New Product Launches And Distribution Expansion Will Broaden Market Presence

Key Takeaways

• New product launches and distribution network enhancements are expected to expand market reach and drive revenue growth.
  
• Strategic acquisitions and share buyback programs could improve earnings potential and diversify revenue streams in key markets.
  
• Rising raw material costs and a weak Rupiah threaten profit margins, while challenging market conditions and capital expenditure risks could hinder revenue and efficiency.

Catalysts

Manufactures and distributes paints and building materials in Indonesia.

• The company launched 3 new products in key segments—Wall, Waterproofing, and Woodcare— which are expected to expand market reach and broaden the customer base, potentially driving revenue growth.
  
• Expansion of the distribution network with the addition of a wholly owned distribution center and high service fulfillment capabilities can enhance operational efficiency and customer service, potentially improving earnings.
  
• Plans to accelerate the deployment of tinting machines at retail outlets could boost revenue per outlet and strengthen long-term market positioning, improving future earnings potential.
  
• A strategic share buyback program authorized to acquire up to 1.4 billion shares could positively impact earnings per share (EPS) by reducing the number of shares outstanding.
  
• The acquisition of a stake in PT Dextone Lemindo and plans to become the #1 player in Indonesia's Adhesive and Sealants Market could diversify revenue streams and contribute to future revenue growth.

Avia Avian Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Avia Avian's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.3% today to 22.7% in 3 years time.
• Analysts expect earnings to reach IDR 2100.2 billion (and earnings per share of IDR 34.96) by about May 2028, up from IDR 1664.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.2x on those 2028 earnings, up from 15.2x today. This future PE is greater than the current PE for the ID Chemicals industry at 14.2x.
• Analysts expect the number of shares outstanding to decline by 1.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.08%, as per the Simply Wall St company report.

Avia Avian Future Earnings Per Share Growth

Risks

• The company faces increased costs due to the rising prices of raw materials, which are influenced by the weakening of the Rupiah against the U.S. dollar. This impacts the cost of goods sold (COGS) and could compress profit margins if not managed through pricing strategies.
  
• Economic conditions remain soft with reduced consumer spending power, potentially affecting revenue growth as the market environment remains challenging, particularly impacting the Architectural Solutions segment.
  
• The planned capital expenditure for expanding production capacity may be risky if market conditions deteriorate or demand fails to meet expectations, potentially affecting future cash flows and asset utilization efficiency.
  
• Heavy reliance on a strong domestic distribution network means that any disruptions or inefficiencies in logistics could impact sales performance and revenue generation, especially if consumer traffic does not improve as expected in retail outlets.
  
• The competitive landscape remains intense, with the need to maintain high margins amidst potential price wars if competitors decide to lower prices aggressively. This may threaten the company's ability to sustain its profit margins and market position.

Valuation

• The analysts have a consensus price target of IDR586.0 for Avia Avian based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of IDR840.0, and the most bearish reporting a price target of just IDR480.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be IDR9242.8 billion, earnings will come to IDR2100.2 billion, and it would be trading on a PE ratio of 23.2x, assuming you use a discount rate of 13.1%.
  
• Given the current share price of IDR416.0, the analyst price target of IDR586.0 is 29.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.