PT Avia Avian Tbk (AVIA) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for taking the time to participate in today's PT Avia Avian Tbk or Avia Quarter 1 2024 Earnings Call. For your information, we uploaded the presentation materials to our website yesterday. The plan for today is to start with a quick presentation followed by an hour Q&A session. [Operator Instructions] For those who cannot join us now, please note that 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 Hadikrisno. I'm the Head of Investor Relations at Avia and will be moderating this earnings call today. We are joined today by 3 other presenters, starting with Mr. Ruslan Tanoko, the Vice President, Director of our company; followed by Mr. Robert Tanoko, the Operations and Development Director; and finally, Mr. Kurnia Hadi, the Finance Director. In quarter 1, Avian brands reported a total revenue of IDR 1.9 trillion, which is equivalent to USD 122 million. During the same period, we achieved a gross margin of 46.5% and EBITDA margin of 29.1% and a net profit margin of 23.4%. The company is supported by over 8,000 dedicated and skilled employees. As of the end of quarter 1, we had 161 distribution centers spread across Indonesia, comprising 121 wholly owned DCs and 40 third-party DCs, providing high-quality services to more than 56,000 retail outlets in 38 provinces and 99 cities in Indonesia. In quarter 1, the consolidated sales witnessed a 6.9% growth compared to the same period last year. The growth was driven by the positive performance of both the architectural solutions and trading goods segments. In addition, these segments also demonstrated positive growth in gross profits, which contributed to the overall increase of 9.8% in consolidated gross profit. Avian brands also exhibited positive bottom line performance, as shown by the increase in EBITDA and net profit. The Indonesian economy is still affected by the inflation rate and uncertainties of the global economy. In quarter 1, the inflation rate was maintained within the Central Bank's target, hovering around 3%. Nevertheless, the pressure from primary food inflation is still evident as the average wholesale price for rice alone has gone up by 19.2% year-on-year. The company remains cautious of the potential impacts of escalating geopolitical tension and the risk of a global economic slowdown. In quarter 1, we launched 5 new products across 3 segments, namely wood and metal, waterproofing and woodcare. Supported by more than 70 highly qualified chemists, the company remains committed to expanding its product portfolio across multiple architectural solutions segments, aiming to expand its customer base and boost market share gain. We strive to provide best-in-class products that cater to customer at all income levels. Our product innovation capability is not only focused on providing superior products, but also takes into account the environmental aspects. A significant proportion, more than 80% of our existing product portfolio, comprises water-based products. Additionally, in quarter 1, we introduced Avian Cling water-based in the wood and metal segment, further emphasizing our commitment to eco-friendly product development. In quarter 1, we expanded our nationwide distribution network by adding 3 wholly owned DCs and 1 new mini DC. As of the end of quarter 1, we have 121 wholly owned DCs, 15 mini DCs and 40 third-party DCs. Supported by Aroma's logistical infrastructure with an integrated system, we are able to provide more than 11,000 deliveries on a daily basis. In addition, we have implemented multiple technological-driven initiatives that have enabled us to achieve a 93% rate in fulfilling 1-day delivery services to retail outlets across the country. We will continue to improve our delivery capability in order to deliver unparallel service quality to customers. In quarter 1, consolidated sales reported a 6.9% year-on-year growth, amounting to IDR 1.9 trillion. During the same period, we recorded transactions from more than 50,500 retail outlets, representing an increase of almost 600 retail outlets compared to the same quarter last year. As the company strives to enhance its service quality, we continue to observe a rise in the number of retail outlets conducting transactions. Providing exceptional value through outstanding service quality to customers has enabled us to stay ahead of the competition, thereby opening an excellent way for Avian Brands to stand out from its close competitors. I will now pass to Pak Hadi to continue the presentation.

Thank you, Andreas. Due to the competitive dynamic of the paint industry in Indonesia, we have decided to limit the specific details regarding our sales breakdown. However, we will share our sales breakdown by segment for investor who require this information. Please reach out to our Head of Investor Relation. The chart on the left present our sales division by segment. The architectural solutions segment accounted for around 83% of the total sales with a wall, wood and metal and waterproofing categories being the top 3 sales contributors for the company. On the other hand, the trading goods segment accounted for around 17% of the total sales where the PVC pipe category remained the top contributor within this segment. Regarding the sales breakdown by customer, traditional retail outlet contribute to 92.9% of the total sales whereas the contribution of modern retail outlet accounted for 7.1%. And we divide sales based on the distribution network. Wholly owned distribution center contributed to 87.9% of the total sales whereas third-party distribution center accounted for 11.5%. In Q1, consolidated gross profit estimated an increase of 9.8% year-on-year, amounting to IDR 886 billion. The gross margin for the quarter was recorded at 46.5%. The improvement in gross profit was driven by the decline in raw material prices. With demand in Q1, consolidated EBITDA demonstrated a 6.9% year-on-year increase, amounting to IDR 555 billion. The EBITDA margin for the quarter was recorded at 29.1%. The improvement in EBITDA was driven by the improvement in gross profit and the effective control of operating costs. In addition, consolidated net profit recorded a 7% year-on-year increase in Q1, amounting to IDR 446 billion. The net profit margin for the quarter was recorded at 23.4%. The improvement in net profit was driven by the increase in gross profit and EBITDA. In Q1, the architectural solutions segment recorded a 5.6% year-on-year growth, almost reaching IDR 1.6 trillion. During the same period, total volume increased by 5.6% compared to the same period last year. The growth in revenue and volume was supported by the company's diversified product portfolio. We span from the economical to premium class, thereby catering to consumer across all income levels. Apart from offering a wide range of product, the company also benefits from the fast distribution network, facilitating product penetration on a nationwide level. Additionally, the company has also implemented numerous strategic marketing initiatives, ranging from below-the-line to above-the-line strategies. During Q1 2024, the company recorded transaction from more than 46,000 retail outlet, marking an increase of more than 900 retail outlet compared to the same quarter last year. In Q1, the trading goods segment experienced a double-digit growth of 13.9% year-on-year, amounting to IDR 331 billion. The growth was primarily driven by the PVC pipe category. Moreover, during the Q1, the trading goods segment recorded transaction from over 38,000 retail outlets. This number represent around 76% of our overall consolidated customer, indicating a high level of synergy that this particular segment hold within our business ecosystem. In Q1, the architectural solutions segment recorded a gross profit of IDR 825 billion, representing an increase of 9.4% compared to the same period last year. During the same period, the gross margin for this particular segment was recorded at 52.4%. Regarding the trading goods segment, the gross profit for Q1 was recorded at IDR 61 billion, marking a significant increase of 15.3% compared to the same period last year. During the same period, the gross margin for the trading goods segment was recorded at 18.4%. I will now pass to Pak Robert to continue the presentation.

