Unilever Indonesia (UNVR IJ)

Recovery in Progress, But Too Early to Turn Positive; Downgrading Rating to Sell

• Management expects continued improvement following the completion of price and inventory adjustments in 1Q25.
• 2Q25 will be a crucial period to assess sustainable progress, given expectations of sub-5% GDP growth and a seasonal slowdown.
• Following share price rally from YTD low, we downgrade rating to Sell.  Key risk is earnings upside if performance and cost control continue.

1Q25 Net Profit declined 14.6% yoy

UNVR reported 1Q25 revenue of Rp9.5tr, down 6.1% yoy, driven by HPC (-9.1%), while FNR was relatively flat (-0.8%) due to support from festive events. UNVR implemented a price adjustment in Feb25, which supported margins, especially for palm-related products. UNVR posted 1Q25 net profit of Rp1.24tr, down 14.6% yoy, accounting for 37% of our FY25F and 38% of the consensus estimate. We view the result as in line, given that the service fee and ETS payments typically normalize in subsequent quarters.

Eyeing growth in 2H25 after completing price and inventory adjustments

The management stated that price harmonization and inventory stock reduction were completed in 1Q25. From 2Q25 onward, UNVR will focus on supporting revenue growth and managing costs. The company views the quarterly growth in 1Q25 as a healthy outcome of its efforts to improve performance and believes it is on track to deliver growth in 2H25. However, we think it is too early to turn positive, as 2Q25 will be a crucial period to assess whether the initial improvements are sustainable, especially with expectations of sub-5% GDP growth in 1Q25 and the seasonal demand slowdown post Ramadan period.

Downgrade rating to Sell following share price rebound

Following a 72% share price appreciation from its YTD low, UNVR currently trades at 20x FY25F PE, below its 3-year of -1SD of 21.5x. We downgrade our rating to Sell with an unchanged target price of Rp1,500, based on a DCF valuation, implying 17.3x FY25F PE. Key risk to our call is if UNVR sustains its strong top-line momentum and further enhances efficiencies in the coming quarters, where we see potential upside for net profit to exceed our FY25F and consensus estimates by 8%, implying 6% yoy growth (vs. -1.7% yoy in our current forecast). Additionally, UNVR expects to complete the sale of its ice cream business by the end of FY25, which could lift the dividend yield to 10% in the 2026 payout (vs. 5% without the one-off gain).

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