Avia Avian Tbk (AVIA.IJ IDR 545 BUY.TP IDR 620) A better volume growth prospect in FY24

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Avia Avian Tbk (AVIA IJ)

A better volume growth prospect in FY24

We expect FY24 vol. growth to improve (to +3.6% yoy) which, combined with sustained margins, shall drive FY24 net profit growth of 4% yoy.
Nonetheless, we cut our FY24-25F net profit forecast as we now look for a more conservative volume growth.
Led by strategic initiatives in FY24, we expect stronger volumes should drive earnings upside for AVIA. Maintain Buy with a lower TP of Rp620.

Better 4Q23 volume, FY23 net profit growth of +9% yoy.

AVIA management indicated that that the sales volume in Oct and Nov23 already showed improvements, supported by value products, waterproofing and wall paint products. For FY23, we estimate flat volume growth (vs our previous assumption of 4.6% growth due to soft 9M23 volume) and 4.6% ASP growth to support FY23 revenues of Rp7tr, +4.8% yoy. We estimate continued soft raw material prices (crude oil price -10% in the past 12M) and higher ASP to offset higher BTL expenses (8.9% to revenue vs 8.1% in FY22) and support FY23 gross margin to rise to 43.6% (FY22: 40.6%). We expect these to lead to FY23 net profit growth of +9% yoy.

Strategic initiatives to support sales volumes in FY24 onwards.

With soft national minimum wage increases of an average 4%, we see a more challenging environment for the paint industry demand in FY24. For FY24, we believe the company will continue to push sales volume with its extensive range of value products, express delivery using 3-wheel vehicles and stronger relationships with wholesalers through loyalty programs.

Cut FY24-25F estimates by 6.4-10.6% on lower volume growth assumptions.

We estimate 3.6% volume growth in FY24 with 2% ASP adjustments, culminating in FY24 revenue of Rp7.4tr (+5.7% yoy). Amid our expectation of sustained gross margins, but continued high BTL and high promotional expenses, we expect AVIA to book FY24 net profit of Rp1.6tr, +4% yoy. Given lower assumptions for volume growth, ASP and the growth in Trading Goods revenue, we revise down our FY24 and FY25 net profit estimate by 6.4% and 10.6% respectively (Exhibit 5).

Maintain Buy rating as stronger volume ahead should offer catalysts.

We believe current share price has priced in the weak financial performance in 9M23, following 15.5% decline in the past 6M. We maintain Buy rating as we see stronger volume growth potentials amid the strategic initiatives. AVIA trades at FY24F PE of 21.3x, still below its -1SD avg 2y PE of 23.9x and below the average global peers PE of 28.9x. Taking into account our latest forecast, we lower our TP to Rp620 (from Rp700 prev.), implying FY24F PE of 24.4x.

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