Thank you, Pak Hadi. Avian Brands is committed to maintaining its cost-conscious approach while pursuing multiple growth strategies. Operating expenses remained relatively steady in Q1 of 2024 with the G&A expenses accounting for around 3% and sales and marketing expenses accounting for around 17%. Regarding the COGS breakdown, the decline in raw material costs is attributable to the decline in raw material prices, which has had a positive impact on the company's profitability. On the other hand, direct labor and factory overhead costs have remained relatively stable in Q1, hovering around 1% and 2%, respectively. In addition, the increase in BTL expenses is in line with the company's more aggressive promotional activities. In Q1, the trade working capital was well maintained at around 29% of sales. Total capital expenditure for Q1 accounted for 3.6% with 1.4% allocated towards the construction of the third factory in Cirebon and 2.2% allocated to the routine CapEx. The company's strong ability to generate cash, coupled with low routine CapEx, has resulted in a solid free cash flow, which accounted for around 13% of total sales. This positive financial situation has instilled confidence in the company's ability to uphold its commitment to distributing a minimum of 50% of dividend payout ratio. It is important to note that the company remains committed to pursuing its merger and acquisition strategy. Meanwhile, the company intends to maximize its dividend payout ratio. For your information, the company has declared a dividend payout ratio of 83% for its 2023 net profit, and the dividend payout ratio for its 2022 net profit has reached 93%. The chart on the left presents the company ability to maintain on-time collection of account receivables. Over the past 2 years, the on-time collection rate has reached over 90% despite the challenging economic situation. With continued service improvements, the company is dedicated to preserving a high-quality relationship with all customers in the long term. Meanwhile, the tables on the right showcase the company's ability to minimize uncollectible receivables from retail outlets and internal fraud. Through its culture and business model, the company has successfully implemented an effective accountability system for managing internal fraud. We maintain our guidance for full year 2024 and aim to grow our sales by 6% to 10% and increase our volume by 4% to 8%. The company is diligently executing multiple growth strategies to drive growth and boost market share gain. We are leveraging our robust and efficient capabilities to expand our product portfolio while also accelerating the allocation of tinting machines. Additionally, we are prioritizing the expansion of our distribution centers, which has proven to be an effective tool for delivering a high-quality service to our customers. By continuously improving various aspect of our operations, we aim to help our customers to achieve greater profitability and establish ourselves as a valuable partner in their success. The image on the right shows the progress of our third factory in Cirebon, West Java. The factory is scheduled to be completed by the end of 2025. That concludes our Q1 2024 presentation. Thank you very much for your joining for this earning call. And I will now pass to Pak Andreas to moderate the Q&A session.

Thank you, Pak Robert. We can now proceed with the Q&A session, which may last for 1 hour. The first question's coming from [ Nasrulla from UBS ]. How do you compare your 6% volume growth compared to the paint market? Are you gaining market share or the overall paint market is gaining? And the number 2 question is, what is the contribution of economical products to total sales? Interesting to know the reason for your flat ASP in the midst of launching products, priced 15% to 20% lower than existing. And the last one, what is your current status of the buyback program? How much budget is still left for the buyback?

Okay. I'll answer the first 2. So if we look at the 6% volume growth compared to paint market, this is always a tricky question to answer. We can only use our internal management estimates to see how the market is behaving. So we believe that given the challenges that is presented in Indonesia, you can see from multiple sources, right, more and more numbers are being published in terms of their results in Q1, I think it's safe to say that the economic conditions in Indonesia is relatively flat. So based on that, we believe that we have -- we are gaining market share. The paint market before the Ramadan season during fasting months, has not yet recovered to the pre-COVID level. So we were all paying close attention to this in the month of March. And unfortunately, it's -- that's the fact. So the paint market has not really gone back to the pre-COVID level yet. But given all the multiple products that we've been launching, right, if you recall, 5 products in Q1 and we have been accelerating our promotions and marketing activities and not many of our competitors actually do anything, so I think we definitely are gaining market share even in this tough environment. The second question is that, yes, we have been launching products that -- which are placed 15% to 20% cheaper than our other products. However, our ASP remained flat. And the reason for that is just because we have cheaper products in the market, right, it does not mean that consumers who can afford the normal product that they were using will choose to migrate to the lower one. So I think when we look at this across multiple categories, we are seeing the fact that -- okay, well, maybe in the case of wood and metal, more customers are buying the Avian Cling because they feel that, okay, hey, I want this product because the solvent base -- the existing Avian brand for the wood and metal is too expensive. And I'd like to migrate to Avian Cling. But we don't see that very often in the waterproofing. If you recall, by Q3 last year, we did launch a No Drop Basic. You can see it in the price category 3 in this page. This product is being sold through all of our DCs. Nevertheless, the pickup is not really as strong as we had hoped. So I think from that, you can also gauge that, huh, okay, so consumers would still prefer buying No Drop, which is 15%, 20% more expensive because that's the product that they have been using. I think the key here is that as long as they can afford it, they'll still use the same product. Because at the end of the day, once the gap between the minimum wage or the pockets for the consumers to that of the price hikes of the paint products are continuing to be narrowed, I think they will go back and buy the original paints that they were using before. So I think that's the conclusion that we get in terms of why the flat ASP even though we have launched multiple economic products. I'll let Hadi to answer the third one.

