Earnings call transcript: Avia Avian Q2 2025 sees strong sales growth

Avia Avian PT Tbk reported its financial results for the second quarter of 2025, showing robust growth in total sales and a solid performance across several key financial metrics. The company’s revenue reached USD 113 million, with a consolidated gross margin of 40.1% and a net profit margin of 18%. According to InvestingPro data, the company maintains impressive gross profit margins of 52.39% over the last twelve months, with a strong financial health score of 3.2 (rated as GREAT). Despite a challenging market environment, the company maintained its full-year guidance and outlined strategic initiatives for future growth.

Key Takeaways

• Total Q2 2025 revenue was USD 113 million, with an 8.8% growth in total sales.
• The company launched two new products and increased its distribution capabilities.
• Avia Avian maintained its full-year 2025 guidance and plans to expand production capacity.
• The stock saw a minor decline of 0.88%, closing at 456.

Company Performance

Avia Avian demonstrated resilience in Q2 2025 despite economic pressures and a competitive landscape. The company achieved an 8.8% growth in total sales, amounting to 1.86 trillion rupiah. This growth is attributed to strategic product launches and an expansion in distribution capacity, which includes 125 wholly owned centers nationwide. The company also reported a 91% fulfillment rate for one-day delivery, covering 38 provinces.

Financial Highlights

• Revenue: USD 113 million, reflecting strong growth.
• Consolidated gross margin: 40.1%.
• EBITDA margin: 22.3%.
• Net profit margin: 18%.
• Total sales growth: 8.8% in Q2 2025.

Market Reaction

Avia Avian’s stock experienced a slight decline of 0.88%, closing at 456. This movement comes amid a broader challenging demand environment and intense competition within the architectural solutions market. InvestingPro analysis indicates the stock tends to move independently of market trends, with a beta of -0.04. The stock’s performance remains within its 52-week range, indicating investor caution in the current economic climate. Notably, the company has demonstrated consistent profitability and maintains strong cash flows that sufficiently cover interest payments.

Outlook & Guidance

The company reaffirmed its full-year 2025 guidance, targeting a net profit margin of around 21%. With a return on equity of 17% and revenue growth of 6.23% over the last twelve months, Avia Avian continues to demonstrate strong operational efficiency. The company plans to commission a third factory in Cherubon by early 2026, with an initial production capacity of 100,000 metric tons. For exclusive access to detailed growth forecasts and comprehensive financial analysis, visit InvestingPro. The company aims to become the leading player in the adhesive industry and is focusing on market share gains, particularly in the wall paint segment.

Executive Commentary

Pat, a Management Representative, emphasized the company’s ambition to lead the adhesive industry, stating, "We have an ambitious goal to become the number one player in adhesive industry." Pat also highlighted the company’s strategic approach, saying, "We’re not just randomly acquire companies that may or may not fit best with our criteria."

Risks and Challenges

• Economic pressures continue to affect demand.
• Intense competition in the architectural solutions market.
• Potential supply chain disruptions could impact distribution.
• Price increases may affect consumer demand.
• Market saturation in certain segments poses a challenge.

Q&A

During the earnings call, analysts inquired about the integration of Dextone products and the company’s inventory increase strategy. Management addressed these concerns, providing insights into their growth expectations and pricing strategies.

Full transcript - Avia Avian PT Tbk (AVIA) Q2 2025:

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Good afternoon, everyone. Thank you for taking the time to participate in today’s call. We appreciate your continued interest in Avia and welcome you to our quarter two twenty twenty five earnings call. For your information, we uploaded the presentation materials to our website yesterday. Please note that all comparisons are to the same period of 2024 unless otherwise stated.

The plan for today is to start with a quick presentation followed by a one hour q and a session. If you have any questions during the presentation, please use the q and a chat box, and we will answer them during the q and a session. For those who cannot join us now, the webcast of this event will be uploaded to our website no later than tomorrow. Thank you again for being here today. Allow me to start by introducing myself.

My name is Andreas Timothy Hadi Krissno. I’m the Head of Investor Relations at Afya and will be moderating this earnings call today. We are joined today by three other presenters, starting with Mr. Ruslan Tanuko, the Vice President Director of our company followed by Mr. Robert Tanuko, the Operations and Development Director and finally, Mr.

