Retail

2Q24 preview: ACES and MIDI shine, MAPA/MAPI may face challenges

 

  • ACES and MIDI reported solid 2Q24 SSSG, which leads us to expect robust core profit growth of +23% and +21% yoy, respectively.
  • We see delays in overseas expansion impacting MAPA and MAPI, potentially leading to higher inventory and margin compression.
  • We maintain OW and see a potential rotation into ACES and MIDI given the anticipation of their continued strong 2Q24 earnings.

2Q24 retail preview: strong core profit growth driven by ACES and MIDI

We anticipate the retail sector to report 30% qoq core profit growth in 2Q24 (+4.5% yoy) and +10% yoy in 1H24, primarily driven by ACES (+24% yoy, -9% qoq) followed by MIDI (+4% yoy, +9.8% qoq). Conversely, we estimate MAPI to show negative yoy core profit growth due to yoy lower GPM and higher opex, though continued store expansion may support 2Q24 and 1H24 top-line growth of 18% yoy, respectively. Overall, we expect the sector to report broadly in line with consensus estimates for 1H24 results (48% of consensus). However, factors such as the Starbucks boycott affecting MAPI, opex related to MAPA’s overseas expansion and product mix (for ACES and MIDI) could impact retailers’ margins in both 2Q24 and 1H24. A strong top-line performance coupled with slower bottom-line growth may indicate a modest improvement in purchasing power, and hence, more time is required to see the full impact of store openings in the retail sector.

 

2Q24: MAPA aggressive promotions; solid SSSG for ACES and MIDI

Based on our latest retail survey (in the 1st week of Jul24), we found that MAPA’s brands have been consistently offering a variety of weekly promotions for the past 2 months post the Ramadhan Festive season (Exh.23). This trend suggests potential softness in sales. The company has also acknowledged that it has increased its inventory levels (MAPA’s 1Q24: 52.3% yoy with aging inventory of 22% and inventory days at 174 vs FY24F: 185 days) in preparation for overseas expansion but has encountered delays in store openings (1Q24: 73 stores vs FY24F target of 200 stores). On the macroeconomic front, the combination of softer core inflation in Jun24 (0.1% mom vs. May24: 0.17% mom), lower expectations from BI on 2Q24F RSI (+1.0% yoy vs 1Q24: 5.6%) and a decline in Jun24 CCI (123.3 vs May: 125.2) indicate weaker purchasing power. On a more positive note, ACES maintained a strong SSSG in May24 of 10.1%, with expectations of a solid Jun24 SSSG (remaining above the company’s FY24 guidance of 7%). MIDI also reported a 2Q24 SSSG of 5.8% (1H24: 9.4%) with sustained double-digit SSSG throughout May and Jun24.

 

Maintain OW; preferred picks are ACES and MIDI

We favor ACES due to its intact earnings growth potential (FY24F: +13%), while foreign investors’ ownership remains below FY22, and with local funds trimming in Jun24. We believe MIDI’s expected solid performance in 1H24 (+21% yoy based on our estimation) could attract more interest from local and foreign investors. Given our expectations of softer 2Q24 earnings from MAP group, we prefer ACES and MIDI within the sector.

 

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