The JCI July 16, 2020
Jᴜʟʏ 16, 2020
* Tʜᴇ JCI ᴛʀᴀᴅɪɴɢ ʀᴀɴɢᴇ: 5,050ᴘᴛ – 5,150ᴘᴛ (Yᴇsᴛᴇʀᴅᴀʏ ᴄʟᴏsᴇ: 5,076ᴘᴛ)
* Wᴀʟʟ Sᴛʀᴇᴇᴛ ᴇɴᴅᴇᴅ ʜɪɢʜᴇʀ ʙʏ sᴏᴍᴇ 1% ᴏɴ ᴘʀᴏɢʀᴇss ᴏꜰ Cᴏᴠɪᴅ-19 ᴠᴀᴄᴄɪɴᴇs
* Tʜᴇ JCI ɪs ᴇxᴘᴇᴄᴛᴇᴅ ᴛᴏ ɢᴀɪɴ ᴇᴅɢᴇ ʙʏ sᴜᴘᴘᴏʀᴛ ᴏꜰ sᴛᴀʙʟᴇ USDIDR ᴀɴᴅ ᴏɪʟ ᴄʟᴏsᴇ
Morning,
The Jakarta Composite Index (JCI) today (16/7) is expected to be in the range of 5,050pt – 5,150pt to gain edge with investors being cautious for the 2Q20 earnings release. Meanwhile, yesterday (15/7) in Wall Street the DJIA ended higher by 228 points or 0.9% at 26,870pt, while the S&P500 and the Nasdaq both ended higher by 0.9% and 0.6%, respectively. Wall Street welcomed news that Moderna’s Covid-19 vaccines produced significant immune response.
𝐈𝐧𝐝𝐨𝐧𝐞𝐬𝐢𝐚 𝐂𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐒𝐞𝐜𝐭𝐨𝐫
- 𝐔𝐧𝐢𝐥𝐞𝐯𝐞𝐫 𝐈𝐧𝐝𝐨𝐧𝐞𝐬𝐢𝐚, 𝐰𝐢𝐭𝐡 𝐬𝐭𝐫𝐨𝐧𝐠 𝐠𝐫𝐢𝐩 𝐨𝐧 𝐩𝐫𝐨𝐟𝐢𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲
- 𝐌𝐚𝐢𝐧𝐭𝐚𝐢𝐧 𝐨𝐮𝐫 𝐁𝐔𝐘 𝐜𝐚𝐥𝐥 𝐰𝐢𝐭𝐡 𝐚 𝟏𝟐-𝐌 𝐓𝐚𝐫𝐠𝐞𝐭 𝐏𝐫𝐢𝐜𝐞 𝐨𝐟 𝐈𝐃𝐑𝟏𝟎,𝟔𝟎𝟎 / 𝐬𝐡𝐚𝐫𝐞
We reviewed Unilever Indonesia (UNVR) published financials for the year ended 2019 (FY19), and March 31, 2020 (1Q20) against our earnings forecasts. UNVR’s FY19 and 1Q20 revenue, operating profits, and net profit came in at 100.3%, 24.9%, 95%, 23.2%, 97%, and 24%, respectively, against our estimated earnings. We therefore keep our forecasts and fair price valuations unchanged for this and next year (please see our published report on December 6, 2019).
We valued the company ‘s share by DCF method (WACC:9%, LTG:2%) and come with a 12-month fair price of IDR10,600/share. At the fair price of IDR10,600, the counter is trading at 51 times next year’s earnings or about similar to its historical earnings multiple. At yesterday price of IDR8,050, UNVR is trading at 38.9 times our estimated FY21 earnings, representing a historical premium rate of some 70% to the general market earnings multiples. We view premium to the counter justified.
We maintain our BUY recommendation for the company, mainly on the following reasons. 1) strong grip on profitability as the company has been in the country for some 85 years.This implies that UNVR has a deeper knowledge on its customer base as compared to other newer players, which has been indicated by the track records of stable profitability margins , especially for Home and Personal Care (HPS) division. 2) in times of low-to-middle single digits sales growth, investors can enjoy lavish dividend distribution that produced current yield of close to 3%, higher as compared to other counters in the Indonesia Stock Exchange at around 1% – 2%. 3) Investors of its stock can always hope for unexpected sweet growth surprise, as the company has its tradition of innovations. An example has been the shampoo for Indonesian women with hijab launched around 5 (five) years ago that did very well since the initiation. 4) strong and lean balance sheet with the company distributes almost all of its net profit to shareholders, 5) UNVR is among the highest rank in the IDX in terms or market capitalization, yesterday at IDR307tr, and thus might be ruled out as a cornering object. 6) UNVR gearing stood at 28% as at end of March this year, lower as compared to 55% as at end of 2019.