Kurnia Hadi, the Finance Director. Avian Brands recorded a total revenue of USD 113,000,000, delivering a consolidated gross margin of 40.1%, an EBITDA margin of 22.3% and a net profit margin of 18%. The company’s market presence covers all 38 provinces in Indonesia, supported by a vast distribution network and over 9,000 dedicated employees. Throughout the quarter, Avian Brands maintained its industry leading service to more than 58,000 building material restores across the country. This page summarizes the company’s quarter two twenty twenty five performance compared to the same period last year.

Avian brands continued to demonstrate resilience and delivered positive second quarter results. The demand environment remained challenging as anticipated, with persistent economic pressures weighting down on the overall consumption. In response to rising production costs, Avian Brands has decided to implement another price increase of around 1% to 2% effective today, August 1. This adjustment primarily applies to the three main segments, namely the wall, wood and metal and waterproofing. Avian brands launched two new products during this quarter.

No Drop Chat Dasar Antiboteur is certified by Green Label Singapore, reflecting the company’s commitment to sustainable product innovation. The company expanded its product offerings in the automotive refinish segment by launching Avian Epoxy Filler. Starting in May 2025, Avian Brands began distributing Dextone products through its wholly owned distribution centers. Currently, we are focused on accelerating sales growth and strengthening our combined position as the second largest player in Indonesia’s adhesive market. We have an ambitious goal to become the number one player in adhesive industry.

With 125 wholly owned DCs nationwide, Avian Brands is uniquely positioned to capture growth opportunities wherever they emerge. To further strengthen our presence, we plan to add more distribution centers in the next quarter. Our fast distribution network enables us to deliver superior service to our customers, which translates to long term loyalty. The company’s ability to achieve a 91% fulfillment rate for one day delivery service is a clear reflection of this capability. We continue to refine our operations to drive greater efficiencies over time.

Despite ongoing headwinds, Avian brands achieved 1,860,000,000,000.00 of total sales in quarter two, growing by 8.8%. For the first half, consolidated sales increased by 7.3%, reported a trillion. Throughout the first half, we recorded transactions from more than 56,000 retail outlets, marking an increase of over 2,100 retail outlets. Avian Brands continues to maximize the number of transacting retail outlets. I will now pass to Pahadi to continue the presentation.

Pahadi, VP/Presenter, Afya: Thank you, Pahadrias, and good afternoon, everyone. This page present the company’s sales breakdown by segments. The architecture solution segment accounted for 79% of total sales in the first half. The wall, waterproofing, and wood and metal remain the top three sales contributor for the company. All three segments deliver positive growth during the first half.

Looking at the sales breakdown by customers, traditional retail outlet account for 92% of sales. On the other hand, our wholly owned distribution center continue to be the main driver of revenue with a 90% contribution. Avian brands posted a consolidated gross profit of 749,000,000,000 rupiah in q two, indicating a gross margin of 40.1%. For the first half, consolidated gross profit was 1,000,000,000,006 1,670,000,000,000.00 rupee with a 43.1 gross margin. The increase in raw material cost contributed to around 1% decrease in gross margin.

Additionally, a higher proportion of sales from the trading segment, which rose to around 24% in q two, placed full to pressure on the consolidated gross margin. In q two, Afya brand registered a consolidated EBITDA of 416,000,000,000 rupiah, marking a 22.3% EBITDA margin. The decrease in EBITDA margin was primarily driven by the contraction in gross margin. In addition, the company increased its marketing and selling expense during the quarter in response to the sluggish market condition and intensifying competition, which also contributed to the softer EBITDA margin. For the first half, consolidated EBITDA was recorded at $996,000,000,000 rupiah with 25.6% EBITDA margin.

Moving on to the bottom line, the reported net profit for q two was $335,000,000,000 rupiah with a net profit margin of 18%. In the first half, the company generated a $782,000,000,000 rupee net profit, resulting a 20.1% net profit margin. The Architectural Solutions segment maintained a positive performance in q two, receiving a 7.6% sales growth. Total volume for this segment increased by 10.4% during the quarter. In the first half, sales were reported at trillion rupiah, representing a 5.7% increase.

During the same period, volume growth was recorded at 7.9%. The wall segment achieved strong double digit growth in the first half supported by our aggressive market initiative. Avian brands continue to gain market share in this segment and reinforce its position as the market leader in the Indonesian decorative paint industry. The number of transacting customer for the architectural solution segment reached 51,800 retail outlet in the first half, an increase of over 2,300 customers. Driven by customer centric culture, It is our unwavering ambition to deliver the best service and support to ensure we remain a trusted partner in their success.