Yes. Thank you, Pak Ruslan. Thank you, [ Nasrulla ], for your question. So as agreed in the Shareholder General Meeting, the maximum buyback is IDR 1 trillion or in number of shares is 1.425 billion shares. Currently, we have bought back 550 million shares or around 38.6% from the total, while in rupiah, it's IDR 293 billion or more or less 29.3% from the total [ exit ].

Thank you, Pak Hadi, for the answer. We go to the next question coming from Divya. Divya has 3 questions. Number one, can you comment on the seasonality in first quarter versus second quarter this year, given the movement of some Lebaran demand to first quarter? How are April volumes trending? And will second quarter be seasonally weaker compared to first quarter this year? Then second question, while only 30% to 40% raw material is imported, there will be a higher proportion linked to U.S. dollar. What is overall exposure to U.S. dollar-linked raw material costs? Can you also comment on the trends in key input costs like resin, et cetera? And number three, how much A&P spends as of sales should we expect for the rest of the year? It went to 11% to 12% in the first quarter, combining ATL and BTL.

Okay. I'll answer number 1 and 3, and then I'll give Robert to number 2. So the first one, in terms of seasonality difference in first Q and second Q, Divya, you're absolutely right that, every year, Lebaran moves forward by 12 days. But when you look at Q -- when you look at the month of April, what you will see is that last year, April had longer working days compared to this year's April. People tend to buy more paints before Lebaran or Ramadan. Unfortunately, this year, we're 12 days shorter at the beginning of April compared to last year, and therefore, we definitely are seeing a slight dip in our April sales. But it just means that in May or June this year, there should be a pickup. I don't agree with the -- that Q1 and Q2 this year or Q2 this year will be weaker than Q1. Again, we're trying to deploy and execute many of our strategies and staying on top of that. So I think Q2 will not be weaker than Q1, and we're doing everything we can, including other products that we'll be launching to help us and to push more sales and achieve our guidance. Number three, how much A&P spend should we expect? So because Lebaran this year happened 12 days earlier than last year, what it means is that, in Q1, we decided to ramp up our ATL spend or our television or digital spend. So that's why you noticed that in Q1 this year, the total A&P as a percentage of sales have gone up. But things should normalize, meaning that in Q2, our television advertising as well as digital will slow down. So things will normalize. And because of that, I really don't think that the A&P spend as a percentage of sales will be going even higher in Q2. Maybe there will be a slightly lower impact based on that. Question number two, I'll pass it on to Hadi.

Yes. Maybe part of it can -- yes.

Robert, sorry. Go ahead, Robert.

Yes. Thank you, Divya, for the question. So well, it's rightly mentioned, 30% to 40% raw material has been imported and still remain the same. But overall, the exposure of U.S. linked to raw material costs remain the same part. We have reviewed the raw material monthly, whereas up to Q1, raw materials has been relatively stable. And we will look at -- perhaps due to the import material, usually the inventory stock at 2 months. So perhaps with the increase of the U.S. dollar, it will affect on the end of Q2's raw material prices. But however, we will overview monthly prices of raw materials, and we will act if there is a pressure on the margin.

Yes. Maybe just to add to that, I think Divya was asking the overall exposure of the U.S. dollar-linked raw material costs. And the answer to that is around 70%, Divya, where 35% is direct U.S. dollars that we had to pay. But the other 35% is in rupiah denominator because the government doesn't allow Indonesian-based transactions to be paid in other currency besides rupiah. But nevertheless, they are still very much linked to U.S. dollars. So if U.S. weakened like they are now at IDR 16,200, we definitely are suffering. But keep in mind that this is a condition that is affecting all paint companies, right? So it's not -- we're not the only one impacted by this. But the good thing is that, like I said last year, right, we have a bit of a cushion to accept a bit of the headwinds that's coming, right, because our margin is still very high. And therefore, I think at the beginning of the year, when we were sharing our guidance, right, in terms of net profit margin, we're saying, look, it's not going to be at 23%. It may be hovering between 21% to 23%, and I think that's the cushion that we have. But we definitely are willing to lose some of that margin in order to pursue much more stronger growth. I think that's how we see it. Thank you, Divya.

Thank you, Pak, for the answers. We go to the next question coming from Mutiara Nita from HLB (sic) [ BCA Sekuritas ]. Congrats for the result. I have a few question to ask. Number one, what raw material price that contributed the most to your lower COGS? And number two, any targeted BTL ratio to revenue you want to cap?

Yes. Following the raw materials that contribute to lower COGS, mainly it's resins as well as these Tier 2 prices that has been going down from early last year. But we will see that most of the resin are still remain the same. However, for Tier 2 prices, we see that there's a little bit of picking up in the first quarter. That's about it.

In terms of a targeted BTL revenue -- BTL ratio to revenue that we want to cap, I think at the end of the day, Mutiara, we are responding or retaliating to what our competitors are doing. The good thing is that we don't need to actually do everything on a nationwide scale because we have DCs in many, many locations, way more than any of our competitors. It gives us the flexibility to really react in -- only in areas or DCs that we are being targeted at. Give you an example, let's say, in 1 or 2 areas -- in Bali alone, we have 2 DCs, one in the north and one in the south. Let's assume that one of our competitors are doing something on the northern part but not doing it on the southern part. Well, we have that flexibility. We can only do or retaliate for our BTL or whatever it is on the northern part of Bali and not do anything on the southern part. But if our competitors are not intensifying their spending on the BTL, then it's most likely that we will keep our BTL to be more or less around the same. But however, if they are doing something more, then we're really not afraid to retaliate and perhaps even go in more aggressive in the area that is impacted. Thank you.

