Retail

FY25 Outlook: Expansion-Driven Strategy to Sustain Double-Digit Earnings Growth

 

  • Despite challenges from a weak currency and rising wages, we expect retailers to continue their store expansion plans in FY25.
  • We estimate the sector’s FY25 rev. growth of 15% yoy, driven primarily by store expansions, which should support NP growth of 16.8% yoy.
  • Maintain Overweight stance on the sector’s FY25 double-digit growth. Our top picks are MAPI, followed by MIDI.

 

Weak currency and higher minimum wage: Headwinds for 2025 retailer performance

Historically, a weak currency combined with significant growth in the minimum wage has negatively impacted the profitability of retail companies. Therefore, we believe retailers will resort to store expansion as the primary driver for revenue growth in FY25. Additionally, maintaining efficiency and improving productivity will be critical to sustain earnings growth. Given the limited catalysts for stronger purchasing power, particularly from 2Q25 onward, we expect retailers with a proven track record, solid execution, and a diverse product portfolio that offers a wide price range to maintain growth momentum. With more conservative assumptions, we have revised down our FY25/26F net profit growth for MAPI by 3%/4%, while making slight adjustments to MAPA’s FY25/26F net profit by 2%.

 

Store expansion to drive FY25F sector net profit growth of 16.8% yoy

We estimate the retail sector to achieve FY25F revenue growth of 15% yoy, primarily driven by store expansions, led by MAPA (+13% yoy), followed by MAPI (+9% yoy) and MIDI (+6% yoy). The higher minimum wage presents a potential challenge for retailers, as labor costs account for 10-12% of total revenue (except for ACES: 16-17% of revenue). Nonetheless, we believe these companies will focus on enhancing employee productivity to offset rising costs. Between FY17-23, revenue/employee grew at a faster rate than the increase in employee numbers, except for MAPA, which remains in expansion mode. We believe this trend should support the sector’s FY25 net profit growth of 16.8% yoy, driven primarily by strong net profit growth from MIDI (+ 30% yoy, due to the absence of sunk costs in FY25) and MAPA (+14.9% yoy).

 

Maintain overweight with top pick: MAPI

We maintain our Overweight rating on the retail sector, supported by the expectations of continued solid earnings ahead. Our pecking order is as follows:

 

  • MAPI (Buy – TP Rp2,000): MAPI has been the most underperforming stock within our coverage, offering limited downside risk. Strong growth in MAPA should benefit MAPI, while we expect the performance of its F&B segment to normalize in FY25.
  • MIDI (Buy – TP Rp540): Alfamidi remains the primary revenue contributor for MIDI, showing continued robust performance and benefiting from higher growth in ex-Java. Additionally, MIDI’s 1-2% other income-to-revenue should help cushion the impact of higher minimum wages.

 

We also like MAPA (Buy – TP Rp1,250), which offers solid growth potential, though the stock comes with a higher valuation of 16.5x FY25F PE.

 

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