Unilever Indonesia, Tbk (UNVR) Will Ads Cost Dip? Better Sales Growth UNVR booked higher sales growth since the end of 2015. The sales growth increased from 5.7% in 2015 into 9.8% in 2016, and is estimated to grow by 10.0% in 2017. UNVR has two divisions of consumers products: Food and Refreshment (FR) division and Home and Personal Care (HPC) division. Although the biggest sales stems from HPC division, FR division annually has higher sales growth. Therefore, the contribution of FR division to the total sales consistently increases from 27.1% in 2013 into 31.4% in 2017. Stable Profit Margin UNVR as the prominent producer is always capable of maintaining stable profit margin because of its top brand products distributed across Indonesia and its robust distribution network. Higher Profit Growth through Efficiency of Ads Cost The advertisement cost contributes 55% to the total sales cost. The saving on the advertisement cost allows UNVR to experience net profit of 35%. Target Price of IDR57,600 We use an estimate of forward P/E of 54.0x (2SD above the 3-year average of 45.7x) as basis of valuation method to obtain the target price. The target price implies a 2017E/ P/E of 59.5x. Now, UNVR is traded at a 2017E P/E of 49.3X. Unilever Indonesia, Tbk Summary (IDR bn) 2015/12A 2016/12A 2017/12E 2018/12E Sales 36,484 40,054 44,067 48,593 Sales growth 5.7% 9.8% 10.0% 10.3% EBITDA 8,431 9,249 10,636 11,707 Net profit 5,852 6,391 7,382 8,140 EPS (IDR) 767 838 968 1,067 EPS growth -1.3% 9.2% 15.5% 10.3% BVPS (IDR) 633 617 747 846 EBITDA margin 23.1% 23.1% 24.1% 24.1% NPM 16.0% 16.0% 16.8% 16.8% ROE 122.2% 134.1% 142.0% 134.0% ROA 39.0% 39.4% 41.0% 40.0% ROIC 94.6% 95.2% 96.4% 89.8% P/E 48.2x 46.3x 49.3x 44.7x P/BV 58.5x 62.9x 63.9x 56.4x EV/EBITDA 33.6x 32.2x 34.5x 31.4x DPS (IDR) 758 799 838 968 Dividend yield 2.0% 2.1% 1.8% 2.0% Source: Company Data, Bloomberg, NHKS Research Please consider the rating criteria & important disclaimer NH Korindo Sekuritas Indonesia Company Update 1Q17 Buy Dec 2017 TP (IDR) 57,600 Consensus Price (IDR) 45,545 TP to Consensus Price +26.5% vs. Last Price +20.7% Shares data Last Price (IDR) 47,725 Price date as of May 24, 2017 52 wk range (Hi/Lo) 48,750/37,875 Free float (%) 15.0 Outstanding sh.(mn) 7,630 Market Cap (IDR bn) 371,199 Market Cap (USD mn) 27,248 Avg. Trd Vol - 3M (mn) 1.71 Avg. Trd Val - 3M (bn) 76.87 Foreign Ownership 4.6% Consumer Staples Household & Personal Products Bloomberg UNVR IJ Reuters UNVR.JK Joni Wintarja +62 21 797 6202, ext:138 Joni.wintarja@nhsec.co.id Share Price Performance YTD 1M 3M 12M Abs. Ret. 22.9% 4.8% 13.0% 12.3% Rel. Ret. 15.0% 4.3% 7.3% -8.5%