Thank you, Pak. We go to the next question, Emilia Francisca from Principal. She has 2 questions. Number one, can you provide more color on the volume growth driver for segment in first quarter 2024? Number two, can you talk a bit more on the demand run rate for Avia's wall paint economical products?

So overall, in Q1, I think it was mentioned earlier that the strongest revenue contributor coming in from waterproofing. But this is because the customer-gathering events that we do in Q1 actually is -- last year, we had customer-gathering events targeting wall and wood and metal segment. But this year -- because Q1 we wanted to switch, so we are doing the waterproofing customer gathering in Q1 instead. What it means is that -- that's why the waterproofing growth is very high in the double digits in Q1 whereas the wall as well as wood and metal was actually relatively flat. But obviously, as you can imagine, because we decided to change this approach, things will normalize either in Q2 or in Q3, where waterproofing will normalize and then wood and metal as well as wall will go up instead. So that's basically what happened in Q1. But that being said, the wall paint that we've been very much focused in, it has -- I have to say that it's been very promising to really -- to allow us to continue with our future volume growth. I -- my team and I just came back from Beijing, China 2 days ago. And what we saw in Beijing was a bit overwhelming. First of all, neither of us actually can read Mandarin. So it was quite difficult taking our phone to translate everything that we saw there. But the one thing that we noticed that is, again, completely different than the Indonesian paint market is the fact that the product variety that exists in the shops, whether that's big, small, medium-sized, is way, way more than what Indonesia has to offer. So I think from that point alone, we can make a judgment that, huh, okay, maybe we should not be afraid to expand our product portfolio to see whether we can actually get more sales. Now that has to be accompanied with another discipline that we are discontinuing products which fall outside of our targeting -- targeted business model. If you guys recall, a few months ago, we decided to launch more economical product using the brand expansion approach. If you look at this page, for instance, you will see Avitex Wizz under Category 2. You will see ARIES Bling under Category 1. Those are more kind of a book product that we launched by the end of Q3 last year, but using the brand expansion approach. While this is happening, there are products that we still have within our product portfolio that will be discontinued. So keep in mind that as a company, we're always aware of our finished goods as well as our raw materials that we have so that we don't just go crazy adding and launching more new products and not being aware of them. So that's really not the case. We're always paying attention on our inventory. And between the next year or 2 years, many of these products that fall outside the brand expansion approach will be discontinued. But what I'm trying to say is that there is a lot more room to introduce more and more products. We bought a lot of products from China to see whether some of them can be introduced in the Indonesian market. I know that Chinese market may be a lot -- can be different because of the weather there. They have winter, summer -- it's a 4-season country whereas Indonesia is only 2 seasons, hot and even hotter. Yes, that's how we see it when it comes to the volume growth driver. The wall paint for economical products are being welcomed quite well, Emilia. But keep in mind that in Tier 1 and Tier 2 cities, they don't need more economical product because the buying power for consumers in these Tier 1 and Tier 2 cities are enough so that they can buy more premium products. But when you talk about Tier 3 cities, Tier 4 cities, especially on the outer islands, they are welcomed really well. So consumers really like the products. They are aware of our brand, whether that's Avitex or ARIES, and they continue to support the products in the shops. So that's a very good sign. Thank you, Emilia.

We go next to question from Mrs. Felicia Barus from Citigroup. She has 3 questions. Question number one, can you share some color on the price dynamics in the sector? Is there any players who increased their prices year-to-date? Then number two, can you provide update on the deployment of tinting machines in your retail outlets? How much is the addition in first quarter and planned for the full year 2024? And last question, will there be any more economical products launched this year?

Thank you, Felicia, for your questions. So the first one, pricing dynamics in the sector, is there any player who increased their prices year-to-date? Yes. There's only one company Felicia, and it's a local company based out of Surabaya. They decided to introduce a price hike maybe a month ago. And this company is only strong in the -- maybe a few cities. In East Java, they are very strong. In fact, they are the market leader in the wood and metal. So I mean, I guess you can rationale that this is a much older company than us. They are at least 20 years older. So before my grandfather started this paint company, his shop was also selling this particular brand. So the question that I had is why did they decide to increase their prices, given the fact that raw materials are stabilizing and, in fact, at the beginning of the first 2 months, they were declining a little bit? So nobody knows the answer. But one thing that I got from one of their big distributor is that they have way too many products in their warehouse. And they figured that giving promotion alone was not enough, and therefore, they felt like they needed to increase price so that they can attract more sales to take place. Obviously, this company does not consider that the ramification of this strategy, right? So in Q2, Q3 and Q4, I think they'll be suffering because their products is the only one that decided to be hiked in this country. No other companies have decided to take a price hike, Felicia. Number two, in terms of the update of the deployment of tinting machines. So if you can imagine, right, in the past 2 years, as we continue to launch more and more products, what it means is that the revenue per tinting machines for the company also continue to enjoy this benefit. So when -- if this is continuing to happen, what it means is that we do have and we should deploy more tinting machines. So that's basically what we're trying to do. In terms of number, I think just to give you a ballpark, right, whatever we launched last year, we're at least trying to double it this year. Okay? But we didn't actually launch that many last year. So in the last October survey that we conducted throughout Indonesia, the total number of tinting machines for the Indonesian market actually has shrunk a little bit. Yes, it has shrunk. It has not grown, but the shrinkage was mainly attributed by the small companies. I think small companies at the beginning, they were just -- decided to go into tinting machines just for the heck of it. And I think afterwards, they realize that, wow, the cost for maintenance, the cost of troubleshooting and the cost for everything else is very high. Because if they are a company based in Surabaya and decided to do the tinting machine, let's say, in Ambon or in Papua, imagine the time that it would need and the cost they would have to spend to send the technician to go to these islands just to fix one problem. So this is something that we don't have, right? Given the expensive DC networks that we have, all of our technicians are just around the corner essentially. So we -- as far as we know, we're the only company that provides maintenance on the tinting machines before they break down. Again, this is our way of trying to encourage shops so that they don't get concerned about what will happen to my sales if the tinting machines break down. So this is another effort that we do. I said, look, my technicians will come at least either once a month or once every 2 months, and we will provide you with maintenance and service before the unit experience any trouble. So I think that is the one big thing that separates us to other competitors when it comes to tinting machine. Number three, will there be any more economic product launch this year? No, there won't be any more economical product launch this year. If you look earlier, the fact that we launched a few products in the waterproofing that was cheaper in category, it just means that -- I mean, these are like just ancillary products, right? Fiber, sheets and things like that. But in the main category of waterproofing, wood and metal or wall, we won't be launching any more economical products. But we are looking obviously into, okay, what have we learned from our recent market study in China, what will be the best time to do this and everything else. So we will make that decision. But I don't think we will actually launch any of them this year. Because as you know, the R&D process always takes time. Thank you, Felicia.

