Unilever Indonesia: Past the worst, recovery ahead
- Upgrade to non-consensus BUY with a higher TP of IDR2,000
- Revise up FY25/26F earnings by 9%/8%; see potential for more tangible recovery in 2H25
- Completion of stock reduction and price harmonisation initiatives to support revenue recovery starting in 2Q25
Nevertheless, on a q/q basis, 1Q25 earnings surged by 244.7%, supported by a 22.6% q/q increase in net revenue amid the Lebaran festive season and a slower pace of customer destocking, a 360bps increase in the gross margin, lower remuneration costs (selling expenses -71% q/q, G&A expenses -61% q/q), and lower royalty fee (-14% q/q).
Net revenue rose strongly q/q, in line with expectations. UNVR’s 1Q25 net revenue declined by 6.1% y/y but rose 22.6% q/q to IDR9.5tn. This was in line with expectations, representing 27% of both our and the consensus FY25 estimates. Strong q/q growth was driven by a low base in 4Q24 amid customer stock reduction, the Lebaran festive season in 1Q25, and underlying business improvement.
Both HPC and F&R segments contributed to a q/q surge in net revenue. In 1Q25, total net revenue of UNVR’s Home and Personal Care (HPC) segment grew 21.2% q/q, albeit still declining 9.1% y/y. Meanwhile, the food and refreshment (F&R) total net revenue increased by 24.9% q/q, despite a slight y/y decrease of 0.8%. Domestically, UNVR’s sales dropped by 6.6% y/y to IDR9.1tn, given a 1.3% increase in prices that was offset by a 7.8% decline in volume. The HPC segment saw a sharper decline in domestic sales of 10.2% y/y, while the F&R segment posted a slight decrease of 0.4% y/y in 1Q25. That said, both the HPC and F&R segments saw strong q/q domestic sales growth of 20.1% and 24%, respectively.
Outlook
UNVR’s transformation programme is now ~50% complete, with two out of four key initiatives finalised in the first quarter of 2025. The completed initiatives – customer stock reduction and price harmonisation – are expected to contribute to more efficient inventory management and enhanced profitability for UNVR’s distributors. Additionally, these measures should support market price stabilisation, strengthen the company’s accounts receivables position, and improve overall cash flow.
The remaining two initiatives – expanding direct store coverage ("more stores, better stores") and Distributive Trade (DT) digital transformation (e.g., Sahabat Warung app) – are on track for completion in 2025. Early wins in digital trade (with direct coverage sales contribution up from 1% in 3Q24 to 22% in 1Q25) underscore the programme’s potential to enhance execution and visibility. Meanwhile, the company aims to increase this figure to 80% by 2H25.
UNVR's cost reset programme is seeing more fruitful impact, with labour productivity improving by 14% in 1Q25 compared to 2023 (measured in tonnes per full-time employee) and logistics costs/tonne declining by 9.4% in 1Q25 compared to 2023, while non-factory people costs as a percentage of sales decreased from 3.5% in 2024 to 3.1% in 1Q25. These improvements reflect successful optimisation across manufacturing, distribution, and overhead structures, creating meaningful savings. In 1Q25, we have seen salary cost decreasing, and we expect this cost savings will further support UNVR's earnings in 2H25. Hence, we raised our FY25/26F earnings forecast by 9%/8%, respectively.
UNVR continued to strengthen its product portfolio. Key initiatives under this strategy include the relaunch of core brands such as Royco in the foods segment, Clear shampoo in haircare, and Sunlight in home care. These relaunches feature revamped product formulations. Furthermore, the company is strengthening its presence in high-growth categories by introducing new product such as Dove’s serum body wash with pro-ceramide serum.
Additionally, the company remains attuned to the realities of a more cautious consumer spending environment. In response to the softening of consumer purchasing power, UNVR has also rolled out affordable pack sizes, like Rinso. This dual approach – driving both the premium segment and affordability – demonstrates the company's efforts in navigating market dynamics while ensuring broad accessibility across different consumer segments.
Upgrade to a non-consensus BUY call with a higher TP of IDR2,000. We turn positive on UNVR as we believe the worst is behind us given a strong q/q improvement seen in 1Q25, signalling that its transformation journey is beginning to bear fruit, setting a positive tone for the company’s fundamentals in 2H25. The completion of two key initiatives is expected to support revenue recovery starting in 2Q25. Moreover, we expect further improvements in profitability in 2H25 as UNVR starts to realise the full benefits of its turnaround strategies. These include product innovations, cost reset programmes, brand strengthening, portfolio expansion, and a channel transformation programme (encompassing digital enhancements, increased e-commerce penetration, and broader store coverage).
Share price volatility may persist but prefer to be early than late. While some may like to see more tangible results in volume and net profit growth on a y/y (given that 1Q25 still saw a y/y decline), we believe the sequential q/q improvement should be the focus instead. Along with uncertainties from the macro environment, share price volatility is possible, but we believe it is better to be early than late. A point to note is that share price hit a low in Feb, in the lead up to its deletion from the MSCI Global Standard Index., it has rebounded since. Interestingly, that low level was not breached even as the general market corrected post Trump’s “Liberation Day” tariffs and the accompanying uncertainties. As such, we believe the market has largely priced in the negatives.
Given our upward earnings revision, we raise our TP to IDR2,000, implying a c.20x FY25F PE (up from c.14x FY25F PE), which is -1.5SD of its historical five-year mean PE. This adjustment reflects the potential for further profitability improvements, supported by the company’s transformation initiatives, which we believe could also pave the way for a re-rating of the share price.
| FY Dec | 1Q2024 | 4Q2024 | 1Q2025 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 10,080 | 7,721 | 9,465 | (6.1) | 22.6 |
| Cost of Goods Sold | (5,047) | (4,282) | (4,906) | (2.8) | 14.6 |
| Gross Profit | 5,033 | 3,439 | 4,559 | (9.4) | 32.6 |
| Other Oper. (Exp)/Inc | (3,150) | (2,924) | (2,937) | (6.8) | 0.4 |
| Operating Profit | 1,883 | 515 | 1,622 | (13.8) | 215.0 |
| Other Non Opg (Exp)/Inc | (0.82) | (13.4) | (0.79) | 4.4 | (94.1) |
| Associates & JV Inc | 0.00 | 0.00 | 0.00 | - | - |
| Net Interest (Exp)/Inc | (22.4) | (15.3) | (27.4) | (22.0) | (78.6) |
| Exceptional Gain/(Loss) | 0.00 | 0.00 | 0.00 | - | - |
| Pre-tax Profit | 1,859 | 486 | 1,594 | (14.3) | 227.8 |
| Tax | (411) | (127) | (356) | (13.2) | 180.1 |
| Minority Interest | 0.00 | 0.00 | 0.00 | - | - |
| Net Profit | 1,449 | 359 | 1,237 | (14.6) | 244.7 |
| Net profit bef Except. | 1,449 | 359 | 1,237 | (14.6) | 244.7 |
| EBITDA | 2,106 | 692 | 1,796 | (14.7) | 159.6 |
| Margins | |||||
| Gross Margins (%) | 49.9 | 44.5 | 48.2 | ||
| Opg Profit Margins (%) | 18.7 | 6.7 | 17.1 | ||
| Net Profit Margins (%) | 14.4 | 4.6 | 13.1 |
Source: DBSVI, Company
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