Market share erosion persists

UNVR’s 1Q25 result was in line with our estimate (read: 1Q25F preview). In our view, UNVR still carries its main problem, i.e., weak demand creation, reflected in its -2.2% domestic sales CAGR for 2017-2024. In 1Q25, sales persistently declined by 6.6% y-y, dragged down by the home & personal care segment (HPC); however, on a q-q basis, sales were up by +21.6% due to seasonality and lower stock reduction at the distributor level, similar to the 4Q23-1Q24 period, when sales grew by +24.7% q-q (see Fig. 2). We expect the sluggish sales performance to continue due to external and internal factors. Externally, we have observed that local competitors have continuously improved and have become superior to UNVR in terms of distribution networks, pricing strategy, and brand positioning, which has caused UNVR to continuously lose market share. On top of that, internally, headquarters developed an inefficient chain of command structure, in our view, and has been continuously taking money through very high royalty rates for years, reflected in slow decision-making and a smaller budget to fight back against its competitors. However, we appreciate that the current CEO, Benjie Yap, has implemented a more radical approach to accelerate the stock reduction at the distributor level. However, after normalizing the stock level, the next and in our view bigger challenge would be demand creation to regain back market share amid increasing competition.

Maintain Reduce

In our view, UNVR will continue to underperform compared to peers, given its continuous market share decline. We project the company’s A&P-to-sales ratio will remain at a high level to defend market share. The divestment of its ice cream business could weaken UNVR’s bargaining power at the general trade (GT) level in the long run, in our view, despite the potential of a one-off dividend.  All in all, we maintain our Reduce call for UNVR at a TP of IDR1,600, using a target FY25F P/E of 14.5x. Currently, the stock is trading at a FY25F P/E of 15.9x. Upside risks would be a consistent sales volume recovery; to achieve that, there are two minimum requirements, in our view: 1) streamlining distributors and strengthening distribution networks in GT; and 2) maintaining the current CEO for a longer time: any change in management would be a setback, in our view, as typically a new CEO needs two years to learn and fully implement their own strategy.

Fig. 2: UNVR quarterly sales (IDRbn)

Fig. 3: UNVR q-q sales

Fig. 4: UNVR A&P to sales ratio trend

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Sandy Ham (sandy.ham@verdhana.id)

Jody Wijaya (jody.wijaya@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)