Higher Sales Growth UNVR revenue is divided into 2 divisions: HPC division and FR division. HPC division contributes 70% to the total sales, while FR division contributes 30% to the total sales. HPC division is UNVR s biggest portfolio and FR division has the highest growth. Although FR division only contributes 30% to the sales, the FR division has higher level of sales growth. The respective 2017 estimated growth of HPC division is 9.1% and FR division is 12.1%. The 2017 estimated sales growth in HPC and FR divisions are higher than the respective 2016 sales growth of 9.0% in HPC division and 11.7% in FR division. The 2017 higher sales growth is triggered by the better growth in 2017 Indonesia GDP increasing from 5.02% in 2016 to 5.15% in 2017. Revenue Breakdown FY 2013 - FY 2017E Estimated gross margin of HPC division will settle at ± 54.5%-55.5%. HPC Division Dependable to CPO HPC division has higher gross margin than FR division. The gross margin of HPC division increased from 52.8% in 2014 to 55.2% in 2016. The increase was underpinned by faltering CPO price as the raw material of oleochemical. The CPO price slips down in 2017, but the estimated gross margin of HPC division will not soar dramatically as the CPO commodities price will be stable. HPC Revenue and GPM FY 2013 - FY 2017E Oleoline CPO CIF Rotterdam Price (USD/MT) 2013-2017 Source: Bloomberg PT NH Korindo Sekuritas Indonesia Company Research www.nhsec.co.id Page 22
Stable Growth of FR Division Portfolio of FR division consists of assorted global and local prominent brands leading in their categories. UNVR as the market leader is capable of maintaining the stability of sales growth stability. Consumers main choice brands are product portfolio of FR division. UNVR Food and Refreshment Brand The sales of FR division increased by 11.7% in 2016 compared to the growth of 12.0% in 2015, and the estimated 2017 sales growth is 12.1%. The estimated gross profit margin of FR division will be stable at ± 42%- 43%. To maintain its image and become consumers first choice, FR division continuously promotes campaign for its products. FR Revenue and GPM FY 2013 - FY 2017E Source: Company Payout ration dividend consistently settles around 100%. Consistent Dividend UNVR is one of companies, listed on Indonesia Stock Exchange, consistently distributes dividend by ± 100% from annual net profit. It is estimated that UNVR will consistently distribute dividend at ± 100% from the 2016 net profit. The dividend is usually distributed 2x in Q2 and Q4. Dividend Payout Ratio FY 2013 - FY 2017E PT NH Korindo Sekuritas Indonesia Company Research www.nhsec.co.id Page 33
Consistent advertisement to maintain market share. Shift in Ads Focus from Quantity to Quality To maintain market share and image of 39 brands marketed across Indonesia, UNVR persistently promotes marketing. Ads cost constituted as the biggest portion of 55% in sales cost or amounting IDR4.26 trillion in 2016. Technology also has changed marketing strategy to reach consumers out. Within the recent few years, UNVR invests in digital marketing team to involve consumers through Facebook, Google and other digital media. Selling Expense Breakdown FY 2016 Source: Company Focus on ads quality instead of on-air ads quantity. Global Unilever announced ads cost reduction to reach 30%. The reduction is expected to boost company growth without neglecting the purpose of brands communication. Unilever will find out the best and most effective method for ads. It is estimated that the