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Wednesday, May 18, 2011

Unilever

by Kresna Securities

UNVR reported 14% YoY growth in revenue to Rp5.7tr with solid performance from F&B division. However, both operating and net income only increased by 2.7% YoY to Rp1.3tr and Rp998.1bn due to high A&P expenses. Going forward we expect the company to post moderate growth of 13.8% at CAGR12-15 due to intense competition with P&G which plans to build production facility in Indonesia. At the moment, the counter is trading at demanding valuation FY11 P/E of 28.8x, higher than historical average of 25.2x. Therefore, we maintain our SELL recommendation with TP at Rp12,850.

· Revenue grew by 14.0% YoY. The company recorded Rp5.7tr revenue in 1Q11, grew by 14.0% YoY from Rp5.0tr in 1Q10. The performance was mainly boosted by food & beverages (F&B) division that grew by 28.4% YoY to Rp1.4tr, while home & personal care (H&PC) division posted more modest growth of 9.7% YoY to Rp4.2tr. Based on the proportion, H&PC division registered 74.4% to the company’s total revenue while F&B division delivered 25.6%.

· Gross profit grew by 11.9% YoY to Rp2.9tr. H&PC division gross profit reached Rp2.3tr or accounted for 79.1% of total gross profit with the remainder of 20.9% is contributed by F&B division. Gross margin for both division were slightly declined on the back of rising input cost. Margin from H&PC inched down by 0.9% to 54.6% with F&B margin slid by 0.7% to 41.7%.

· Operating profit eroded by A&P expenses. Advertising and market research expenses in 1Q11 jumped by 30.3% YoY to Rp552.9bn in 1Q11 while promotion expenses soared by 35.3% YoY to Rp232.0bn. As such, operating profit recorded a slight increase of 2.7% YoY to Rp1.3tr. We believe the company’s strategy to maintain its market share through consumer awareness has caused A&P expenses jump in the current period. Looking at margin in each division, operating margin for F&B division decreased by 3.5% to 14.2% while H&PC shrunk by 2.2% to 33.2%.

· Flat bottom line. Net income in 1Q11 only increase by 2.7% YoY to Rp998.1bn from Rp971.8bn in the same period last year. Thus, net margin decreased by 1.9% to 17.6%, partially due to increase F&B proportion, which has lower margin.

· Inline from top to bottom. UNVR revenue of Rp5.7tr in 1Q11 was inline with our expectation, accounted for 24.7% of our FY estimate of Rp22.3tr. The company’s performance at operating level and bottom line were also inline with our expectation, accounted for 25.0% and 24.7% of our FY estimation, respectively.

· Maintain our forecast for 2011. We remain comfortable with our forecast as the 1Q11 has met our expectation. Therefore, we maintain our revenue forecast to grow by 16.4% to Rp22.3tr. Operating profit is expected to increase by 19.2% to Rp5.5tr, with 19.5% increase in net income to Rp4.0tr. Hence, higher than expected A&P expenses and stiff competition from P&G would potentially affect our valuation.

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