2Q23 results: revenue dip, expense grip. ASSA booked revenue of IDR 1.2 trillion in 2Q23 (-24% yoy, +8% qoq); the considerable YoY decline was mainly caused by the significant drop in delivery services revenue (IDR 396 billion; -60% yoy, -6% qoq) as marketplace performance began to slip. Unfortunately, the lack of cost-cutting measures from ASSA led to a deterioration in its overall performance;  its operating profit took a massive blow (IDR 40 billion; -43% yoy, -65% qoq, OPM: 3%), as did its EBITDA (IDR 268 billion; -5% yoy, -20% qoq) with an EBITDA margin of 22% (-780 bps qoq, +429 bps yoy). Its net profit suffered as well, coming in at IDR 18 billion (-58% yoy, -66% qoq) in 2Q23, with an NPM of 1% (-113 bps yoy, -309 bps qoq). Cumulatively, ASSA generated IDR 2.3 trillion in revenue in 1H23 (-25% yoy), falling short of our estimate (37.6%), with a net profit of IDR 70 billion (-39% yoy), beating our estimate (62.2%).

 

Headwinds for Anteraja, betting on cold chain. Recently, ASSA’s biggest revenue contributor, Anteraja, experienced a margin squeeze; its OpEx-to-sales came in at 20.7% in 1H23 (+790 bps yoy). Anteraja also posted average daily parcel delivery of 500k parcels/day, leading to a drop in revenue. To boost earnings, management highlighted that the company is now betting on cold chain business that offers better margins (due to its B2B nature) in the hope of boosting its consolidated margins. Although still early, we believe the cold chain business might help the company. Management also stated that Anteraja would book a breakeven EBIT at the end of FY23F; however, we are not too optimistic about that, given the fact that Anteraja is struggling to boost its earnings, especially due to lower demand from e-commerce and the rise of a new trend of e-commerce companies creating their own last-mile delivery services. With this in mind, coupled with its high fixed-cost nature (for couriers), Anteraja needs to find a creative way to boost earnings, whether it is to partner with other delivery services to increase daily parcel delivery or take some cost efficiency measures.

 

Limited upside; expect soft quarters ahead. We see limited upside for ASSA going forward and expect rather soft quarters from the company. We also believe that the competition in first-mile and last-mile deliveries will be more intense in the future, especially with the emergence of e-commerce’s in-house logistic services. Thus, we expect ASSA to book revenue of IDR 4.5 trillion (-22% yoy) in FY23F, with an EBITDA of IDR 639 billion and a net profit of IDR 114 billion, implying an EPS growth of +10.4% yoy (due to low base effect from last year).

 

Downgrade to HOLD, TP IDR 1,100. As we rollover our valuation to FY24F, we downgraded our rating to HOLD with a SOTP-based TP of IDR 1,100. We decided to downgrade our recommendation due to the lack of catalyst and potential strong headwinds in the future. Main Risk: Rising logistics cost, margin squeeze.