Earnings Unilever Indonesia Expected to Improve in 2016
Consumer goods producer Unilever Indonesia, one of Indonesia's leading consumer goods firms, is expected to show better corporate earnings in 2016 compared to the preceding years on improving purchasing power of Indonesia's population. The company's net profit is estimated to grow by 15 percent compound annual growth rate (CAGR) in the coming two years, while its EBIT margin is expected to remain above 23 percent as higher costs of raw materials are compensated by higher selling prices.
Revenue of Unilever Indonesia is expected to rise 11.9 percent year-on-year (y/y) in 2016 to IDR 41.5 trillion (approx. USD $2.9 billion) from an estimated IDR 37.1 trillion in 2015. Meanwhile, net profit of the Anglo-Dutch company is estimated to rise 18 percent (y/y) to IDR 6.7 trillion (approx. USD $482 million) over the same period.
A positive factor is that the firms' royalty fee to London-based Unilever NV remains fixed at 7.50 percent (after having been raised in 2014 and 2015). This fee is an obligatory fee to utilize trademarks, technologies and services owned by the parent company. The unchanged royalty fee in combination with higher selling prices cause an expected higher EBIT margin and higher profit margin.
The company's best sold products are home & personal care as well as foods & refreshment products. Sales of the former are expected to rise 11 percent (y/y) in 2016, while sales of the latter are expected to grow 13 percent (y/y).
Furthermore, Indonesians' purchasing power will improve on the back of low inflation and estimated accelerated economic growth in 2016. Inflation eased to 3.4 percent (y/y) in December 2015 after having been high for two years due to subsidized fuel price reforms. Meanwhile, Indonesia's GDP growth is expected to rise from an estimated 4.7 percent (y/y) in 2015 (which would be the slowest economic growth pace since 2009) to 5.3 percent (y/y) in 2016. Improving purchasing power is also reflected by the country's improved consumer confidence. In the latest Consumer Confidence Index (compiled by Bank Indonesia) optimism rose to 107.5 points in December 2015, up 3.8 points from the preceding month.
So far this year Unilever Indonesia's shares have fallen 3.24 percent to 35,600 a share, slightly less than the 3.89 percent decline of Indonesia's benchmark Jakarta Composite Index over the same period. Indonesian broker RHB OSK Securities has a target price of 42,000 per share for Unilever Indonesia.
Stock Quote Unilever Indonesia - UNVR:
Other positive matters are that the company has good brand awareness in Indonesia (with well-known brands such as Pepsodent, Dove, Vaseline, Lifebuoy, Rexona and clear) and has a wide distribution network across Indonesia. Its products are sold in more than one million shops across the archipelago.
Future Projection Unilever Indonesia's Financial Highlights:
| 2013 | 2014 | 2015F | 2016F | 2017F | |
| Sales & Revenue |
30,757 | 34,512 | 37,065 | 41,485 | 46,299 |
| Net Profit | 5,353 | 5,739 | 5,661 | 6,678 | 7,481 |
| P/E Ratio (x) | 51.5 | 48.0 | 48.7 | 41.2 | 36.8 |
| P/BV (x) | 66.2 | 61.2 | 61.2 | 49.9 | 43.6 |
in billion IDR rupiah (except stated otherwise)
Source: RHB OSK Securities
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