Unilever Indonesia (UNVR IJ): 4Q20 review: a soft quarter, but largely expected
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Unilever Indonesia’s (UNVR) full-year 2020 net profit came in at IDR7.2tn (-3.1% y-y), broadly in-line with our estimate. We fine-tune our model and reaffirm our BUY call on UNVR with a lower 12-month TP of IDR8,600.
UNVR’s 4Q20 net profit came in at IDR1.7tn (-5.1% q-q, -8.4% y-y), translating to a 2020 net profit of IDR7.2tn (-3.1% y-y), largely in-line with our estimate. 4Q20 operating profit was IDR2.4tn (+0.2% q-q, -8.8% y-y), bringing the 2020 operating profit to IDR9.5tn (-6.4% y-y). The operating margin slipped to 22.0% in 2020 (2019: 23.6%). HPC’s margin declined slightly to 31.4% in 4Q20 (vs. 32.0% in 3Q20), despite the higher gross margin, while F&R’s margin jumped to 20.3% (vs. 11.2% in 3Q20), as the drop in opex offset the lower gross margin.
Gross profit in 4Q20 fell to IDR5.6tn (-1.8% q-q, -0.1% y-y), resulting in a 2020 gross profit of IDR22.5tn (+1.9% y-y), which implies a 2020 gross margin of 52.3% (2019: 51.3%). It is worth noting that despite higher commodity prices in 2H20, the gross margin remained largely stable in 4Q20, at 53.1% (-10bps q-q, +20bps y-y), partly attributable to production efficiencies and inventory management. HPC’s and F&R’s gross margins were 56.5% (+220bps q-q, -30bps y-y) and 45.8% (-480bps q-q, +240bps y-y), respectively.
UNVR reported 4Q20 revenue of IDR10.5tn (-1.6% q-q, -0.4% y-y), bringing 2020 revenue to IDR43.0tn (+0.1% y-y). Note that domestic revenue has turned positive, +0.4% y-y in the quarter (vs. -0.8% y-y in 3Q20), though export revenue remained in the red (-18.9% y-y vs. -24.1% y-y in 3Q20). HPC revenue declined by 6.4% q-q in in the quarter due to weaker performance of skin care and fabric solution, likely due to the still-low mobility. Meanwhile, F&R revenue improved by 10.9% q-q, primarily driven by the solid growth of Bango, Royco and Buavita, and the gradual recovery of ice cream sales. Unilever Food Solutions (UFS) also posted an improvement (c.-30% y-y in 4Q20 vs. c.-50% y-y in 2Q20), though revenue was still down on a full-year basis (c.-40% y-y in 2020), as the HORECA (Hotels, Restaurants, Cafés) sector has yet to recover. Excluding UFS, domestic revenue increased by 1.5% in 2020, driven by an increase of 2% in the blended ASP and -0.5% volume growth. Note that UNVR’s 2020 volume growth was better than that of the industry. On a separate note, in 2020, the company launched/re-launched 76 products − beauty & personal care (29), home care (21), ice cream (14), foods (7), and beverages (5).
Reaffirm BUY call with a lower 12-month TP of IDR8,600. Overall, the results met our expectations. We fine-tune our model given the 2020 actual data. We reaffirm our BUY call, with a lower TP of IDR8,600 (from IDR8,800), based on an unchanged 2021E PER of 44x (past-5-year mean). We believe the company is poised to benefit from enduring changes in consumption patterns (i.e., greater awareness of hygiene), and its digitalization efforts (Sahabat Warung); the consolidation of third-party distributors could also help solidify its market shares in key segments. Downside risks: 1) higher-than-expected raw-material prices; 2) higher-than-expected A&P expenses; and 3) escalating competition.