Next question coming from [ Diyan ] from HSBC Asset Management. In the fourth quarter of 2023, the company significantly invested in above-the-line advertising and continued this heavy spending into the first quarter of 2024. It appears that for every additional $1 spent on advertising, there is actually less than a $1 gain in architectural sales. Could you explain why this might be happening?

Yes. Thank you, again, for the question, [ Diyan ]. So I mean -- look, when it comes to selling paint, right, it's not a product that can be driven by impulse, right? So what it means is that unlike FMCGs, right, I mean you see something, a new flavor of coffee, a new flavor of energy drink or a new flavor of biscuits, you may be tempted to see, let me give it a try. But when it comes to paint, that kind of behavior doesn't happen, right? Nobody will, in their right mind, will just, okay, I'm going to stock this paint. Maybe I'll paint it -- I'll use it towards the end of the year just because I see that this product is now having a 20% sale. So because of that, [ Diyan ], we realized that a key to future growth needs to also be combined with the above the line or -- whether that's television or digital advertising. So the fact that we are ramping up our advertising in Q4 last year and even more in this year means that we're -- I mean over -- first of all, our budget for this year is definitely improved by -- in the teens, I think, for this year. But in Q1, in particular, we decided to deploy way more than what we're budgeting because the fasting month started in the month of March, but things will normalize, as I mentioned earlier. So I think in Q2, our television and digital spending will go down a little bit so that at the end of the day, for the full year of 2024, we can meet our budget for the above the line. But as a company, we will always invest in the above the line to really increase our brand awareness across multiple categories. Some products are best suited for television. Some products are better suited for digital, and that's a call that we make. Yes. I mean, in some cases, you may see that the -- for every $1 spent on advertising, there's actually less than $1 gain in architectural sales. Yes, that can happen, [ Diyan ]. But keep in mind that we're really playing the long game, right, because you cannot drive sales just by doing advertising now. It takes a long time to actually to do any kind of brand building when it comes to paint category. And that's why we're doing it, starting now.

Thank you, Pak. Question coming from [ Anutri ]. Congrats on the strong result. A few questions from my end. Have you seen competitors becoming more aggressive in promotional and marketing activities recently? Number two, would you mind giving colors on the new product launch pipeline for the rest of the year?

Thank you, [ Anutri ], for the questions. I have to say that it's not strong results. So we still have a lot of work to do, given that the market is tough. But I sincerely believe that when many of our competitors, especially the small ones, are really not doing anything, right, we should be able to get more from them. So thank you for the encouraging words, but I assure you that we're working harder than ever in trying to get more sales from the competitors everywhere throughout the region. Now when it comes to your question whether any of our competitors become more aggressive in promotional and marketing activities, it's essentially less than 5 companies. It's the same usual suspects, okay? Other than these 5, maybe the rest really don't do anything because we are keeping a close eye on everyone in the country when it comes to the paint products. But again, this is where doing benchmarking or a study in China or many of the countries will be beneficial for us for our future growth because we have no intention to enter any of these markets. We just focus on Indonesia, but it's only a matter of time before products from China and many regions will come to Indonesia. One particular concern that we have is that I have definitely noticed more and more products being advertised on social media. I think if you look at China, where the property market is really suffering tremendously, the companies in China have no chance but try to go outside from China so that they can survive. Now the fact that Tokopedia has been acquired by TikTok up to 75%, in my mind, it's good enough reason to create a bit of wariness and maybe more and more products will come in. I know that paint products, you cannot sell through online shops. So the products that I have seen in online shops are products with almost no color. So what it means is that I have seen quite a few waterproofing products where the color is either black, one color, or either it's transparent or either it's white. And a few other products along that nature that have been popping up in the online shops, and again, I think it definitely was one of the reasons why we decided to go into China to really look at custom market there. I think for the next year, we'll go back to China, but go to a different region to, again, understand the market there because like I said, I think China, being a 4-seasons country, there are going to be products which are going to be different. But nevertheless, we're always looking for inspiration. In terms of more -- new product launch pipeline for the rest of the year. Yes, there's a few products that we wanted to launch in this year. Unfortunately, because we want to keep them as a surprise, I really cannot share anything with you. But obviously, any products that we will sell, that we will launch in this year, is something -- in terms of timing, we have to make sure, number one, the R&D process had been thoroughly going through the -- all the processes because we don't want any problems to come from any of the products that we launched. That's number one. Number two, we're always wise when it comes to position our price points. It cannot be too expensive, but it also cannot be too cheap, right? And this is where doing a market study all across the region is important -- all across Indonesia is important because we have different competitors in all the different regions that we need to counteract. But there's going to be definitely more products that you will see being launched in Q2, 3 and 4, and we'll continue to do this until -- in the future because the market is still big. And keep in mind, we're just a decorative company for now, right? So there are other segments that we can potentially look at, right? So I think that's how the thought process when it comes to paint. And we're very much focused in paint. We don't want to go into adjacencies. That's why, I think, capping the trading goods at around 20% is part of our commitment to that so that we are always focused very much on the paint side of the business. Thank you.

