Raising TP, but maintaining Sell (3L) rating – We revised our WACC estimates to 12% from 13% as we revised rf to 10% from 11%. This is in line with the decline in the BI policy rate, which is now at 7%, from 9.25% at the end of '08. Thus we raise our target price from Rp7,931/share to Rp8,990/share. Our new TP equates to a PE of 20.8x '10E, a premium to the market (as seen in Fig. 2), but one that appears justified given the high ROE ('09E: 85%). We maintain our Sell rating, however, as we think that valuation has peaked at current level.
Chasing low beta and defensive stock – The share price rallied by 18% in June and 6.5% in July outperforming the JCI (+6% in June and +2.5% in July), although it is still underperforming on a YTD basis (JCI +53%, Unilever +23%). Investors have been chasing low-beta and defensive stocks, and Unilever fits these criteria because: (1) its products are daily necessities; (2) it markets strong brand names; (3) strong balance sheet—zero debt, high ROE, (4) attractive dividend yield on 100% payout ratio; (5) limited capex; (6) strong track record, operations and strategic excellence.
Our estimates are not conservative – Our estimates are 3-5% above consensus’, where we estimate net profit of Rp2.8trn and Rp3.3trn, while consensus is at Rp2.7trn and Rp3.1trn in 2009E and 2010E, respectively. We like the company; however, we think that at current prices, the valuation is demanding and provides limited upside to investors.
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