Maintain Buy with lower TP, following the miss on 2Q24 results

2Q24 result miss due to lower GPM; but it should be bottom GPM for the year

2Q24 net profit margin (NPM) came in at 7.3%, 420bp lower compared to the 2Q23 figure. This shortfall was driven by a substantial y-y decline in GPM from 49.2% in 2Q23 to 45.1%, primarily due to inventory clearance in the overseas market business during the quarter. With inventory days already reduced to 180, within the historical range of 191 days in 1H22 and 170 days in 1H23 (refer to Fig. 3), we expect no further GPM decline in 2H24F. Therefore, we believe 2Q24 GPM represents the bottom GPM for the year. This outlook, we believe, is responsible for the 8% share price increase post-result release on 31-Jul 2024, after a 23% decline from the peak (IDR1,140, 5 Mar 2024) despite the earnings miss.

It is noteworthy that 2Q24 opex as a percentage of sales remained relatively stable y-y at 33%. This suggests that the company's initiatives to relocate the overseas back-end operating system to Jakarta have yielded some opex efficiencies. This outcome is better than we had expected, as we initially anticipated a delay in G&A expense reduction (15% of opex in 2Q24) until 2H24F.

Maintain Buy with a lower TP of IDR1,000

We have cut our 2024F/25F/26F earnings estimates by 11%/3%/3%, respectively, following the 2Q24 result miss. Consequently, we have lowered our target price to IDR1,000 (from IDR1,100), pegged on an unchanged 2024F P/E target of 20.6x 2024F P/E. MAPA remains the fastest-growing retailer in our coverage in terms of sales.

While we believe overall margins bottomed out in 2Q24, we anticipate a strong share price rebound only if MAPA can demonstrate robust SSSG. Given the expectation of a softer SSSG in 2H24F, we believe this is unlikely. As the stock is currently trading at an 18x 2024F P/E after the earnings downgrade (2024F NPAT -5% y-y), its attractiveness may be diminished in the short term. Therefore, we recommend a buy-and-hold strategy for MAPA shares in the medium to long term, as we anticipate earnings recovery once the company has a stronger foundation for its overseas business and the overall regional macro environment improves.

Fig. 1: Forecast change

 

Fig. 2: 2Q24 results table summary

MAPA IJ				QoQ	YoY			YoY	6M24/	6M24/
Profit and loss statement (IDRbn)	2Q23	1Q24	2Q24	(%)	(%)	6M23	6M24	(%)	Nomura	Consensus
Revenue	3,246	3,693	4,194	13.6	29.2	5,970	7,887	32.1	46.5	46.6
COGS	(1,649)	(1,925)	(2,303)	19.6	39.6	(3,033)	(4,228)	39.4
Gross profit	1,597	1,768	1,891	7.0	18.4	2,937	3,659	24.6
EBIT	527	405	509	25.8	(3.3)	894	914	2.3	43.5	42.6
Other income/(expenses)
Net financing income/(expense)	(21)	(44)	(43)	(1.1)	101.4	(40)	(87)	116.2
Net forex gain/(losses)	(12)	(11)	(30)	178.2	145.0	3	(41)	n.a.
Others	5	5	(1)	n.a.	n.a.	(6)	4	n.a.
Pre-tax profit	498	355	435	22.4	(12.8)	851	790	(7.2)
Net profit	375	281	305	8.6	(18.4)	648	587	(9.5)	42.9	38.7
Gross margin (%)	49.2	47.9	45.1			49.2	46.4
EBIT margin (%)	16.2	11.0	12.1			15.0	11.6
Pre-tax margin (%)	15.4	9.6	10.4			14.3	10.0
Net margin (%)	11.5	7.6	7.3			10.9	7.4
Balance sheet (IDRbn)	Jun-23	Mar-24	Jun-24
Cash and equivalents	1,042	673	987
Inventories	3,496	5,065	4,844
Total assets	8,326	11,497	12,042
Total liabilities	3,228	5,334	5,710
Interest bearing liabilities	97	927	1,083
Equity	4,917	5,991	6,164
Inventory Days	169.9	199.0	180.0
ROA (%)	18.0	9.8	10.1
ROE (%)	30.5	18.8	19.8
Gearing (%)	2.0	15.5	17.6
Net gearing (%)	n.c.	4.2	1.6

 

Fig. 3: Inventory days trend

 

Fig. 4: Quarterly revenue (IDRmn)

Fig. 5: Quarterly gross profit (IDRmn)

 

Fig. 6: Quarterly opex as percentage of sales (%)

Fig. 7: Quarterly net profit (IDRmn)

 

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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Indonesia Research Team