Next question coming from [ Calvin. ] I have a few questions, 3 questions in total. Number one, out of 23% overall market share, can you share on Avia's market share in key subsegments such as wall paint, waterproofing and wood and metal? And number two, what are the regions in which Avia is especially stronger and lead in terms of competition? Given the spread of distribution, can it be assumed that Avia is much stronger outside of Greater Jakarta? Number three, what are the rationale for Avia in terms of M&A, in terms of valuation and the company being targeted and et cetera?

Thank you, [ Calvin, ] for the questions. So the first one, out of the 23% market, overall market share that we think we have, in the key segments such as wall paint, waterproofing and wood and metal, so I think in terms of this particular number, [ Calvin, ] during the IPO, we also shared that we are #1 in waterproofing and in wood and metal. And that's still the case up till now. In terms of wood and metal, I think one of the study that we got from Frost & Sullivan is saying that we have a 40% market share. Again, based on management estimate, that number is more or less accurate. In terms of waterproofing, they didn't actually provide a number. But based on our estimates, I think market share in waterproofing would also be around the 40-plus percent. However, in the case of wall paint, the market for the wall paint is extremely fragmented. So while we are #3 in the wall paint category, we believe that our market share in this particular category is between 11% to 13% at most. So there's a lot of work that needs to be done. And therefore, a lot of the discipline and a lot of the market study is really very much focused on this particular category. And I'm glad to basically say that ever since we started launching the Avitex Gold product a few quarters ago and many of the products that we've done since then, the trends for the wall paint for us as a company has been continue to be heading in a very good direction. So this is something that we'll continue to pay very, very close attention to because we don't want to be #3 forever. So we're always trying to do what we can to improve on the wall paint category. Number two, [ I know ] about the regions where Avia is stronger and lead in terms of competition, can it be assumed that Avia is much stronger outside Greater Jakarta? So I've mentioned this in multiple earnings call, whereby in the entire landscape of Indonesia, there are 2 big areas where we think we're not #1, okay? One is the Greater Jakarta area; and #2 is the northern part of Sumatra, right? So a lot of the activities that we do very much focus on these 2 areas so that we can always catch up to our competitors. But let me bring back. The reasons that we're not #1 in Jakarta as well as the northern part of Sumatra is basically coming from the time that the company has spent in terms of entering these markets, right? The company, Avia, turned 45 years old in November last year, but we've only entered Jakarta market 25 years, likewise, with the northern part of Sumatra. So many of our competitors, as you can imagine, have been in Indonesia for more than 6 decades. So they definitely have much more time in terms of us. Nevertheless, what we can tell you is that, look, we're gaining in terms of market share, right? We're stepping up our pace in these areas where we're still lacking so that we can basically gain more market shares, not necessarily from the #1 or 2 players, but from many other players that we can take. However it is, we just want to take the market shares in these 2 areas that we believe we're still not #1. Number three, what are the rationale for Avia in terms of M&A, in terms of valuation and the company being targeted and et cetera? First of all, let me bring back the point that as a paint company, we really do not want to start going into other adjacencies unless it is an extremely close adjacencies. What I mean by that, if it falls within the product range that we are selling now in terms of the paint category, then we're willing to look at it. But if it falls outside of this, then it's not something that we will even consider. So we're quite disciplined in terms of spending the available fund that we have in the balance sheet so that we're only targeting companies that fall within these key product segments. So you will not hear us all of a sudden acquiring a ceramic tile company, a roofing kind of company and all these things because they don't fall into these 7-or-so key product segments. But in terms of valuation, the way we see it is this. In Indonesia, there hasn't been any M&A for a long time, right? So -- and this is knowledge, public knowledge. So I think if there is going to be any good company that is going to be for sale or to be acquired, I can assure you that the valuation is not going to be cheap. But for us, I think the logic is this, right? If we have to pay them a higher multiple, the next question is how fast can we speed up their sales, right? Let's say, for whatever number, right, it's a high PE, higher than ours, but if we can double the sales in less than 3 years, and we have full confidence in doing so, then it won't be that expensive if we can achieve our target. So obviously, for us, as a company, we don't just go crazy and start offering high multiples to all the companies because even if that was the case, I can assure you, not many of these owners will sell their companies because to them, there's legacy component involved and something that they've done for a long time. And getting cash, they wouldn't even know what to do with it. Like us, I wouldn't even know what to do with the cash if we were to sell the company. So I think the passion for us that we have for this company also are being experienced by many other founders or owners in other companies. So that's why M&A is not going to be easy. And I can tell you for good companies, it won't be cheap. Thank you, [ Calvin. ]

Thank you, Pak. We'll go next question from [ Teodoros Melvin from Stock Bid. ] I'm [ Melvin ] from Stock Bid. Congratulations on the impressive first quarter result. Several questions from me. Number one, would you provide insight into the top 7 product in wall segment? Does it fit within the price range of the third ranked product, which is Avitex Gold? Or are there shifts towards premium or economical product? Number two, if I understand correctly, your average selling price, ASP, has risen without showing slower volume growth. It means for the Q-on-Q, not for the year-on-year. Are there specific reasons behind this increase? And question number three, additionally, could you also give any color regarding the sales split by regions?

