Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PT Avia Avian Tbk (ISX:AVIA, Financial) recorded a total revenue of USD106 million in Q2 2024.
- The company reported a gross margin of 43.3%, an EBITDA margin of 26.1%, and a net profit margin of 21.1% for Q2 2024.
- Expanded nationwide distribution network by adding two wholly owned distribution centers, bringing the total to 123.
- Achieved a 92% success rate in providing one-day delivery services to retail outlets across the country.
- Consolidated sales increased by 3.2% in the first half of 2024, reaching IDR3.6 trillion.
Negative Points
- Tough market conditions due to food inflation, online gambling, and digital lending impacting consumer purchasing power.
- Increased promotional activities in response to aggressive competitor actions, impacting gross margin.
- Architectural solutions segment's performance was relatively softer in Q2.
- Challenges in acquiring companies in Indonesia, with M&A efforts not being very successful.
- High inventory levels at retail outlets due to aggressive product pushing by competitors.
Q & A Highlights
Q: What is the estimated market share right now, which players are struggling in the industry? What is the strategy if macro conditions remain unsupportive? Any change in M&A strategies as it has been almost three years post IPO?
A: (Ruslan Tanoko, Vice President Director) It's challenging to get precise market share data outside of the cement industry. However, based on market activity, our market share continues to grow, particularly among the top two or three players. If macro conditions remain unsupportive, our strategy focuses on sustainable growth by acquiring market share from competitors, especially in the B2B and project segments. Regarding M&A, acquiring companies in Indonesia has been difficult, but we are close to a deal with one company. We remain selective, focusing on nationwide players rather than regional ones.
Q: Can you give some color on the competition in the industry now, especially regarding Nippon and ExxonMobil? What is the market share for Avia now in the paint market domestically? Could you update us on the new factory's opening schedule and expected capacity?
A: (Ruslan Tanoko, Vice President Director) Nippon is one of the aggressive players, but ExxonMobil seems to be losing market share due to frequent leadership changes. Our market share continues to grow, particularly among the top players. (Robert Tanoko, Director - Operations and Development) The new factory's piling phase was completed in July, and the building structure will start this month. The water-based paint production plant will be ready by the end of 2025, with an initial capacity of 100,000 tons per annum, eventually reaching 225,000 tons per annum.
Q: Given the weak first semester, why aren't we revising down the full-year guidance on volume and value growth? How was July, and what can happen in the second semester to accelerate growth?
A: (Ruslan Tanoko, Vice President Director) Despite the weak first semester, we recorded mid-10s growth in paint sales in July. We believe we can still achieve our guidance by focusing on gaining market share from competitors. Several internal initiatives are being implemented to ramp up sales in the second half.
Q: For the B2B segment, will the potential clients be big developers or smaller ones, considering big developers may push down margins?
A: (Ruslan Tanoko, Vice President Director) We are selective with property developers to avoid margin erosion and high accounts receivable. Our B2B focus includes factories of various sizes around our distribution centers, aiming to supply them directly and leverage our extensive network.
Q: With the same guidance after the first half of 2024 results, can we expect a significant increase in volume sold in the second semester? Will you raise marketing expenses either ATL or BTL?
A: (Ruslan Tanoko, Vice President Director) We aim to achieve our guidance by focusing on volume growth, particularly in the wall paint segment. Marketing expenses, especially BTL, will be increased selectively based on competitive dynamics, with a focus on the wall paint category.
Q: Why are you maintaining your 4-8% volume guidance despite a -0.1% achievement in the first half of 2024? Your ASP in Q2 2024 increased by 6% year on year. Any colors on this?
A: (Ruslan Tanoko, Vice President Director) We believe we can still achieve our volume guidance through various internal and external initiatives. (Kurnia Hadi, Director of Finance and Investor Relations) The ASP increase is due to product mix rather than price adjustments.
Q: In the first half of 2024, Avia did not raise prices while competitors did. What are your thoughts on the price strategy for the second semester of 2024? Will BTL expenses remain as heavy in the second semester as in the first?
A: (Ruslan Tanoko, Vice President Director) Competitors' price hikes were mainly in the premium segment, where our presence is small. We aim to grow our volume across all segments without sacrificing margins. BTL expenses will be targeted primarily at the wall paint category and select areas where we need to strengthen our position.
Q: Can you provide some colors on the industry landscape for pipes, which dominate the revenue of trading goods? Any estimation on the mix of paint usage in Indonesia in terms of DIY by house owners versus using professional painters?
A: (Ruslan Tanoko, Vice President Director) The PVC pipe segment continues to dominate trading goods revenue, with less intense competition compared to the paint market. In Indonesia, DIY is not as popular as in the US; most people prefer hiring professional painters when they can afford it.
Q: Which market segment do you plan to focus on in the next three years?
A: (Ruslan Tanoko, Vice President Director) We will focus on the wall, wood and metal, and waterproofing segments. However, wood and metal are expected to have flat growth due to product replacements. The biggest opportunities lie in the wall and waterproofing segments, where we will continue to innovate and expand our product portfolio.
Q: Have you seen any competitors pulling out of the market? Do you expect this to happen more meaningfully in the future?
A: (Ruslan Tanoko, Vice President Director) Local players are unlikely to pull out unless they face bankruptcy. However, foreign players may exit more easily. We know of one multinational company planning to exit Indonesia and have been offered their assets for acquisition.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
