Men walk on a corridor in the Indonesia Stock Exchange building in Jakarta on July 16, 2021. (ID Photo/David Gita Roza)

Indonesia's Largest FMCG Company Looks Poised for Turnaround


MARCH 28, 2022

Jakarta. Shares price of Unilever Indonesia, the country's largest listed fast-moving consumer goods company by market capitalization, may have looked poised for a turn-around, according to Swiss multinational investment bank UBS. 

The investment bank said that Unilever's shares were traded at around 20 times of its earnings in the past week, far below the 10-year average of 40 times and making valuation very cheap. 

"[Unilever's] price to earnings ratio of that magnitude only occurred during the global financial crisis, or 13 years ago," UBS wrote in a recent note to clients. 

In the past year, the company's shares fell 49.4 percent to trade around Rp 3,400, triggering calls from retail investors for the company to go private. 

UBS assesses that Unilever's business prospects this year were promising, as the management is determined to book net profit growth after several years of decline. During a meeting with UBS, Unilever Indonesia's chief executive officer said that the company targets this year's revenue to equal 5-6 percent FMCG industry growth. 

The company will strengthen the brand in strong segments, namely beauty, and personal care products. The company will also focus on high growth in the premium segment, strengthening traditional market sales, and strengthening distribution infrastructure. 

"With this strategy, we think Unilever can book revenue and net profit growth again this year," UBS wrote.

The company will also protect its profitability amid a prolonged spike in commodity prices. Currently, crude oil and crude palm oil (CPO) account for 15 percent of Unilever's cost of goods sold. The total cost of raw materials reached 38 percent of sales.

In response to the fluctuating commodity prices, the company has raised the selling price by 6 percent, continuing the same thing in the fourth quarter of 2021 at the same level.

UBS said the market's low expectations of Unilever shares could result in a surprise rally. Unilever's share price now reflects projected revenue growth of 2 percent per year as the market took account of its market share loss and unsalvageable margin compression of 300 basis points.

In contrast, UBS projected Unilever to book 4 percent revenue growth amid an expansion of the FMCG industry of around 5-6 percent this year. UBS raised Unilever's stock recommendation from neutral to buy, with a target price of Rp 4,200.