Okay. Thank you, [ Melvin, ] for your question. When it comes to the wall paint, the top-selling products in the wall paint, does it fit within the price range of the third ranked products or Avitex Gold? Or are there shifts towards premium or economic products? I think the shift towards premium will always happen. But given the fact that the Indonesian growth has not been all that great, right, the government is always trying to do more than 5.5 or maybe closer to 6, but I think that hasn't happened yet in the past 3 or 4 years. So it's more like hovering around 5-ish percentage. So I think a shift towards premium product will always happen, but it has not stepped up in my view. But at the same time, what's good is that a move towards a more economical product is also not happening. It took place in the past 2 years during where there's the gap of the price hike is far higher than the increase in minimum wage. But as the gaps are being narrowed now, I think consumers are going back into the products that they used to buy, and I think this is a good sign. Number two, if I understand correctly, your ASP has risen without showing slower volume growth. Are the specific reasons? Yes. Andreas mentioned earlier, on Q-on-Q basis, the ASP may be going up. But look, at the end of the day, we're trying to do as much as we can internally and externally when it comes to selling the more economical products that we have. We understand that more economical products generally comes with lower gross margin. And because of that, we give our commissions internally based on that. So let's say, you make 1% of Avitex Gold, you will make maybe 0.5, 0.6 on Avitex Wizz. Likewise, when it comes to promotion that we're giving to the shops, No Drop has around 15% BTL budget. But No Drop Basic is only around 10%. So if you compare the 15% for the regular No Drop to the 10% of the No Drop Basic, net-net, we still make the same amount of money because that's more or less the difference in the gross margin. No Drop regular is 5% higher than that of No Drop Basic. So we pay attention to all these details when it comes to the market deployment of products as well as our BTL strategies so that, at the end of the day, the company can still maintain its absolute net profit margin. In terms of color for sales split by region, we can send you an e-mail on this. But if you look at the previous quarters, we always have that map in terms of our Indonesia sales contribution by region. I think that will answer your questions quite clearly. Thank you.

Thank you, Pak. Next question coming from [ Yonlong of Vander. ] As you look back in the last close to almost 3 years of being a public company, what were the key strategies that you did or did not do that you think have made an impact on company? Example: I would think that your pivot towards selling more economical products for your brand expansion seems to be bearing fruit, but this is really a more recent phenomenon.

Yes. Thank you for the question, [ Yonlong. ] So you're absolutely right in saying that we've only realized the fact that we should have done a brand expansion approach way faster than just recently. If we have this going into COVID, [ Yonlong, ] I can assure you that we will not be lagging behind our nearest competitors in terms of our growth because the brand expansion approach has been really well received. And that's a big mistake that we have as a company. That's my biggest mistake in terms of leading this company, why did I not realize this. But look, I think I don't want to say it's better late than never. But the way we see it is that, look, we learned from our mistakes. If there's one thing that we do as a company, we always make mistakes, but we always learn from them. So learning from this and then with -- in addition to the various things that we also learn along the way, whether that's the market study from neighboring countries, whether that's talking to our suppliers, whether that's talking to our customers, we always learn about, okay, what is it that we need to tweak in terms of our strategy. I think the key for us is no longer coming up with new strategies. We have enough strategies in place, [ Yonlong. ] But I want to focus on the word execute because our strategy is only as good if they can be executed. So that's what we're very much focused on this year to really execute the multiple, multiple strategies that we have. And again, if any of them are wrong, then we will learn from them and tweak them and just continue with our lives because I cannot just look back and just be regretful about all the mistakes that we did. But sometimes I do, but I try not to because there's still a long way forward. And that's what we want to do as a company: continue to move, continue to move forward, continue to innovate and continue to be the paint of choice in this country because that's what we really want. So we have every desire to expand our paint product portfolio, whether that's going into industrial, whether that's going to protective or whatever they may be. But only when the time is right. We don't want to overburden the R&D department. And I think the -- in terms of priority, we wanted to make sure that the current segments that we have is always #1 before we decided to venture out into other segments. Thank you, [ Yonlong. ]

Thank you. And next question coming from [ Anutri, ] again, from [ NP Asset. ] May I ask a fellow question again, Pak? Should we expect more competition from Chinese imports? Is there any import tariff or quota on Chinese product in paint segment?

Yes. Thank you again, [ Anutri. ] No. As far as I know, there isn't any quota, and there isn't any import tariffs for the paint segments. But the one thing that always protects us in terms of any threats from any country, not only China, is a few things. Number one, selling these things online doesn't work, right? As soon as you adjust your brightness on the phone, the color changes, so you cannot really sell these online. Number two, when it comes to paint, it's all about branding, right, because paint is not all about cost. If paint is all about cost, then the bestseller in the country would be the cheapest paint, but that's not the case, right? So -- and number three, we have, in my 20 -- almost 23 years of working for the company, I haven't seen any company -- paint companies entering Indonesia that has any luck of gaining market share without setting up a factory here. So if they're trying to just import the products into Indonesia and hope that they can sell it, I really don't think it's going to work. So they have to really put in the work. They have to apply for the permit to set up the factory and so on and so on. But the reason that we wanted to focus our market study this year to China is, as you know, in China, our competitor -- our nearest competitor is the market leader there, right? So we also need to take some inspiration from them. They're a good company, and we need to learn from them what was it that made them successful in China. And we also look at other products in there. Dulux is also doing quite well there and many other local companies. But again, the difficulty that we had was we have to go carry our phone everywhere because none of us can read Chinese. So yes, that's the issue. But I don't really expect paint-type products from China to actually be successful in Indonesia if they do not set up a factory. So anything imported, anything through online is not going to work. In the waterproofing segment, however, for those type of products with very limited colors, well, we need to pay attention. But again, right, waterproofing is very much all about brands, right? So again, anything from China coming in won't be so easy. And when it comes to paint in Indonesia, again, [ Anutri, ] we have 17,000 islands, right? You cannot ship them [indiscernible] air. So if you don't have representatives everywhere around the region or around the country, it will be extremely, extremely challenging, and it will take a long time to get the products from point A to point B. So because of all these reasons, we're really not concerned about any potential threat from China because we are already reacting to some of the possible business interactions that we may have in the country and trying to get ahead of them before they become a threat. Thank you.

Thank you, Pak. Is there any other questions? Okay. Coming from [ Calvin ] again. Can you share how is the industry or company sales mix in terms of color, white and colorful?