The picture on the right was taken at one of the company’s customer catering event in May 2025. These events are held regularly as part of the company’s commitment to maintaining a strong engagement with its customer. Through continuous engagement and a clear focus on their priorities, we strive to maximize customer satisfaction and build long term loyalty. In q two, the trading goods segment achieved 12.5% growth, generating 445,000,000,000 rupee of sales. In the first half, sales were up by 13.8%, reaching $826,000,000,000 rupiah.

Within this segment, the PVC pipes category continues to deliver strong performance supported by a more favorable competitive environment. Regarding the number of customers, the segment recorded transaction from almost 46,000 retail outlets, reflecting around 82% of the total consolidated customers. This page highlight the performance of gross profit by segments. In q two, the Architectural Solutions segment reported of an 74,000,000,000 gross profit with a 47.5% gross margin. For the first half, gross profit was recorded at 1,500,000,000,000.0 rupiah, representing a gross margin of 49.9%.

Regarding the trading good segment, the gross profit for q two was 74,000,000,000 rupee, with a gross margin of 16.7 rupee. Sorry. 16.7%. For the first half, this segment registered a gross profit of 148,000,000,000 with a recorded gross margin of 17.9%. I will now pass to Paropet to continue the presentation.

Paropet, Presenter, Afya: Thank you, Badi. Good afternoon, everyone. This page presents the company cost structures for the 2025. Operating expenses were stable during the period, reflecting effective cost control. Raw material costs accounted for 28.3% of total sales.

On the other hand, direct labor and factory overhead hover around 12% respectively. The increase in production cost, especially from raw materials, led to a higher proportion of COGS in the first half. Below the line marketing expenses were well maintained, hovering around 8% of total sales. The company continues to optimize its PTL spending. In the first half, trade working capital slightly increased to around 32% of total sales, mainly due to a higher finished good inventory, particularly from purchase in the trade in the trading good segment.

On the investment front, routine CapEx represented 3% of total sales, while the expansion CapEx contributed another 3%. In total, capital expenditure was recorded at 246,000,000,000 rupiah. IVF Brands continues to accelerate the deployment of tinting machines at retail outlets as part of its sustainable growth strategy. For the full year 2025, we expect routine CapEx to increase slightly above historical levels driven by this initiative. The combined effect of higher working capital and CapEx resulted in a lower free cash flow during the first half, which accounted for around 8% of total sales.

If we turn around our attention to the figure on the far right, you will see that our on time collection of accounts receivable has slightly declined to around 88. This condition serve as a further evidence of the challenging market environment faced by retail outlets. However, we take pride in the fact that retail outlets continue to place Avian brands as at the top of their payment priorities. In April 2025, IVF Brands received shareholder approval to initiate a new share buyback program. This program authorized the purchases of up to 1,400,000,000.0 shares with a total budget allocation of 1,000,000,000,000 rupiah and will run for another period of twelve concluding no later than April 2026.

We launched this initiative following the successful completion of our previous buyback where the company repurchased the full 1,400,000,000.0 shares authorized. As of yesterday, July 31, we have reached around 42% of the maximum shares authorized, utilizing around 26% of the total budget. Avian Brands maintains its guidance for the full year 2025 despite the persistent economic slowdown. Regardless of the market conditions, MVM Brands remain in a strong position to gain market share in the Indonesian decorative paint market. Displayed to the right is our production plan for water based product at our third factory in Cherubon.

The plan is scheduled to be commissioned in early twenty twenty six. Currently, the installed capacity of the Chirrupon factory is around 200 ton, 200,000 metric ton per year based on two working shifts. However, for the first year of operation, we will utilize around 100,000 metric ton and gradually will increase over time. That concludes our q two twenty twenty five presentation. You very much for joining today’s earning call.

I will now pass to Panrias to moderate the q and a session.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Thank you, Panrobert. Now we can proceed with the q and a session, which will last for one hour. If you have any questions, feel free to ask. There’s one questions, from anonymous attendee. Do you have color on July volume?

