e-Mall

Information technology creates new unlimited opportunities. Through the world wide web, the way people interact each other for social, economic and cultural purposes has changed tremendously in recent years. Internet has made significant contributions for the general public, companies and governments worldwide. The business plan developed by PT. WAGI uses internet as the foundation of its business development. It offers users the following unique capabilities : • A 3D virtual meeting point between shoppers and merchants of high-quality premium brands • A social networking platform for users to establish virtual communities and exchange communications • Life-simulated gaming features in which players can create personalized Avatar characters Known as e-Mall, the multi-premium product and multi-store e-commerce platform combines the evolving concepts of e-commerce and entertainment in the so called e-shoptainment industry. It targets consumers - with a minimum senior high school education and aged between 21 and 40 years old - who are active e commerce users, gamers and social networkers. The following business plan is presented in a three plus four-year period commencing in 2012 with a view of providing ample opportunities for investors to assess e-Mall’s commercial viability after three years. If e-Mall fails to achieve its financial objectives in three years, investors’ risk exposure is kept to a minimum. e Mall requires an initial investment of IDR 11 billion, of which IDR 2.5 billion is needed for its capital expenditures (CAPEX). A major CAPEX spending initiative amounting to IDR 11.5 billion is expected to happen in the fourth year after e-Mall Management have met the company’s profitability targets in 2015. PT. WAGI’s source of income comes from two revenue streams: 1% transaction-based fee/commission (on average) and advertising. The company also generates additional revenue from annual membership fees. Aside from CAPEX, employee-related expenses remain a key cost driver. In the first year these expenses are estimated to reach IDR 7.5 billion under the Most Likely scenario. At 25% growth rate (as opposed to 27% for the Optimistic scenario and 25% the Pessimistic scenario), these amounts are expected to be booked at IDR 26.7 billion by the seventh year of PT WAGI’s operations. In the first year of its operations, PT. WAGI is expected to suffer losses of IDR 7.1 billion, but the Company will generate profit of IDR 620 million in the second year. The profit level is estimated to grow sustainably in the following years. Return on Sales (ROS) increase from 25% in the third year to 45% in the seventh year of the company’s operations, although the ROS level is estimated to be down slightly at 28% in the fourth year due to depreciation costs. In the same fourth year, PT. WAGI will pay dividends of IDR 2 billion to the shareholders. At the end of the seventh year, total retained earnings are expected to reach IDR 28 billion and total dividends paid to shareholders will reach IDR 70 billion with an Internal Rate of Retun (IRR) of 47.8% and Discounted Payback Period of 4 years and 4 months under the Most Likely Scenario. The IRR for the Opimitistic and Pessimistic scenarios are 57.8% and 36.8% respectively, with payback period 4 years and 2 months for Optimistic Scenario and 4 years and 5 months for Pessimistic Scenario. Cost of capital for those three scenario was 17.8%. However, being in the e-shoptainment industry with very tight competition, a worst-case scenario is expected to occure if the annual growth of e-Mall users is below 6%. In this regard, with the IRR of only 15.5% or below WAGI’s cost of capital of 17%, e-Mall is considered not commercially viable. If this condition is realized, PT. WAGI may stop its operations in the third year to minimize further losses. At that that time, the company’s net asset in book value is expected to reach IDR 5 billion only.