CLSA Unilever Indonesia, Household Jewel, maintain OPF, raise TP to Rp8,600 (fm Rp8,000)

Analyst Swati revisits Unilever Indonesia (UNVR IJ). This is definitely a quality name, the dominant market leader in cosmetics and household products. UNVR has been in Indonesia since the 1930’s and has become deeply entrenched in the community. Unilever is practically regarded a local institution. The company is committed to develop human capital and has always been THE coveted workplace for new Indonesian graduates to build a career.

The current CEO, Maurits Lalisang is Indonesian and he, like many other Unilever Indonesia managers, was given a chance to work in Unilever offices outside Indonesia before returning to Indonesia. In fact, the current BOD are all Indonesian nationals except for one expatriate.

Low penetration of cosmetics and household care products, a large young population, increasing urbanisation makes Indonesia an important battle ground for many consumer companies. UNVR is competing neck to neck with Wings in household products. In cosmetics, UNVR has 34% market share vs. P&G at 11%.

Unlike some of its competitors, UNVR remained committed to Indonesia staying put through the bad times. This has paid off handsomely and Unilever has cemented its leadership in distribution channel and marketing prowess, proven the strong consumer loyalty the company commands. We recently heard that P&G is closing their remaining factories in Indonesia and the Phils, opening a much larger $42m expansion of the existing Thai manufacturing plant. All manufacturing will be concentrated there from now on.

Key points from the report:
We reiterate OPF on UNVR. New TP is Rp8,600 (fm 8,000), as risk premiums reduce.
UNVR posted respectable 1Q09 results even though rupiah depreciated by 30%. We forecast modest 7% earnings growth this year as it focuses on retaining or increasing market share.
It is possible that UNVR will pass on some cost reduction from lower commodity prices and strengthening rupiah to consumers in order to gain market share or in response to price cuts by rivals.
UNVR was able to achieve more than 8% volume growth by ensuring greater availability of its products. It has an excellent distribution network in a fast growing market.
Valuation: 19.4x CL10 PE. Not cheap, but the premium is however justified as UNVR has a respectable track record, excellent corporate governance, 80% ROE.