Pat/Paroslan, Management Representative, Afya: Yeah. So I think if we go back to what we mentioned earlier that we have a last bite on the month of July because we implemented a price hike on the August 1, which is today. However, I think if you notice, the price hike that we implemented is between one to 2%. So when we concluded our July yesterday, the volume as well as the the the overall demand for our products, the paints category, was actually above our expectations. So even though the the price hike is quite minimal, just between one to 2%, but it seems that the, you know, the reactions from our customers is is very positive.

So both the Java customers as well as the Outer Island customers, participated quite well to the three main segments, wall, wood and metal, as well as the waterproofing. Any other questions?

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: There’s questions from Amanda Live. What drove the higher raw material cost?

Pahadi, VP/Presenter, Afya: Yeah. Okay. Thank Amanda, thank you for the question. I think when we analyze the the

Paropet, Presenter, Afya: raw

Pahadi, VP/Presenter, Afya: material uses, I believe it is more accurate to also include working in progress and also finished good inventories in the calculation And a more detailed breakdown of the number, I think, can be found in our financial report, which we already uploaded to our website, yeah, on the notes 27. But I think the main factor for us, the raw material is quite in slightly increased is because the US dollar exchange rate Yeah. So I think by using the approach, the impact of the increase in raw material cost as a percentage of sales actually, is less than 1% in the month. Thank you.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Thank you, Pahadi. Next question coming from Lydia. Do you have any plan to expand merger and acquisition to any other companies or industries moving forward?

Pat/Paroslan, Management Representative, Afya: Thank you for the question, Lydia. So ever since we went for, became a a publicly listed entity, we never stopped trying to identify potential companies with synergies which could make sense to be included within our ecosystem. We’ve always been quite strict within that requirements, and therefore, we don’t just randomly acquire companies that, you know, that may or may not fit best with our criteria. So, outside of Textron, which took us a bit more than two years to conclude the acquisitions, there are a few more companies which fits perfectly within our, ecosystem. So we’re continuing to engage with those companies.

And, you know, even a few investors are participating in, reaching out to those companies. So the but in in in at this point in time, we have not made any deals yet with any of these companies. Thank you.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Thank you, Parosaland.

Pat/Paroslan, Management Representative, Afya: Maybe just to add, other adjacencies like ceramic tile company, for instance, is not within our radar. So we don’t want to deviate too far to what we currently do.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: K. Next question coming coming from Yvette Sun. Hi. How do you see the gross profit margin for the second half semester if we assume the oil price to remain at current level and taking into account the price hike?

Pahadi, VP/Presenter, Afya: Yeah. Thank you for the question, Yvette. I think, first of all, oil price oil price is not directly one or one impact to our raw material. That’s that’s yeah. For raw material, it’s more on the supply and demand factor, which is affect our gross profit.

But currently, we are we understand that we’re navigating to a tough and highly competitive market condition. Yeah. And also compound by weaker purchasing power, which we believe has led to market construction. Yeah. In response, we to maintain an aggressive stats in our promotional and marketing effort.

Yeah. And we do go to accelerating market share gain, particularly from the smaller competitors. I think as of June 25, our volumes still grew by 8% with a double digit growth in wall paint. So I believe this strategy is still moving in the right direction. But on the other hand, this approach has impacted our margin.

We saw a decline about 2%. That said, we are fully committed to optimizing every rupee that we spend. We continuously strengthening our cost control measure to ensure that every investment deliver maximum impact. So our focus remain on the maintaining healthy profitability. And over the long term, we aim to sustain, like, a gross profit margin around 49 to 50% for the architecture solution.

Pat/Paroslan, Management Representative, Afya: Yeah. I think we are committing to the what we basically plan in terms of our gross profit margin in sorry. In in terms of our net profit margin for the year. Right? I think we’re aiming to hit 21% more or less on that, and we’re taking multiple effective measures to improve what we have spent in the per in the previous quarters in order to, achieve this target.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Thank you, Pat. I guess that’s also, explained and answered the next question coming from Felix asking about what is your earnings growth target for this year. It’s, I’ve already explained by Paroswan, just now. And then next question coming from Felix again. Could you please explain the integration scheme for Dextone’s products?

Do you purchase the product from them first and then distribute them through your own channel, or is there any different scheme?

Pat/Paroslan, Management Representative, Afya: Yeah. Thanks again for the question, Felix. So at this point in time, the, the because we only own 16.7% of Textron, so the purchase is exactly what you mentioned. So we are just buying them, and then we go through our distribution network to to to sell the products into our customers. Obviously, you know, in the future, we we have plans to, you know, own more than 16.7%.

