Wednesday, April 20, 2011

Unilever (UNVR)

by Kresna Securities

A disappointing result has been recorded in 2010, revenue grew by only 7.9%, the lowest since 1990. Although the company performed better at the bottom line with an increased of 11.3% YoY to Rp3.4tr, yet still underperformed our expectation and consensus by 6.2% and 5.5% respectively. Not only that, we also suspect the company will not be able to deliver dividend with similar payout ratio in this year. At the moment, UNVR is trading at demanding valuation FY11 PE of 28.9x, higher than historical average of 25.2x. Therefore, we downgraded our recommendation to SELL with TP at Rp12,850.

 · Disappointing operating and bottom line. FY10 revenue and gross profit wereinline with our expectation, deviated by only around 0.1%-2.9%. At operating level, however, the company's performance was below our expectation missed by 5.9%. We believe the off target performance was attributable to the aggressive advertising & promotion as part of its strategy to maintain its market share. Advertising & promotion expenditure in 2010 reached Rp2.8tr, 10% higher than our forecast of Rp2.6tr. Furthermore, while we expect the company to book Rp17.8bn in other income, the company has posted other expense of Rp4.0bn in 2010 due to 211% YoY increase in  interest expense to Rp30.0bn as well as Rp10.8bn forex loss. Therefore, UNVR's bottom line has missed our target by 6.2%.

· Maintained our 2011 forecast. Despite the disappointing FY10 result, we maintain our forecast this year on the back of growing consumption appetite. We expect revenue to grow by 16.4% YoY to Rp22.9tr in 2011, while net income is expected to rise by 19.4% YoY to Rp4.0tr.

· Potential reduction at the DPR. With a new expansion plan which approximately cost about Rp2.8tr in the next 2 years, we afraid the company will not be able to distribute dividend with similar payout ratio of 95%-100%. Noted that the company's  net cash in 2010 was only Rp127.7bn, which we believe will be insufficient to finance the expansion programs.

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