ads cost of Unilever Indonesia (UNVR) will adjust to the announced cost reduction by global Unilever. The 2Q17 financial statements will ensure the amount of ads cost reduction. The second quarter, a period where ads cost reaches its peak, is reference for 2017 ads cost. 30% saving amounting IDR1.3 trillion will increase net profit by ±35%. Advertising Expenses (IDR bn) 2014-2017 Source: Company PT NH Korindo Sekuritas Indonesia Company Research www.nhsec.co.id Page 44
Multiple Valuation Forward P/E band Last 3 years Dynamic Forward P/E band Last 3 years Source: NHKS research Source: NHKS research Rating and target price update Target Price Revision Date Rating Target Price Last Price Consensus vs Last Price vs Consensus 01/06/2017 Buy 47,900 (Dec 2017) 40,550 43,835 +18.1% +9.3% 3/30/2017 Buy 51,875 (Dec 2017) 43,650 44,455 +18.8% +16.7% 05/29/2017 Buy 57,600 (Dec 2017) 47,725 45,545 +20.7% +26.5% Source: NHKS research, Bloomberg Analyst Coverage Rating Closing and Target Price Source: Bloomberg Source: NHKS research NH Korindo Sekuritas Indonesia (NHKS) stock ratings 1. Period: End of year target price 2. Rating system based on a stock s absolute return from the date of publication Buy : Greater than +15% Hold : -15% to +15% Sell : Less than -15% PT NH Korindo Sekuritas Indonesia Company Research www.nhsec.co.id Page 55
Financial Summary UNVR Summary Last Price (IDR) May 24, 2017 47,725 Target Price (IDR) Dec 2017 57,600 2015/12A 2016/12A 2017/12E 2018/12E Analyst: Joni Wintarja Rating: Buy ROE 122.2% 134.1% 142.0% 134.0% ROA 39.0% 39.4% 41.0% 40.0% INCOME STATEMENT ROIC 94.6% 95.2% 96.4% 89.8% EBITDA/Equity 176.1% 194.1% 204.5% 192.7% in IDR Bn 2015/12A 2016/12A 2017/12E 2018/12E EBITDA/Assets 39.0% 39.4% 41.0% 40.0% Sales 36,484 40,054 44,067 48,593 Cash Dividend IDR bn) 5,784 6,096 6,391 7,382 Growth (% y/y) 5.7% 9.8% 10.0% 10.3% Dividend Yield (%) 2.0% 2.1% 1.8% 2.0% Cost of Revenue (17,835) (19,595) (21,544) (23,783) Payout Ratio (%) 97.6% 104.2% 100.0% 100.0% Gross Profit 18,649 20,459 22,523 24,810 DER 35.2% 50.9% 48.7% 53.7% Gross Margin 51.1% 51.1% 51.1% 51.1% Net Gearing 36.0% 51.9% 49.5% 54.5% Operating Expenses (10,722) (11,761) (12,471) (13,751) LT Debt to Equity 0.0% 0.0% 0.0% 0.0% EBIT 7,927 8,698 10,052 11,058 Capitalization Ratio 26.0% 33.7% 32.8% 34.9% EBIT Margin 21.7% 21.7% 22.8% 22.8% Equity Ratio 30.7% 28.1% 29.6% 30.1% Depreciation 505 551 584 648 Debt Ratio 10.8% 14.3% 14.4% 16.1% EBITDA 8,431 9,249 10,636 11,707 Financial Leverage 298.3% 330.1% 322.0% 316.9% EBITDA Margin 23.1% 23.1% 24.1% 24.1% Current Ratio 65.4% 60.6% 57.7% 55.2% Interest Expenses (121) (160) (152) (176) Quick Ratio 38.2% 37.5% 33.9% 32.2% EBT 7,829 8,571 9,889 10,896 Cash Ratio 6.2% 3.4% 3.1% 3.0% Income Tax (1,978) (2,180) (2,507) (2,756) Cash Conversion Cycle (19.6) (9.5) (15.7) (13.2) Minority Interest - - - - Par Value (IDR) 10 10 10 10 Net Profit 5,852 6,391 7,382 8,140 Total Shares (mn) 7,630 7,630 7,630 7,630 Growth (% y/y) -1.3% 9.2% 15.5% 10.3% Share Price (IDR) 37,000 38,800 47,725 47,725 Net Profit Margin 16.0% 16.0% 16.8% 