So, you know, we’ll we’ll see how things go. And by then then if we are able to own more than, you know, the 50%, then things will get consolidated. But for now, it’s too early to to to, you know, finalize anything and, that the products going through our distribution network. And in the first, let’s say, two to three months, you know, more than 30,000 customers have made purchases of the Textron products through our DC networks. And it’s we we feel very confident that we can continue to improve the performance of these products.

At the beginning stages, there were a few things that we need to navigate, namely the existing independent distributors that they had previously. So, you know, I but I think we’re now at a stage where the ERP system have been fully implemented at their companies, and, so everything else is is in order. So now we have a much better control in terms of the selling prices through, their independent distributor and through our, DC network so that, you know, the price control is is is already there. And, that’s why we feel very confident that we will continue to do well within the Textron products. Thanks, Felix.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Thank you, Pat. Next question coming from the Dafa. What’s causing the decrease in margin?

Pahadi, VP/Presenter, Afya: Yeah. I think as we explained before, because we’re still in the tough market, I think we we choose to maintain an aggressive approach on the marketing and promotional effort. That’s why, yeah, our expense is slightly higher compared to the previous period. Yeah. But I think, again, this is I think we move on the direct on the right direction because as you see, our volume is still grow in even in, I think, we have a double digit growth.

So, yeah, maybe in the short term, the margin will be decreased. But I think in long term, we will benefit it with this effort.

Pat/Paroslan, Management Representative, Afya: Yeah. I mean, in in addition to that, right, I think what we’ve done in terms of our strategy to continue to gain market share within the wallpane is showing. So I think we we essentially, we got a bit too aggressive in the second quarter to see what we can do to, to gain, you know, even more market shares. But corrective actions are being done as we speak so that we can, you know, improve our gross profit margin, from in in the third and fourth quarter. And, obviously, the price hike that we implemented, today will also help.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Thank you, Bhatt. Next question coming from Danif. New product launches going forward will be driven by market needs or tailored to better align with consumers’ purchasing power?

Pat/Paroslan, Management Representative, Afya: It’s it’s a little bit of both, actually, Danif. So we always look for, products which already exist in the market. That’s one. You know? And then we try to make a product which will which are better, and then we launch into the market.

But at the same time, I’m actually going for another market study next month oh, actually, this month, yeah, you know, within Asia to look at what are some of the products that we think could be suitable for the Indonesian market that maybe are not available yet. So it’s always a combination. But every time we see products in the market, we always try, if we are following products which are already in the market, we’re always trying to improve the qualities before we launch them into the market. So, essentially, we always have a better product offering than what’s already available in the market. But, you know, other products that we also don’t have for that nobody has in the market, we we we also, you know, look at these opportunities and maybe, okay.

Is there a market for this? And when when we think that there is, then we launch them into the market. Thank you.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Thank you, Pat. So next question coming from Yvette Soon again. Could you share what is roughly the ESP range for different product category just to understand whether the slower blended ESP is related to more contribution from wall paint?

Pat/Paroslan, Management Representative, Afya: Yes. That’s that’s exactly the the the reason. I don’t exact remember exactly, but wall paint price is maybe a third of waterproofing. Do you have the numbers, Andreas?

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Yes. I think wall paint is one third of wood and metal part, and it’s about half of waterproofing.

Pat/Paroslan, Management Representative, Afya: Adi, you wanna

Paropet, Presenter, Afya: add Yeah.

Pahadi, VP/Presenter, Afya: Currently, blended ASP is around $3,334,000 rupee, yeah, while is around $2,020,000. Yeah. While at the product like waterproofing and wood and metal is 50 to 60,000 rupee per per kg. Roughly

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: The lowest is. Definitely, yes.

Pat/Paroslan, Management Representative, Afya: Based on our internal calculation, I don’t know. Maybe I’m a bit bullish. We think that now we’re, you know, between the second, third, and fourth player within the wall markets within the wall paint markets, we’re quite similar. If we used to trail quite significantly, we’ve made quite a bit of progress in that area. Excuse me.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: I think we go to next question, coming from Jamie Osman. While we gain market share and achieve stronger volume growth in the 2025, our inventory days continue to rise. Could you please help us to understand the reason behind the higher inventory days?

