Wednesday, November 16, 2011

PT Unilever Indonesia Tbk

by Kresna Securities

Investment Thesis

We have upgraded our recommendation to BUY, with a new 12-month TP of Rp17,400. 9M11 performance is still on track with our expectations, having formed 74.5%-75.6% of our full year estimate. We thus maintain our net profit projection for 2011, but bump a slight upgrade, by 0.8%/3.6% for 2012/13, incorporating company’s expansion and increased production capacity. New loan facility of Rp1.2tr from UFI is also positive for UNVR, as it reduces company’s WACC by 0.9% to 10.9%.

Key Catalysts

Revenue up by 1.1% QoQ. Revenue growth in 3Q11 was contributed mainly by Food & Beverages (F&B) division, which posted growth of 4.2% QoQ to Rp1.7tr, while Home & Personal Care (HPC) division posted flat sales of Rp4.2tr in the respective quarter. In 9M11, UNVR’s consolidated revenue rose 18.0% YoY to Rp17.3tr from Rp14.7tr the previous year.

Margin is sliding in 3Q11. Higher COGS (+3.4% QoQ) have thinned gross margin in 3Q11 by 1.1% QoQ to 50.8%, while aggressive promotion (+9.2% QoQ) cut into operating margin by 2.2% QoQ to 22.2%. Hence, 3Q11 gross, operating and net profit suffered a decline of 1.1%, 7.9% and 10.7% QoQ to Rp3.0tr, Rp1.3tr and Rp957.0bn, respectively.

New support from affiliated company. Unilever Finance International (UFI) has inked an agreement to provide a loan facility up to Rp1.2tr to Unilever Indonesia (UNVR) at a very attractive interest rate of 7.35% p.a. On October 18th, 2011, the company drew down US$22.0m from the facility, possibly to be used to accelerate the construction of its new state-of-the-art personal care factory as well as to expand production capacity. The objective is to enable the company to stimulate higher demand and/or mitigate increasing competition through new product launches. However, a negative consequence is the possibility the company will lower its dividend payout ratio.

Earnings Outlook

No surprise in 9M11 figures. From top to bottom, 9M11 results are on track with our expectations: Revenue reached 75.6% of our FY11E of Rp22.9tr while gross, operating and net profit mark 76.3%, 74.8% and 74.5% of our FY11E of Rp11.6tr, Rp5.4tr and Rp4.1tr, respectively; we therefore continue to maintain our FY11 projection.

Upgrade FY12/13 earnings, re-rate to BUY with new TP of RpRp17,400. For 2012/13, we have upgraded our net profit forecast by 0.8%/3.6% to Rp4.8tr/Rp5.6tr as we incorporate the expansion into our model (bringing our new FY12/13 revenue higher by 1.4%/2.6%). This, coupled with a lower WACC of 10.9%, (the positive impact of the new loan from UFI) and a new base year of 2012 have yielded higher DCF TP to Rp17,400. We now become a BUYer on UNVR.

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