Unilever Indonesia (UNVR IJ)
FY24-25 Estimates Cut Post Weak 3Q24 Earnings, Recovery Anticipated in 2025
- UNVR posted disappointing 3Q24 earnings due to bumpy sales recovery and several key issues that need to be addressed in the coming quarters.
- We see channel conflicts and stock reductions hindering solid revenue growth in the near term, with recovery expected only by 3Q25.
- We have revised down our FY24-25F net profit by 20% and lowered our TP to Rp1,900 with an implied PE of 19.7x. Maintain Sell rating.
3Q24 results: Below estimates with continued weak revenue
UNVR reported a 3Q24 net profit of Rp543bn, (- 62% yoy/ -47% qoq), bringing the 9M24 net profit to Rp3tr (-28% yoy). Weak sales, coupled with lower margins (driven by an additional transformation cost of 1.9% to rev.) and higher opex, continued to weigh on 3Q24 earnings. Both the HPC and FNR segments reported lower rev. in 9M24 and 3Q24, impacted by price instability and customer stock reductions. In 3Q24, UVG (Underlying Volume Growth) declined by 16% yoy, while UPG (Underlying Price Growth) fell 2% yoy.
Recovery expected only in 3Q25
We had previously anticipated sales to bottom out in 3Q24, followed by a recovery in 4Q24 (from a low base), and continuing into FY25. However, in a recent meeting, management highlighted several challenges, including a bumpy recovery post-boycott, leading to aggressive promotions and channel conflicts, which further exacerbated inventory imbalances across trade channels. As a result, the mgmt. expects further stock reductions and price harmonization across channels in the coming quarters. Mgmt. also expects cost efficiency programs to provide support for margins in 4Q24 and onward. UNVR mgmt. anticipates improved performance to only start in 3Q25.
We revised down our FY24/25F net profit by 20%
Following the weak 3Q24 results, we trimmed our FY24/25F rev. by 2-4%, reflecting lower vol. We believe that the ongoing promotions and inventory push will hinder margin improvement, leading us to lower our FY24/25F GPM by 190/200bps. However, we anticipate that various initiatives will result in greater operational efficiency in opex. As a result, we revised down our FY24/25 net profit by 20%, which translates to FY24/25F net profit growth of -24.4% and +1.3% yoy.
Maintain Sell with a lower TP of Rp1,900
We lower our TP to Rp1,900 based on DCF valuation with an implied FY25F PE of 19.7x, still below its -1.5SD avg 5y PE of 22x. Upside risks to our recommendation include a faster recovery in 4Q24-1Q25 and lower commodity prices, which could support margins.
… Read More 20241024 UNVR