Pat/Paroslan, Management Representative, Afya: Yeah. I think I can take that, and then maybe, Hadi, if you need to add later. So I think we all know that, you know, ever since president Trump became into power, right, that tariffs have been probably the most discussed topic in the world. So when we heard about that, we were quite concerned that there could be some ramifications within the supply chains, of Indonesia, however that may be. And so we decided to basically increase our inventory levels at all DCs.

The way we see it, you know, it’s better to have more inventory than have less. So, when the market, you know, is is doing, if we can gain market share from the others, then, obviously, having more products within our DCs will allow us to to provide the best service quality to our customers. They don’t need to wait and everything else. So that was one of the reasons why we decided to, add more on the inventory days. Maybe, Hadi, you wanted to add something else?

Pahadi, VP/Presenter, Afya: I think not for me, but yeah. I think I think that’s the reason why we have to increase our stock. Yeah.

Pat/Paroslan, Management Representative, Afya: Thank you.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Thank you, Pat. And then next question coming from Dafa again. Number one, have Dextone products contributed to quarter two growth? And what is the future projection for this product segment? Number two, what are the management’s expectation regarding the impact of global economic slowdown and geopolitical tensions on performance in the second, half twenty twenty five?

Pat/Paroslan, Management Representative, Afya: Okay. The first one with regards to the Dextone product con contribution to the q two is still very minimal. So keep in mind, Dafa, that when we, started selling the products in May of the of the second quarter, right, the first two months, we had a lot of issues because the pricing structure before we acquired this company was essentially almost nonexistent. So in contrary to our products and the way we operate, right, we have a proper price list, and then we basically it’s very transparent with with with all our products that the price list are available everywhere in the country. But this company, because it is quite traditional so, essentially, if you’re trying to find any kind of price list before we acquire them, you won’t be able to find any.

So what does it mean? Well, it means that prices in all the different regions vary a lot, and it depends on how their independent distributors, you know, what what kind of profit margin they make and where they are located. So, So, essentially, previously, their independent Textron’s independent distributor have the, luxury of setting prices however they want. And that’s something that we are changing, obviously, because the way we operate is completely different than that. So now we have a proper price list at all region within Indonesia.

And but, you know, there there was a gap, right, where we are selling it at compared to where the independent distributors were selling them at. So that’s what we had to navigate, and it’s basically taking us about almost three months. So as soon as the ERP system was concluded okay. So that was the first thing that we did. We knew that we have to install ERP system.

So now at the factory level as well as the distribution level at Dexton, both already have ERP systems. So what the ERP system is allowing us to do, obviously, is have very tight control on pricing structures, discount structures, and everything else. Because in the past, it was all done manually. So, know, it’s very, risky in terms of selling to the to to their independent distributors, giving them a wrong price structure and everything else because everything was done manually. So now with the ERP system, we have very good control.

So the first, the month of July was also a bit impacted with that. But we think that the month of August going onward to the to the end of the year, we will be in a much better position when it comes to, you know, the the the price competitions in the market. Because now, you know, we have agreed on a very fixed price and a very fixed discount structure that can only be sold at the market, you know, based on our mutual agreements. On the second one, management expectations. Look.

I think we’ve always been trying to find a sustainable way for us to grow. Right? And the growth that we’ve delivered so far, you know, even though we need to do better with the gross profit and net income and EBITDA, is something that we know we can maintain for the remaining of the year. Right? And the fact that the month of July during the last bite, even though the percentage of, price hike was between 12%, but the response from our customers was very enthusiastic, also give us a lot more confidence in, you know, continuing with our growth in the third as well as the fourth quarter.

So, we we feel that the any kind of tensions, whether that’s, you know, locally or even, you know, internationally, is not going to impact our efforts very much. Thank you.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Next question from Kevin Harlan. Any color on the second quarter twenty twenty five Q on Q volume decline considering promotion cost is slightly higher than the first quarter twenty twenty five? Is this due to seasonal impact or softer market condition in the second quarter?

Pat/Paroslan, Management Representative, Afya: Yes. Thank you, Kevin. So it is exactly what you said. It’s it is because of seasonality impact, Kevin. The time difference between, Labaran, which happened last year compared to that of this year, you know, have some of these impacts.

