Launching No Drop Beton And MLOT System Will Strengthen Future Prospects

Key Takeaways

• Product diversification and sustainable growth initiatives, including new product launches, aim to boost future revenue and market share.
  
• Distribution network improvements and new customer retention strategies are set to enhance operational efficiency and revenue growth.
  
• Intensifying competition and economic challenges strain margins and growth, while reliance on retail sales and investment in share buybacks could limit future flexibility.

Catalysts

Manufactures and distributes paints and building materials in Indonesia.

• The launch of four new products, including the sustainably certified No Drop Beton and Batu Alam, indicates Avia's commitment to sustainable growth and product diversification, potentially boosting future revenue through market share gains.
  
• The company's expansion and optimization of its distribution network and delivery capabilities, with a 92% success rate for 1-day deliveries, are expected to enhance operational efficiency and customer satisfaction, likely impacting revenue growth positively.
  
• Avia's strong performance in the Trading Goods segment, with double-digit growth and strategic advantage due to a favorable competitive landscape, is positioned to continue contributing significantly to revenue increases.
  
• The integration of the [MLOT] system and initiatives aimed at increasing loyalty among painters suggest potential future improvements in customer retention and revenue growth, even in challenging market conditions.
  
• The ongoing share buyback initiative and strategic management of robust free cash flow and working capital position Avia to improve earnings per share (EPS) through financial engineering and potential future acquisitions.

Avia Avian Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Avia Avian's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.3% today to 22.4% in 3 years time.
• Analysts expect earnings to reach IDR 2076.5 billion (and earnings per share of IDR 34.0) by about March 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 24.0x on those 2028 earnings, up from 15.0x today. This future PE is greater than the current PE for the ID Chemicals industry at 12.0x.
• 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 13.19%, as per the Simply Wall St company report.

Avia Avian Future Earnings Per Share Growth

Risks

• Despite stable raw material prices, the company is closely monitoring fluctuations in the U.S. dollar and IDR exchange rates, which could impact margins due to potential cost pressure. (Net margins)
  
• Intensifying competition requires aggressive marketing initiatives, leading to increased marketing expenses and a decline in EBITDA and net profit margins. (Net margins, Earnings)
  
• Weak consumer spending and economic strains, including societal issues like online gambling and digital lending, create a challenging business environment, potentially affecting future revenue growth. (Revenue)
  
• With a significant reliance on traditional retail outlets for 92% of total sales, any adverse changes in consumer behavior or retail industry trends could impact sales stability and growth. (Revenue, Earnings)
  
• The ongoing share buyback program utilizes substantial financial resources, which might limit funds available for other growth opportunities or operational needs if market conditions do not improve. (Earnings, Financial flexibility)

Valuation

• The analysts have a consensus price target of IDR597.5 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 IDR500.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be IDR9280.0 billion, earnings will come to IDR2076.5 billion, and it would be trading on a PE ratio of 24.0x, assuming you use a discount rate of 13.2%.
• Given the current share price of IDR410.0, the analyst price target of IDR597.5 is 31.4% 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.