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MAP Active: Quintessential Underdog Story

Updated: Aug 23, 2021

Why MAP Active (IDX: MAPA) is Down for The Count, but not Out

Source: company

Executive Summary

  • MAPA's current valuation assumes that the pandemic’s impact will extend indefinitely, with growth only coming from meager same-store-sales-growth and virtually no expansion

  • Indonesia's sporting goods market is poised for rapid growth on the backs of increasing disposable income and health trends

  • MAPA is uniquely equipped to market and distribute sporting goods to all segments of Indonesia's demographics

Being firm believers of investing in businesses that have: an impregnable economic moat, a long runway for growth, capable and trustworthy management, a robust balance sheet, and an attractive valuation, we think it’s very fitting that our first post will be about PT Mitra Aktif Adiperkasa Tbk (MAPA), a business that delivers on all of those facets with flying colors.

MAPA is Mitra Adiperkasa (MAP) Group’s business unit that sells sporting goods, footwear, and children’s goods throughout retail outlets in Indonesia and Vietnam. The business began when its parent company - PT Mitra Adiperkasa Tbk (MAPI) - first established a Sports Station outlet in 1995. The business has since then been spun-off in 2015, and was listed on the Indonesia stock exchange in April 2018.

As of the end of 2019, the group operated 1,173 outlets throughout Indonesia and 5 outlets in Vietnam, netting an annual revenue of IDR 7,447 bn or c~ USD510 mn.

Breakaway growth

Increasing wealth and disposable income makes Indonesia fertile ground for businesses that offer consumer goods, sporting goods included. For most countries, increased prosperity causes a shift towards less physical lifestyles caused by increasing adoption of white collar occupations and conveniences that reduce requirements of physical chores. It also grants the populace room for discretionary spending, especially those that provide entertainment and social benefits, such as recreational physical activities. A certain level of spending capacity is required for businesses to profit from delivering yoga classes, designer basketball shoes, etc. While by no means the only driver of sports participation, wealth has a significant impact on most countries’ recreational physical activity markets nonetheless. Below is a scatterplot of 20 Asia-Pacific countries’ GDP per capita and sports participation rate, with the size of each point indicating each country’s market size per capita:

Sources: Asian Development Bank, The World Bank

A case in point for this argument is China. The rapidly growing economic powerhouse, like Indonesia, has the advantage of sheer population size. However, on top of its over 1.3 bn residents, China’s sportswear market size is also heavily driven by the increased USD spending per person. The country has reached a point where the market size per capita is growing at a faster rate than GDP per capita, as a larger proportion of earnings can be allocated to things outside of basic necessities like food, clothing, and housing once an increasing proportion of the population is able to adequately fulfill their basic needs.

Sources: Statista, The World Bank

Dominating the playing field

According to Euromonitor, Indonesia’s international sportswear market amounted to c~ USD 1.1 bn in 2017, and MAPA was able to capture 46.76% of this enormous market, with the second-largest player in the industry commanding a much smaller portion. It was also able to secure an average operating (EBIT) margin of around 13% throughout the period of 2017-2019.

MAPA’s stellar performance can be attributed to: a portfolio of distribution rights and good relationships with the world’s most valuable brands, a market strategy that targets a very broad range of middle-income Indonesians, and a strong synergistic relationship with MAP group.

World’s most valuable sports brands

MAPA has distribution rights to six of the 10 sportswear brands with the largest worldwide revenue in 2020.

Sources: company, brand companies’ financial reports

If you remotely participate in sports and/or have been to a shopping mall or department store, there is very little probability that you will not recognize most of the above brands. These household names are staples for sports participants, creating the highest quality products and endorsing athletes and events in the most widely adopted sporting activities in the world such as football, basketball, tennis, golf, strength training, yoga, running, etc.

Multi-channel gameplan

In 2019, 84.16% of MAPA’s selling space in Indonesia consisted of multi-brand outlets.

Source: company

While it might seem counterintuitive to market a cornucopia of different brands instead of focusing on one in every store to highlight each individual brands’ specialties and unique image, the strategy is very effective in targeting Indonesia’s middle income class that mostly do not care to always procure the newest Jordans or set up tents to queue for limited edition Yeezy’s. For most middle-income Indonesians looking for sporting goods or apparels (myself included), planning starts with a budget or price range. By going to multi-brand outlets, customers are more comfortable in making their purchase as they can compare a catalogue of products from a wide range of brands, as opposed to exclusively from Nike or Adidas. This concept also encourages larger transaction values per customer, as the outlets act as one-stop-shops for sporting apparels for people who may like Adidas shoes but also like Nike track pants.

