CIMB Unilever Indonesia Company update - Expensive indulgence

(UNVR IJ / UNVR.JK, NEUTRAL - Maintained, Rp8,500 - Tgt. Rp8,500, Consumer)

We have cut our core earnings forecasts for Unilever by 2.5-4.3% for FY09-10 on the back of lower gross margin assumptions given intensifying competition in the industry. In addition, current share price implies a cost of equity of 13.2% which we believe is unjustified given Indonesia's sovereign rating and Unilever's declining margins. We have lowered our target price to Rp8,500 from Rp8,800, now based on Unilever's average premium of 63% to the JCI from trailing and forward P/E valuations previously. This implies 20x and 17.2x CY10-11 core earnings. Maintain Neutral.