But overall, we think that the second quarter market is slightly better than the the first quarter. So, you know, the q on q decline is because of the, the the the number of days, which are shifting quite a bit. But beyond that, we think that the overall sentiment for the second quarter is better.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Next question from Yvette. For the guarantee buyback product sales, how do you do the accounting? Do you recognize revenue when delivered and book other expense when buyback or just keep as your own inventory for the whole period?

Pahadi, VP/Presenter, Afya: Yeah. If I thank you for the question. I think the buyback only happened when distributor stopped to become our distributor, and they have to to send back the inventory to us. So the procedure that we apply is they’re just doing the return. Yeah.

So we book a return in our booking.

Pat/Paroslan, Management Representative, Afya: So to add to that, Yvette, so in the month of October, we will have one independent distributor that we have decided to terminate. So this independent distributor has performed very, very poorly, and I’ve given him more than enough time to, you know, learn about our products and to navigate their ways in and out. And, this is in in in the outer island Outer Java, by the way. So what happens then when we decide to terminate this independent distributor is that, obviously, we give him about two months. So return all the products to us.

And as soon as we get the products, we check them all at the warehouse to make sure that the products are all good, and then we basically refund the money. But this type of activity or this type of, you know, guarantee buyback, doesn’t happen very often. Right? Because, I mean, if you look at this map, you can see that we only have about thirty eight third party distributors. So you know?

And, every I I think maybe every two or three three years, okay, then we would terminate one distributor that, you know, really are not making any kind of progress. This distributor that we’ve decided to terminate have been trying to sell our products for the past nine years, but the progress at which they’ve been showing is, like, almost nonexistent. I think, you know, we decided, look. You know, we don’t wanna waste their time, and let’s not waste our time. So might as well just end it.

And then, and that’s why we decided to do the product return, and and that’s how it is. But the impact is minimal, Yvette, because, they’re not doing well at the first place, and that’s why the product return, is is also very small in terms of value.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Continue questions coming from Jamie Osman. With the government’s rolling out the village comm ops program, does Afya see this as a meaningful near term demand opportunity? And if so, how is the company positioning to capture it?

Pat/Paroslan, Management Representative, Afya: Yeah. Any kind of, you know, initiatives from the government, Jamie, always takes a long time. And even then, we don’t know how much of that is actually just overpromising and underdelivering or whether they’re just going to you know, just mentioning. There’s a lot of things that have been mentioned, you know, within the current presidents, you know, under the current president, and we don’t know whether things are actually getting done in the market. So but the way we see it is this.

Look. You you know, if that can happen, I think it’s just a bonus for us because what we’re focusing on is just to continue to get from the competitors. So we have a clear map with regards to who are the competitors that we’re targeting in all different regions, in all the different segments, predominantly within the wall segment. And that’s how we’re able to continue with our double digit growth in the wall segment. You We’re know, looking at all these small competitors.

What is it that we can do to annoy them essentially and get their markets? And, this is something that we feel confident we’ll continue to do. Whether, you know, the government is continuing with their initiatives or not, that’s a different matter. If they are, then maybe we’ll be in a better position, right, because we have the products available everywhere to cater to these kinds of demands. And our project team continues to engage with various government entities to educate them so that our products can also be included within the specified products that they approve of.

So this is an ongoing process that never stops. But we really cannot see any you you don’t know when results will come in because of this, effect. Thank you, Jamie.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: And another question from Jamie. As a follow-up on the question in on infantry days, the tariff issue should affect exports to The US and less so import to Indonesia. Could you please share more about how are they affected by The US tariff?

Pat/Paroslan, Management Representative, Afya: Yeah. We’re we’re we’re not. I think that’s the, that’s the short answer, Jamie, because we don’t product from The US. Right? Most of our raw materials came from whether it’s China, India, Korea, and it’s it’s all within Asia.

But, look, to be honest, maybe I was a bit over terrified about what could happen within the Indonesia supply chain. So immediately as soon as that the the news on tariffs, you know, were released in the world, you know, I I was concerned that, okay, maybe there could be some, ramifications that we have not considered. Right? Maybe the the the cost of shipping, you know, between islands will go up. Maybe there’s gonna be something that is happening as a result of this.

So there’s a lot of maybes that basically led to us. I said, you know, to be safe, maybe we just increase our inventory levels so that, you know, when when if anything bad were to happen, then at least we will be in a much better positions. Because keep in mind that Indonesia is an island. Right? It’s a nation of islands.

