Equity Research

 

UNVR continued to record solid earnings performance with 1Q20 results came in at 24% our and 24% consensus forecasts. UNVR’s 1Q20 earnings was supported by better profitability margin across the board. However, weaker 2Q performance is anticipated given soft market demand due to covid-19 pandemic. Going forward, UNVR expects to focus on winning customers by accelerating innovation new products and brands within its HPC and F&R segments to better serve.  At this juncture, UNVR is trading at 38.7x – 35.7xP/E20F-21F. We maintain our Neutral recommendation with TP of Rp 9,000/share.

 

UNVR booked 1Q20 revenue of IDR 11,1 tn (5,6% QoQ and 4,6%YoY),  this met our expectation, formed 24% our estimates FY19 of Rp44 tn.  Segment wise, Home and Personal Care (HPC) growth of +5.1% YoY, while Food and Refreshment (F&R) growth for +3.4% YoY in 1Q20. HPC/F&R contributed to 70%/30% to UNVR’s total revenue respectively. For geographical area, domestic revenue growth of  +4% yoy with exports reported strong growth of 9% YoY (vs 4Q19’s -14%), in 1Q20.  We see, strong revenue in 1Q20 increased due consumers stocking up amid concerns over the Covid-19 pandemic. This likely lifted sales of home and personal care products as well. We should anticipate sales to tone down in 2Q20.

 

UNVR’s GPM was improved to 52.4% in 1Q20 (vs 1Q19: 49.8% and 4Q19: 52,9%), mostly driven by stronger rupiah in Jan-Feb and margins expansion in HPC following ASP adjustments in 4Q19. HPC gross margin improved to 56.2% in 1Q20 (vs. 52.6% in 1Q19) and F&R gross margin was steady at 43.5% in 1Q20 (vs 4Q19: 43,1% and 1Q20:43,5%).  Higher opex in 1Q20 put pressure on EBIT margin which were flattish to 21.4% (vs 4Q19: 24,4%). While Rupiah weakness continues to be the main culprit, we expect softer commodity prices (CPO price down by c.34,2% Ytd) to ease pressure on UNVR’s gross margin. We forecast the company’s FY20 gross margin will be contracted in the next quarter due to the rupiah’s recent depreciation. Given that UNVR is most sensitive to currency movements, based on our sensitivity analysis every 1% in Rupiah against the USD would boost earnings by 1.2%.

 

We maintain our neutral recommendation, as we think that earnings will normalise in 2H20. We still believe investors continue to prefer defensive stocks such as UNVR given the short-term macro headwinds coming from potential capital outflows. Thus, we believe that its current valuation of 43x FY20F PE may not be justified, and valuation still looks attractive.  At this juncture, UNVR is trading at 38.7x – 35.7x P/E20F-21F. We maintain our Neutral recommendation with TP of Rp 9,000/share.

 

Key risks. 1.) Intense competition may affect the purchasing power, 2.) Supply & demand balance, 3.) Raw material costs fluctuation, and 4.) USD and IDR volatility

 

 

 

 

 

KLBF 1Q20 sales/ net profit of Rp 5,7tn (+8% YoY)/ Rp 669 mn (+12,4% YoY) came in-line as expected, made up to 26,8% of FY20 Rp 2,49 tn our forecast. GPM remained stable at 45% YoY. However, the economic slowdown largerly impact consumer shopping pattern and puts pressure for earnings growth this year. We continue to believe long-term positive growth for KLBF as sizeable liquidity for good company healthcare. We maintain BUY recommendation with lower TP of Rp 1,600/share (vs Rp 1,800/share) this implies PER and EV/EBITDA 2020F of 22.7x and 15.3x, respectively.

 

KLBF booked 1Q20 revenue remained somewhat stable of IDR5.7tn (-0.2% QoQ, +8.0% YoY) which is in-line with our and consensus estimates at 26% of full year forecast.  Segment-wise; 1) Nutritional’s revenue grew +5.4% YoY (vs. 5% in FY19). GPM also  stable at 54% in 1Q20. We estimates KLBF’s various product innovations in the premium segment managed to nudge growth. 2) Pharmaceutical’s revenue sales grew 5.3% YoY (vs. 7.1% in FY19). We see that unbranded generics and licensed drugs to contribute to the growth, meanwhile branded generics was flat YoY. GPM flat at 54% in 1Q20, as KLBF has stocked up raw material inventory in Jan’20. 3) Consumer health grew 6.9% YoY,  followed the gradual improvement on pharmacy, as well as pantry-stocking amid Covid-19 outbreak. KLBF highlighted that several OTC products performed well in 1Q20 that boost ASP. GPM inched up 100bps to 56.1%. In bottom-line company’s booked 1Q20 net profit of IDR669bn (+13.2% QoQ, +12.5% YoY), made up to 26,8% of FY20 estimates. Nevertheless the strong earnings growth was driven by operating income of IDR57.9bn, includes a one-off net forex gain of IDR48.8bn in 1Q20.

 

The Covid-19 pandemic having a severe impact of consumer shopping pattern. Increasing in consumer health products sales largerly expected following rising health concern (i.e OTC products, multivitamins, and home care). However, the prolonged Covid-19 lead to weak purchasing power and distrupting supply chain.We conservatively estimate a lower FY20 GPM to 45,3% (vs FY19: 46,7%) and trimmed down our net profit FY20 forecasts to IDR 2,49 tn (+5,3%) or below KLBF management guidance (6-8%).  

 

We continue to believe long-term positive growth for KLBF as sizeable liquidity for good company healthcare and  higher demand for prescription products to serve the social security programme (BPJS). Consequenly,  we also see a positvif outlook for KLBF to secure Active Pharmaceutical Ingredients (API) from China contracts until June, despite the possibility of higher prices due to Rupiah depreciation.  KLBF’s continued its discipline in managing costs by reducing certain ineffective promotional expenses. While the result is still on track, but higher risk  we maintain buy recommendation with a lower TP of Rp 1.600/share.  This implies PER and EV/EBITDA 2020F of 22.7x and 15.3x, respectively.  Based on yesterday’s closing price, KLBF was traded at a valuation of 27.4x PER and 18.7x EV/EBITDA 2020F.  

 

Key Risks: 1) Raw material costs fluctuation,  2.) USD and IDR volatility, and 3.) changing regulation from government

 

Financial Summary
(Rp billion)	2017A	2018A	2019A	2020F	2021F
Revenue	35,607	38,413	42,923	44,524	46,313
EBITDA	6,553	6,746	10,955	11,387	12,339
Net profit	3,797	4,576	7,533	7,755	8,406
EPS (Rp)	918	917	987	1,016	1,102
PER (x)	43.03	43.08	40.01	38.74	35.74
BVPS (Rp)	617	678	993	692	869
EV/EBITDA (x)	16.69	16.20	14.48	13.21	11.97
Dividend yield (%)	2.04	2.03	2.68	2.07	2.13
RoE (%)	135.40	120.21	142.62	116.95	108.50
Source: Company data and Lotus Andalan Research