𝐒𝐡𝐚𝐫𝐞 𝐩𝐫𝐢𝐜𝐞 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞𝐬 𝐭𝐡𝐢𝐬 𝐲𝐞𝐚𝐫
As a relatively lower beta company, UNVR has performed above our expectation. At yesterday closing price, UNVR share price has risen its year-low by 53% as compared to the broader Jakarta Composite Index (JCI) of 29.8%, and to the consumer sector of 40.3%. The JCI did undergo heavy selling pressures in the spark of Covid-19 spread in the last week of March.
𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐏𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞𝐬
The company reported FY19 revenue at IDR42.9tr representing growth of 2.7% YoY (2018:1.4% YoY), while operating margins at the level of 23.6% (2018: 22.7%). In 2018, UNVR had an Other Income from the sales of a right of its product’s brand at the amount of IDR2.8tr. Net profit in 2019 was recorded at IDR7.4tr, or representing a growth of , and net profit in the amount of IDR7.4tr which represented growth of 18.1% YoY excluding the non-operational income.
Last year, Home & Personal Care (HPC) was the main source of growth, at 4.0% YoY with sales of IDR29.9tr, while gross margins for HPC in 2019 improved to 54.7% as compared to 52.6% in 2018. At the other end, Food & Refreshment total sales came in flat at IDR13.06tr vs. IDR13.07tr in 2018, while gross margins for F&R was at 43.7% as compared to 45.9% in 2018.
Meanwhile, in the 1Q20, UNVR sales came in at IDR11.2tr or representing a YoY growth of 4.6%, while gross margins 52.4% as compared to 49.8% in 1Q19, and operating margins in 1Q20 came in at 21.4% (1Q19: 22.2%, and net profit in 1Q20 grew by 6.5% YoY to IDR1.9tr to give net profit margins of 16.7%(1Q19: 16.4%).
HPC sales in 1Q20 grew by 5.4% YoY at IDR7.9tr , while F&R grew by 3.4% YoY to reach IDR3.3tr. HPC gross margin slightly expanded to 56.2% in the 1Q20 as compared to 52.7% in 1Q19, while gross margins in the F&R division was largely stable in 1Q20 at 43.5% as compared to 43.1% in 1Q19.
UNVR continued its innovation trait for both divisions to secure growth. In the HPC, being successful with the shampoo for the women with hijab, for example, the company applied the same concept to other line of products, along with other creative innovations.
At the other end, yesterday the WTI price increased by 2.3% to close at USD41.2/barrel as tbe United States last week’s crude inventory level data was released at a drop of 7.5mn barrels, much higher as compared to the consensus’s estimated of 2.1mn barrels. Meanwhile the USDIDR closed at IDR14.616 vs. IDR14.512 the previous one.
We advise the following recommendation as for now, for both trading and longer-time investment purpose. 𝐀𝐀𝐋𝐈, 𝐋𝐒𝐈𝐏 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘈𝘨𝘳𝘪, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘜𝘯𝘥𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵 ), 𝐔𝐍𝐓𝐑, 𝐈𝐓𝐌𝐆, 𝐀𝐃𝐑𝐎, 𝐏𝐓𝐁𝐀 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘊𝘰𝘢𝘭 𝘔𝘪𝘯𝘪𝘯𝘨, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵), 𝐆𝐆𝐑𝐌, 𝐔𝐍𝐕𝐑, 𝐈𝐂𝐁𝐏 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘊𝘰𝘯𝘴𝘶𝘮𝘦𝘳, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘖𝘷𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵 ), 𝐀𝐒𝐈𝐈 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘈𝘶𝘵𝘰𝘮𝘢𝘵𝘪𝘷𝘦, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵), 𝐚𝐧𝐝 𝐀𝐂𝐄𝐒, 𝐒𝐂𝐌𝐀, 𝐌𝐀𝐏𝐈 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘛𝘳𝘢𝘥𝘦, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘖𝘷𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵),𝐚𝐧𝐝 𝐓𝐊𝐈𝐌 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘉𝘢𝘴𝘪𝘤 𝘐𝘯𝘥𝘶𝘴𝘵𝘳𝘺, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵).
Cheers,