Yes. Thank you. Again, this is a very interesting question, [ Calvin ]. So when I first started working for the company 22 years ago, white color contribution would be in excess of 50% to -- between 50% to 60%. But obviously, times have changed. In my view, now, I think white colors, I have to look at the numbers, but more or less, they're around 30% to 35%. So white has definitely dropped a lot in terms of color contributions. So colors are becoming more and more popular. And as we see the trends that's happening in India, for instance, where the market is very much dominated by tinting systems, you, again, can see how colors is really critical for the Indian market, right? And I think, in my view, Indonesia will be moving in that direction, which is why, if you go to the modern trade in Indonesia, right, they're always trying to push for tinting machines. And likewise, so are we. Because for us, if the revenue for the paint can come majority from tinting, Imagine how much savings we will have as a company, right, lesser working capital, lesser warehouse space, and that would make life so much easier. But most importantly, with tinting -- migrating into tinting, if Indonesia can happen, we have more than 200 paint companies here that will not survive because they do not have capital to deploy all these tinting machines. So I think that's why if you look at our presentation and if you look at our nearest competitors' presentation, both of us are saying that, look, we'll deploy more tinting machines. So I think we both agree that this is definitely the best strategy to remove a lot of the competitors in the country. Thank you, [ Calvin. ]

Thank you. Is there any other questions? [ Yonlong ] Maybe you can share about any updates on your push towards project management. Has your thinking evolved there?

Yes. So thank you again, [ Yonlong. ] So in terms of project segment, look, our sales contribution forever has always been coming in from retail, right? But we also realized that ideally, in order for Avian brands to be the paint for -- the paint company for Indonesia, we must not only be present in the retail segment. We also need to be in the minds of the contractors, of the interior designers in the future, and many other people who will ultimately make any kind of decision when it comes to paint. And that's basically -- that was the reason for us to start to go into projects. So the project team that we have set up was only done in February last year. So it's not even a year yet. But we have seen good growth in this segment. But again, our numbers are still very small. But when I look at Asian Paints in India, if I'm not mistaken, their project contribution accounts for between 10% to 12%. So that's more or less what we're trying to achieve. I think we'll only be able to do that maybe in 5 to 6 years because going into projects is, again, different. And keep in mind that when it comes to projects, we're still quite choosy, okay? We don't want to just supply everyone, right? Generally speaking, we try to avoid new builds. Why new builds? Well, 2 reasons. Number one, there's no margin. These property developers will squeeze us dry when it comes to profit margin. And number two, they will pay us very long. So any new builds, generally, we try to avoid them. Well, what do we do then in projects? Well, we choose the maintenance and repair because for us, if you're buying it for your entire building, I mean I understand that you want to get the best deal for your building because you're spending a lot of money. But when it comes to maintenance and repair, you're not spending a lot of money, right? So if the paint are more expensive, people really don't mind because I'm only buying a small amount of paint. So that's okay. So that's the kind of market that we're targeting. Now keep in mind that we are targeting this -- the maintenance and repair, right, we have 160 DCs in a country that can really provide supplies for these markets. And we don't have to just target Jakarta, right? We can go to many of these markets. That's why we're conducting many locations in terms of contractors meetings to really educate them and provide them the service and convenience. So every time they want to buy our products, just WhatsApp number, and our representative will find out where you are, reach out to you, create and open an account, blah, blah, blah. But going into the biggest of the biggest in terms of property developer, it's not a goal for us, especially in the new builds. But we're going to them, in particular, for the maintenance and repair because that we know that we still have margin and the payment then will be within our range. That's how we see it.

Next question coming from [ Teodoros Melvin ] again. Additional question. Can I safely assume that your top product sales in the walls segment is still Avitex Gold followed by Avitex Wizz and ARIES Bling?

So if you look at our top category in the wall paint, I wanted to point out here. Okay, if you look at just to the right of category 3, you will see a blue can open there. Right next to Avitex Gold, there's an Avitex, just called Avitex. That's the first regular Avitex that the company launched more than 40 years ago. So Grandpa basically launched this product. Obviously, it was a different packaging then. So this product still, by far, for us is still the biggest revenue generator in the wall paint. Then obviously, it would be followed by Avitex Gold because Avitex Gold, over time, continued to grow and continue to be liked by our customers. And many of the architects and contractors also like it. And because the quality is good, because it took us awhile to finally be able to launch Avitex Gold, we've benchmarked this with many, many products in the country to make sure that we have very superior products and therefore, consumers or end users would love this product. So what our aim is to make Avitex Gold to grow even more and to be larger in terms of revenue contribution to the regular Avitex. So you're right that Avitex Gold would be a top product for us, but not now. For now, the regular Avitex is still contributing more sales than the Avitex Gold. Then obviously, the Avitex Wizz and ARIES Bling, you're right. They would be in the next kind of orders in terms of products that sells. But again, even up till now, ARIES Gold, okay, compared to ARIES Bling, we still sell more in ARIES Gold. So it doesn't mean that cheap products will move in this country. So -- and I think people, once they use or once they are accustomed to a certain product that they've used in the past, they really don't change. And that's the good and bad things about the paint market in Indonesia, right? Number one, the bad thing is it only takes time to get a market -- to get in any market. Number two, well, companies can come -- or whatever country -- to Indonesia, but it won't be so easy for them to grab the market from the players in this country because everything takes time. What we're trying to do, obviously, is to speed up the time needed to get the market share from anybody else in the country through a variety of innovations, market strategies and service and everything else that we have. And that's really the goal.

We still have about 15 minutes if you have any more questions.

Okay. I think we can conclude.

I think we can conclude. If there is no any other questions, we can conclude the earnings call. By -- if you have any questions that have not been answered, please feel free to e-mail me and I will make sure to coordinate with the management and get back to you as soon as possible. Once again, we appreciate your participation in our quarter 1 2024 earnings call today, and hope to see you again in the next earnings call. Take care.

Thank you.

Thank you.

Thank you. Bye-bye.