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Friday, November 25, 2011

PT Unilever Indonesia Tbk - Positive bias

by Kresna Securities

We maintain our positive bias on UNVR with a BUY rating and a 12-month DCF TP of Rp17,400, especially during a period as jittery as the present. During a luncheon gathering on 14 Nov11, UNVR management proudly introduced us to its state-of-the-art research and consumer solution centre, the "Indonesia Collaboration Centre" (ICC) and new liquid detergent “Rinso Molto”. Such initiatives should be able to maintain company's market share amid increasing competition, especially that from P&G. In the event, management also explained that the increasing role of modern trade should pose an immaterial impact on margins, as discounts and promotions frequently given by the stores have actually been allocated in company's marketing expense budget.

UNVR is currently trading at FY12 P/E of 25.4x. Historically, the counter was trading at a figure as high as 30.1x in 2006, 29.6x in 2007, 25.5x in 2008, 30.1x in 2009, 42.1x in 2010 and 33.0x in YTD 2011. It is also still trading at 4.5% - 29.6% discount to average regional P/E of 26.6x, Unilever India’s 34.0x, Colgate Palmolive India’s 31.5x and P&G India’s 36.1x.

Key Catalysts

· Hoping for a stronger boost from ICC. It is a facility that combines company's knowledge of consumer behaviour and sales data to stimulate higher demand as well as find problems and propose solutions to UNVR's retail arms. ICC is divided into 4 chambers: knowledge centre, interactive data centre, virtual reality suite and retail lab.

· Modern trade (MT) Stores: opportunities or threats? MT contributes around 40% of company revenue. According to Euromonitor data, sales in convenience stores grew by 35.9% CAGR5Y, while hypermarket sales rose 22.4% CAGR5Y. The ratio of sales of convenience stores to total sales in MT also rose, from 18.2% in 2004 to 32.1% in 2009, while hypermarkets hovered at 40%-43%.

· Rinso Molto Liquid: high growth and lucrative margin. Weaker competition in the liquid detergent market allows the company to take higher margin, compared to that yielded by the crowded powder detergent market. UNVR still dominates the laundry care products segment with 45.3% market share, with its main competitor as Wings Corp at 35.3%.

Earnings Outlook

Prospect of FY12 EPS growth of 17.8% YoY is still intact. We still maintain our high conviction on company's earnings prospects next year, mainly supported by strong revenue growth in Food and Beverages (F&B) segment (+20.0% YoY) and improving gross margin (50.8% in 2011E vs 51.3% in 2012F), on the back of growing high-margin products and price increase in several product categories.

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