Connection to MAP Group

MAP Group virtually represents Indonesia’s modern consumer retail industry. Outside of MAPA, a vast majority of the most prominent brands that operate in Indonesia’s shopping malls throughout the whole of its archipelago such as: Zara, Pull & Bear, Genki Sushi, and Starbucks controlled by MAP Group. MAPA’s connection to MAP Group allows it to tap into a nationwide network of logistics systems and shopping malls, where MAP Group outlets are frequently anchor tenants that receive favorable lease terms.

Source: financial statements

Championship quality, underdog stakes

In April of 2019, MAPA’s price hit an all-time high, trading at IDR 8,450 per share. Exactly one year later in April of 2020, however, it dipped into an all-time low of IDR 1,575 per share at the peak of Indonesia’s Covid-19 scare. The stock has since hovered within the IDR 2,100 - 2,600 per share range until today.

So what exactly changed fundamentally within the business or even the industry within which MAPA operates? Did the pandemic really permanently change the attractiveness of MAPA’s industry and business model?

Sources: company, IDX

MAPA’s latest share price range of c. IDR 2,100 - 2,600 per share implies that the business will make no meaningful operational recovery, with monthly revenue per sqm of selling space growing at 5% per year similar to Indonesia’s average GDP growth rate, with no increase in number of stores and consequently selling space. The low level of operations also means that economies of scale is captured on a far lesser scale, as fixed costs remain stationary despite sales being lower, thereby causing EBITDA margins to never hit historical averages. These assumptions are captured in the calculations of “Scenario 1”.

Sources: company, own calculations

This scenario can come true if one or both of the following takes place:

  1. The sports apparel industry fails to recover and grows very slowly even after the Covid pandemic ends

  2. MAPA loses its competitive advantage and loses market share in Indonesia to competitors

Taking a step back, history has taught us that healthy companies struggle through recessions. Their stock price alongside their profits. However, those with healthy balance sheets and strong business models emerge through the other side intact and able to continue on their paths toward expansion and profitability, and their stock prices follow suit.

MAPA’s situation within the Indonesian pandemic does not look to be too different. On the back of rapid vaccination and digitalization, Indonesia is well on the path towards economic recovery, and sports participation, if anything, will continue to be on the rise with increased awareness regarding the importance of health.

MAPA has also been proactive in navigating the digitalization of Indonesian retail as a whole. Its 2020 revenue declined by 40.3% compared to the over 57.0% revenue decline of other Indonesian fashion retailers such as PT Ramayana Lestari Sentosa Tbk (RALS) and PT Matahari Department Store Tbk (LPPF). MAPA has been quite aggressive in expanding its digital sales channels by creating its own digital outlets and working with third party ecommerce platforms. For reference, MAPA’s first three quarters digital revenue grew by 418% compared to its previous year’s first three quarters. On top of this, they have incorporated amenities such as basketball hoops, soccer turf floors, and fit scanners to various outlets, allowing them to also function as brand ambassadors on top of being retail outlets.

Source: company

MAPA’s balance sheet has also remained very healthy amidst last year’s crisis despite taking on debt, with a debt/equity ratio of 46.3% as of September 2020, a current ratio of 1.91x, and cash amounting to IDR 554 bn ready to be spent on value-adding ventures.

To that end, it is arguably more productive to take a look at a less pessimistic (but ironically, more realistic) set of assumptions reflected in “Scenario 2”.

Assuming sales per sqm recovery throughout the period of 2021-2022, overseas outlets opening at a moderate pace starting in 2022, and EBITDA margin recovery to hit historical averages towards the end of the 5 years projection yield a fair value of over IDR 3,500 per share. This more optimistic, but still realistic and conservative set of assumptions yielded a price per share of around 50% higher than what MAPA is currently priced by the market, which is around IDR 2,400 per share as of the date this article was published.

Nevertheless, a worst-case scenario share price that is very close to what the company is currently trading at indicates a very comfortable margin of safety.

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