Right? And even within the the DCs that we have, there are some areas which are still quite far. And, you you know, so I think the way we see it, having more inventory, you know, that we can, you know, we can sell into the market is always a better position rather than not having enough, because I I think we know that we can do well within the Indonesian market. And in order to support that, we definitely need to have the inventory levels, at the DCs.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: And the next last question came in from Jamie again, but would you be able to give more color on what is driving the revenue growth in the trading goods segment at a faster rate than architectural solutions? Is it volume or price driven and mainly from the pipe products? How should we think about the growth in the second semester twenty twenty five?

Pat/Paroslan, Management Representative, Afya: Yeah. I think we highlighted earlier, Jamie, that the competition landscape within the trading goods is nowhere near as intense of that as as that within the architectural solutions. So that’s the short answer. However, if you think about it, right, PVC pipes, which dominate these trading segments, is essentially meant for new builds. And when the, you know, the project segment within Indonesia is really not getting deployed much is what we’re seeing in the market now.

How can the PVC pipe segment continue to growth to grow in double digits? Well, it’s the same sustainable strategy. We’re just getting it from the others. Because if we are not getting it from the others, it’s impossible for the PVC pipe segment to grow because new projects are scarce in Indonesia. Not many are getting deployed.

And because of that, not many new homes, we think, is is is is gonna need PVC pipe. So unless we take it from the others, it would have been impossible for us to to have a double digit growth within the PVC pipe. And, again, this is where having, you know, the wholly owned DCs continue to allow us to be in this position, Jamie, because, you know, the the 80 plus percent synergies that the building materials that we have, right, those which are selling our paint products as well as those which are selling our PVC pipe products. Right? So, you know, I think this also helps to strengthen our position with the trading goods.

We also add a few more products. Right? Let let’s say we didn’t have to we didn’t used to have, water hose, but now we started selling water hose. So a few products are being added here and there. And and and but, ultimately, the goal is to, again, just focus on the building material shops.

So outside of that, we don’t want to cover. And and you can see the the the synergies from the trading goods on this screen. Right? Around 82% of our total customers are buying our, products within the trading goods, and PVC pipe is is one of those. We we feel that within the PVC pipe industries, at least on the retail aspects that we’re either number two or number three.

Maybe we’re number two now. But what we cannot determine is the project side because project is is something that is really, we don’t have a lot of visibility on. But, on the retail side, we we we believe that we’re either number two or number three player in the retail.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: So, Jamie asked, thank you for the clarification, Paroslan. Should we expect more ASP pressure going forward as we work through the inventory?

Pat/Paroslan, Management Representative, Afya: I don’t think I don’t think, the pressure would be coming in from the working through the inventory, Jamie. I think it’s more of the product mix. Right? So gross margin from the trading goods is definitely smaller. And so we mentioned earlier that the trading goods segment in second quarter contributed to around 24% of our consolidated sales.

So if you look at the gross profit margin, which is, you know, very different, right, 50% in the architectural solutions as compared to 18% in the trading goods. So any increase which is faster within the trading goods is going to reduce our gross profit margin on a consolidated level. And further, in addition, we are also having a bit of ASP pressures from product mix due to the wallpaints. Right? So the double digit growth for wallpaints is something that we know we can sustain for the remainder of the year.

And and and the good news is I as I shared, right, based on our internal estimations, we think that the number two, number three, and number four players within the wallpanes were very closely tied. You know? So, you know, we we we feel that, well, if we continue with this trajectory, we should be the number we we should have number two positions within the wallpane. So I think this is something that we’ve always aspired, to do, and, I think we’re on on the right path for now. Thank you.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Thank you, Fah. Is there any other questions?

Pat/Paroslan, Management Representative, Afya: Okay. No other questions?

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: Okay, but we can conclude this earnings call.

Pat/Paroslan, Management Representative, Afya: Okay.

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: If you have any other questions and you have not been answered, please do not hesitate to reach out to me. I will coordinate with the management and get back to you as soon as possible. Once again, we appreciate your participation in our quarter two twenty twenty five earnings call today, and we look forward to seeing you again in the next earnings call.

Pat/Paroslan, Management Representative, Afya: Thank

Andreas Timothy Hadi Krissno, Head of Investor Relations, Afya: you. Bye bye. Take care.

Pahadi, VP/Presenter, Afya: Bye. Thank you. Bye.

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