Core issues such as distribution getting attention
Based on our observations over the past 1.5 years, we conclude that Benjie Yap, the current President Director of UNVR IJ, has addressed the right core issues, especially in fixing distribution. Under his command, UNVR has been more aggressive and pragmatic in reducing stock levels at distributors and cutting ties with some of its problematic major distributors in order to refresh and streamline the company’s distribution channels. Benjie also has done major organizational restructuring, including layoffs and replacements, which happened in 4Q24/ 2Q25. Currently, management is focusing on expanding its direct points of sales, supported by a leaner distribution network, in our view. Notwithstanding, we also see some risks that could hamper UNVR’s business recovery plan, such as: 1) strong competitors that continue to develop business and steal market share amid UNVR’s restructuring program; 2) different salary structures across UNVR's divisions that could lead to employee resentment and tension, potentially undermining workplace productivity and collaboration; and 3) new employees, especially at the manager level and above, who could need time to adapt.
Expecting better sales growth in 3Q25-4Q25F due to low base effect
Our industry surveys found that UNVR recorded sales growth in general trade (GT) in 2Q25F; however, sales via modern trade (MT) was still soft. We predict UNVR will start to book stronger sales growth in 2H25F on the back of a low base (-12% y-y in 2H24), after a massive stock-reduction program at the distributor level starting in 3Q24-1Q25. With lower stock levels, the company now can push sales and refill stores with new products from its portfolio, in our view. In addition, management initiatives to expand points of sales may also support sales in 2H25F.
Most of the negative news factored in; upgrade to Neutral
We expect UNVR results can beat market expectations. The sales rebound, in our view, will be driven by a low base effect, with stronger sales recovery seen in 2H25F. In our view, most of the bad news has been priced in at the current valuation. Hence, we upgrade our call to Neutral with an unchanged TP of IDR1,600, using a higher target P/E of 15x FY25F (14.5x previously) as we turn less negative on the stock. Currently, the stock trades at 14.6x FY25F P/E. Although we expect a slight sales recovery in 2H25F, we think this is mostly due to the low base effect; in the medium term, we expect UNVR's earnings growth may continue to underperform as the company continues to struggle to compete with local players, not to mention increasing competition from Chinese players in beauty-related products.
Source: Company data, Verdhana estimates