16.8% Market Cap (IDR tn) 282.3 296.0 364.1 364.1 BALANCE SHEET In IDR bn 2015/12A 2016/12A 2017/12E 2018/12E 2015/12A 2016/12A 2017/12E 2018/12E Cash 628 374 390 426 Price /Earnings 48.2x 46.3x 49.3x 44.7x Receivables 3,245 3,708 3,899 4,108 Price /Book Value 58.5x 62.9x 63.9x 56.4x Inventories 2,298 2,318 2,740 3,025 Price/Sales 7.7x 7.4x 8.3x 7.5x Total Current Assets 6,623 6,588 7,284 7,781 PE/EPS Growth -38.2x 5.0x 3.2x 4.4x Net Fixed Assets 8,321 9,529 11,339 13,033 EV/EBITDA 33.6x 32.2x 34.5x 31.4x Other Non Current Assets 786 628 631 650 EV/EBIT 35.8x 34.3x 36.5x 33.2x Total Assets 15,730 16,746 19,254 21,464 EV (IDR bn) 283,392 298,063 366,526 367,182 Payables 4,842 4,642 5,573 5,893 Sales CAGR (3-Yr) 10.1% 9.2% 8.5% 10.0% ST Bank Loan 1,700 2,393 2,774 3,466 EPS CAGR (3-Yr) 6.5% 6.1% 7.6% 11.6% Other Current Liab. 3,585 3,843 4,286 4,726 Basic EPS (IDR) 767 838 968 1,067 LT Debt - - - - Diluted EPS (IDR) 767 838 968 1,067 Other Non Current Liab. 775 1,163 925 925 BVPS (IDR) 633 617 747 846 Total Liabilities 10,903 12,041 13,558 15,010 Sales PS (IDR) 4,782 5,250 5,775 6,369 Shareholders' Equity 4,827 4,704 5,696 6,454 DPS (IDR) 758 799 838 968 CASH FLOW STATEMENT In IDR bn 2015/12A 2016/12A 2017/12E 2018/12E 2015/12A 2016/12A 2017/12E 2018/12E Net Income 5,852 6,391 7,382 8,140 DCF (IDR bn) Deprec & Amortization 505 551 584 648 NOPAT 5,925 6,485 7,504 8,261 Chg. In Working Capital (57) (257) 792 300 +Depr./Amor. 505 551 584 648 CFO 6,299 6,684 8,758 9,088 -CAPEX (1,472) (1,788) (2,360) (2,342) Capex (1,472) (1,788) (2,360) (2,342) -Incr. (Decr.) in Working Cap. (57) (257) 792 300 CFI (1,429) (1,779) (2,732) (2,362) (Unlevered) FCFF 4,899 4,991 6,520 6,867 Dividends Paid (5,592) (5,843) (6,391) (7,382) WACC Net Borrowing (PMT) 450 693 381 692 Cost of Debt (Tax Adj.) 9.5% 8.1% 7.3% 7.2% CFF (5,101) (5,159) (6,010) (6,690) Cost of Equity (COE) 10.4% 9.8% 12.7% 12.7% Net Changes in Cash (231) (254) 16 36 WACC (%) 10.4% 9.8% 12.7% 12.7% RIM OWNERSHIP PROFITABILITY & STABILITY VALUATION INDEX DCF, RIM & EVA Spread (FROE-COE) (%) 112.9% 122.6% 144.2% 130.2% Residual Income (IDR bn) 5,358 5,919 6,784 7,416 By Geography % Shareholders % Equity Charge (IDR bn) 494 471 598 724 Indonesia 95.4 Unilever Ind. Holding 85.0 EVA United States 1.9 Schroder Investment 0.7 Invested Capital (IDR bn) 5,997 6,527 7,097 8,470 Luxembourg 0.8 Blackrock 0.6 ROIC-WACC (%) 88.4% 89.6% 93.1% 84.9% Britain 0.7 Aberdeen 0.6 EVA (IDR bn) 5,301 5,849 6,605 7,189 DISCLAIMER This report and any electronic access hereto are restricted and intended only for the clients and related entity of PT NH Korindo Sekuritas Indonesia. This report is only for information and recipient use. It is not reproduced, copied, or made available for others. Under no circumstances is it considered as a selling offer or solicitation of securities buying. Any recommendation contained herein may not suitable for all investors. Although the information here is obtained from reliable sources, it accuracy and completeness cannot be guaranteed. 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