315
7,416
106,731
224,256
51,220
382,207
162,349
20,357
58,841
38,250
477,422
117,953
39,782
157,735
255,114
64,574
477,423
187,946
23,490
62,937
40,574
569,282
138,922
23,641
162,563
327,020
79,699
569,282
212,459
27,026
67,496
40,896
662,746
165,424
35,229
200,653
365,233
96,860
662,746
238,681
30,544
72,452
40,167
767,378
190,429
53,594
244,022
407,124
116,232
767,378
Key Ratio
PF Revenue Growth (%)
PF EPS Growth (%)
EBITDA Margin (%)
Payout Ratio (%)
ROE (%)
Quick Ratio (×)
Debt/Equity (%)
23.21%
83.24%
6.41%
0.00%
9.84%
0.60
0.37
n/a
n/a
11.96%
12.23%
28.98%
0.58
0.33
27.71%
44.04%
11.35%
54.93%
35.06%
0.63
0.28
20.69%
103.69%
19.50%
8.52%
47.87%
1.22
net cash
19.23%
48.8%
11.03%
16.12%
12.92%
1.16
0.06
16.27% 13.78%
30.16% 16.92%
12.37% 12.39%
23.26% 23.36%
14.42% 14.52%
1.24
1.68
0.04
net cash
14.44%
16.93%
12.48%
23.45%
13.35%
1.83
net cash
14.78%
14.69%
12.30%
23.51%
13.48%
1.90
net cash
13.03%
12.42%
12.20%
23.55%
13.38%
2.02
net cash
n/a
n/a
8.39%
4.57%
11.28%
0.42
0.80
29.94%
2.20%
5.95%
29.53%
6.85%
0.63
0.47
Source: Company Data, Sinarmas Sekuritas Research; PF = Pro-Forma
23
2012F
49,997
IPO Focus
Disclosure
24
Sinarmas Sekuritas will act, or have acted, as lead manager in a public offering of equity security for PT
Trisula International Tbk.
Sinarmas Sekuritas currently has PT Trisula International Tbk as its investment banking clients and will seek
compensation for investment banking-related services from PT Trisula International Tbk within the next 3
months.
Disclaimer
IPO Focus
This report has been prepared by PT Sinarmas Sekuritas, an affiliate of Sinarmas Group.
This material is: (i) created based on information that we consider reliable, but we do not represent that it is
accurate or complete, and it should not be relied upon as such; (ii) for your private information, and we are
not soliciting any action based upon it; (iii) not to be construed as an offer to sell or a solicitation of an offer
to buy any security.
Opinions expressed are current opinions as of original publication date appearing on this material and the information, including the opinions contained herein, is subjected to change without notice. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different
results. The analyst(s) responsible for the preparation of this publication may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, integrating and interpreting
market information. Research will initiate, update and cease coverage solely at the discretion of Sinarmas Research department. If and as applicable, Sinarmas Sekuritas’ investment banking relationships, investment
banking and non-investment banking compensation and securities ownership, if any, are specified in disclaimers and related disclosures in this report. In addition, other members of Sinarmas Group may from time to
time perform investment banking or other services (including acting as advisor, manager or lender) for, or
solicit investment banking or other business from companies under our research coverage. Further, the Sinarmas Group, and/or its officers, directors and employees, including persons, without limitation, involved in the
preparation or issuance of this material may, to the extent permitted by law and/or regulation, have long or
short positions in, and buy or sell, the securities (including ownership by Sinarmas Group), or derivatives
(including options) thereof, of companies under our coverage, or related securities or derivatives. In addition,
the Sinarmas Group, including Sinarmas Sekuritas, may act as market maker and principal, willing to buy and
sell certain of the securities of companies under our coverage. Further, the Sinarmas Group may buy and sell
certain of the securities of companies under our coverage, as agent for its clients.
Investors should consider this report as only a single factor in making their investment decision and, as such,
the report should not be viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. Recipients should not regard this report as substitute for exercise of their
own judgment. Past performance is not necessarily a guide to future performance. The value of any investments may go down as well as up and you may not get back the full amount invested.
Sinarmas Sekuritas specifically prohibits the redistribution of this material in whole or in part without the written permission of Sinarmas Sekuritas and Sinarmas Sekuritas accepts no liability whatsoever for the actions
of third parties in this respect. If publication has been distributed by electronic transmission, such as e-mail,
then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted,
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transmission. If verification is required, please request a hard-copy version.
Additional information is available upon request.
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©Sinarmas Sekuritas(2012). All rights reserved.
25

Sinarmas Sekuritas Investment Research PT TRISULA

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