2Q24 review: ERAA upbeat and ACES downbeat were the only surprises
Overall results were largely in line with our expectations (refer to Beyond the downturn).
MAPA (MAPA IJ, Buy) and MAPI(MAPI IJ, Buy) underperformed as we expected. MAPA's overseas inventory clearance caused a 3% q-q GPM decline in 2Q24. We anticipate a GPM recovery in 2H24F as inventory levels normalize. Starbucks, under MAPI's F&B, continues to struggle due to the ongoing boycotts. We, therefore, maintain a cautious outlook on MAPI in 2H24F given the Starbucks issue.
AMRT's (AMRT IJ, Buy) +8% y-y topline growth in 2Q24 indicates mid-single-digit SSSG, aligning with company guidance. While 1H24 NPM remained relatively flat y-y despite a 30bp y-y GPM improvement, a corresponding 30bp increase in opex, as a percentage of sales, offset the gain. This, we attribute, to the company's initiative to increase chillers in standard Alfamart stores from 8 to 10, which boosted GPM due to higher-margin beverage products. We believe the company needs more time to optimize product offerings from these additional chillers. We believe this strategy has the potential to enhance AMRT's future GPM and stores traffic, especially considering the strong performance of ready-to-eat/-drink products in recent years.
MIDI(MIDI IJ, Buy) delivered in-line results driven by the strong performance of Alfamidi. Lawson's losses remained relatively flat q-q at IDR40bn in 2Q24. However, given the company's focus on mitigating the Lawson impact on overall earnings and plans to close underperforming stores in 2H24, we believe it is worth monitoring the progress.
ERAA's(ERAA IJ, Buy) strong earnings were unexpected, driven by significant handset sales (+19% y-y in 2Q24) and improved store sales productivity and inventory management. Continued earnings recovery should support ERAA's performance in 2H24F, in our view.
ACES's(ACES IJ, Neutral) lower-than-expected EBIT is surprising given the strong 1H24 revenue. Increased opex, as a percentage of sales, led to lower overall margins. We anticipate limited upside for ACES beyond 1H24F due to a normalized comparison base from 2H23.
More catalysts later toward holiday season in 4Q24F
We expect limited catalysts for retailers in 3Q24F as historical data show that 3Q typically contributes 23-24% of annual revenue, and 3Q is often a period for discretionary retailers to clear out underperforming products. However, we anticipate increased activity in 4Q24F, driven by the holiday season and simultaneous local elections.
Our verdict on the sector
Our pecking order for the retailers' sector is now: AMRT > MAPA > ERAA > MAPI > MIDI > ACES. AMRT remains our top pick due to its strong position as a seller of top-tier FMCG products in Indonesia, making it a prime beneficiary of the country's growing consumption trend. We believe the company's robust performance makes it relatively resilient to economic downturns. MAPA is our second choice. We anticipate a recovery of GPM for MAPA in 2H24F, limiting potential downside to margins in 2H24F. We have elevated ERAA due to its improving stores productivity and encouraging inventory efficiency initiatives, which potentially can continue to drive its earnings recovery this year. While MAPA's outlook is positive, we remain cautious about MAPI given the ongoing Starbucks boycott.
INVESTMENT RATINGS A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general.
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