MAP Aktif (MAPA.IJ Rp 845; BUY TP Rp 1,000) 2H24 recovery expected, but overseas expansion remains a risk; maintain Buy rating with a lower TP

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MAP Aktif (MAPA IJ)

2H24 recovery expected, but overseas expansion remains a risk; maintain Buy rating with a lower TP

MAPA’s expansion faces challenges, leading to inventory buildup and numerous promotions, hence, margin pressure in 1H24.
We cut our FY24/25F NP by 11%/13% due to more conservative store expansion plans in FY25 and lower margin estimates.
We anticipate a stronger performance in 2H24 but remain cautious on overseas expansion; Maintain Buy rating with a lower TP of Rp1,000.

Inventory buildup and margin pressures in 1H24

In 1H24, MAPA opened 143 new stores, of which 100 are in Indonesia and the remaining overseas, mostly in the Philippines and Malaysia. The company reported that it is facing several challenges in its overseas expansion, particularly in Vietnam. Additionally, an early inventory stock-up in Jan24, aimed at managing the holiday season in China (leading up to CNY) and in anticipation of potential export blockages/port congestion due to the implementation of the previous Permendag (No. 36/2023), led to an increase in aging inventory to 26% in 1H24 (FY23: 21%). We observed that numerous promotions under MAPA’s brands in 2Q24, aimed at clearing inventory, resulted in a lower 2Q24 GPM of 45% (1Q24: 47.9%). However, MAPA implemented efficiencies in 2Q24, particularly in promotion and employee costs, which allowed the company to achieve 8.2% qoq net profit growth in 2Q24, despite a 21% yoy decline due to lower gross margin.

11%/13.3% NP downward revision on lower GPM & less store expansion in FY25

The 2H typically brings higher sales for retailers, and we expect MAPA to see improved sales in 2H24. Nonetheless, we have revised our FY24/25F gross margin forecast downward by 180/150bps, considering potential ongoing promotions aimed at boosting sales and the potential delay in overseas expansion. While we maintain our FY24 store expansion target, we are lowering the FY25 forecast to 370 new stores (down from 390), as we believe MAPA will shift its focus toward improving store productivity and profitability. Despite the anticipated lower gross margin, we expect MAPA to implement additional cost-efficiency measures to preserve EBIT margins. Consequently, we have adjusted our FY24/25F net profit forecast down by 11% and 13.3%, respectively. This translates to our flat yoy FY24 net profit forecast, while we forecast FY25F net profit to grow by 19% yoy.

Maintain Buy rating with a lower TP of Rp1,000

We are cautious that MAPA’s overseas expansion may continue to face risks from country-specific challenges and, thus, expect MAPA to adopt a more moderate expansion to maintain profitability. We maintain a Buy rating on the expectation of growth recovery in FY25. Following our earnings revision, we lower our TP to Rp1,000 based on +1.5x avg 2y PE of 17x.

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