Refer to Important disclosures in the last page of this report

  O ^{c t- 1 7} _N ^{o v -1 7} _D ^{e c -1 7 J a n -1 8 J a n -1 8} _F ^{e b -1 8} _M ^{a r- 1 8} _M ^{a r- 1 8 A p r- 1 8} _M ^{a y -1 8} _M ^{a y -1 8 J u n -1 8 J u l- 1 8 J u l- 1 8} _A ^{u g -1 8} _S ^{e p -1 8 O c t- 1 8 O c t- 1 8} UNVR-Rebase JCI Index-Rebase

• 7.7% yoy (-4% qoq), slightly dampening the drop in margin.

  44.1

  64.8

  71.2

  42.3 PBV (x)

  44.5

  36.3

  52.4

  47.9

  28.0 PER (x)

  38.9

  5.7

  58.9

  42.9

  5.3 Net Gearing (%)

  54.2

  49.2 Dividend Yield (%)

  1.7

  1.9

  2.0

  2.7

  2.2 EV/EBITDA (x)

  36.0

  32.7

  32.3

  30.2

  28.7 Source : UNVR, IndoPremier Share Price Closing as of : 29-October-2018

  E q u it y | I n d o n e s ia | C o n s u m e r S ta p le s

  80

  85

  90

  95 100 105 110 115 120

  9.5 31.7 (18.3)

  5.4 Net Profit (RpBn) 6,391 7,005 9,228 7,536 7,935 EPS (Rp) 838 918 1,209 988 1,040 EPS Growth (%)

  9.4

  Estimate Change; Vs. Consensus 2018F 2019F

  StockData

  Target price (Rp) Rp42,500

  Prior TP (Rp) Rp43,800

  Shareprice (Rp) Rp43,950

  Upside/downside (%) (3.3)

  Sharesoutstanding (m) 7,630 Marketcap. (US$ m) 22,028 Free float (%)

  15.0 Avg. 6m dailyT/O (US$ m)

  6.2 Price Performance

  3M

  6M

  12M

  Absolute (%) -2.2 -3.1 -10.6 Relative to JCI (%) 2.0 -2.4 -5.7 52w high/low (Rp) 55,900 - 40,800

  Major Shareholders

  Unilever Indonesia Holding 85.0%

  Latest EPS (Rp) 1,209 988 Vs. Prior EPS (%) 27.2 (0.7) Vs. Consensus (%) 18.8 (3.3)

  6.3

  Unilever Indonesia (UNVR.IJ)

  1.9

  9.7

  9.6

  Revenue (RpBn) 40,054 41,205 42,927 45,465 48,600 EBITDA (RpBn) 9,258 10,159 10,354 11,006 11,601 EBITDA Growth (%)

  Year To 31 Dec 2016A 2017A 2018F 2019F 2020F

  30 October 2018 Results Note HOLD (Unchanged)

  Valuation.We slightly trimmed down our revenue forecast by 2.0%/1.5% following the company’s lackluster growth in 9M18. However, we raise our net profit forecast by 27% for FY18F taking into account the one-off gain from their spread segment. Despite our cautious stance, we are still seeing an upside potential from their personal-care segment, in particular the Hijab products. We rollover our valuation to FY19F, maintaining our HOLD on the company with a lower TP of Rp42,500 (based on target P/E of 43x). We transfer coverage from Putri Tobing to Elbert Setiadharma.

  Source: Bloomberg Elbert Setiadharma

  2Q18: 50.6%; 3Q17: 51.7%), the lowest since 3Q14. Looking into the segments more closely, both HPC and FR gross margin dropped to 51.1% (-320bps yoy; - 140bps qoq) and 43.1% (-270bps yoy; 380bps qoq) respectively in 3Q18. On a more positive note, marketing and selling expenses continues to drop in 3Q18 by

  Margin Pressure still persists. With the further strengthening of the USD and rising oil price, the company’s margins are put under more pressure. Gross margin in 3Q18, dropped considerably by 190bps yoy in 3Q18 to only 48.7% (vs.

  Sale of spread business boosted bottom line. At the end of 2017, Unilever decided to sell their Spreads segment to KKR, including brands such as Blue Band, ProActiv and Country Crock. This transaction was only realized in 3Q18, which was recorded at Rp2.7tn as other income. As a result of this sale, the company’s operating income and net profit jumped to Rp9.9tn (+39% yoy) and Rp7.3tn (+40% yoy) respectively in 9M18. However, this is only a one-off gain and will not be sustainable for the company going forward. If we take out the gain from the spreads segment sales, operating profit actually declined by -1% yoy in 9M18.

  Sluggish top line growth, below expectation.UNVR recorded net sales of Rp10.3tn in 3Q18 (+4% yoy; -1% qoq) and Rp31.5tn cumulatively in 9M18 (+1% yoy), forming 73% of consensus and 72% of ours. Home and personal care (HPC) segment contributed a significant growth at +6% yoy in 3Q18, while food and refreshment (FR) declined -0.6% yoy during the same period. On the contrary, the company’s bottom line grew significantly recording Rp3.8tn in 3Q18 (+135% yoy; +123% qoq) and Rp7.3tn in 9M18 (+40% yoy), forming 97% of consensus and 101% of ours. This improvement in net profit can be contributed to the sale of their spreads segment, which was realized in 3Q18. We remain cautious on UNVR following the company’s muted growth and declining margin.

  Lackluster 3Q18 result Sluggish top line growth, falling below expectation. Outstanding bottom line on the back of sale of spreads business. Margin pressure still persists. Maintain Hold on UNVR with lower TP of Rp42,500.

  PT Indo Premier Sekuritas elbert.setiadharma@ipc.co.id

• 62 21 5793 1169

  Moslem Population 88% Others 12%

  1

  1

  6

  4 Q

  1

  6

  1 Q

  1

  7

  2 Q

  1

  7

  3 Q

  7

  6

  4 Q

  1

  7

  1 Q

  1

  8

  2 Q

  1

  8

  3 Q

  1

  8 Marketing and selling expense YOY Growth (%) G&A expense YOY Growth (%)

  Personal-care Home-care Pharmaceuticals Non-Food Food Nominal YOY Growth (%) Aug 2018 Vol. YOY Growth (%) Aug 2018

  3 Q

  1

  1

  5

  49.5% ^{51.1% 51.1% 51.5% 51.0% 51.0%} _{48.5% 49.0% 49.5%} ^{50.0% 50.5% 51.0% 51.5% 52.0%} _{5,000 7,000 9,000 11,000} ^{13,000 15,000 17,000 19,000 21,000 23,000 25,000} _{2014 2015 2016 2017 2018F 2019F} Gross Profit (Rp Bn; LHS) GPM (%; RHS)

  50.0%

  3 Q

  1

  4

  4 Q

  1

  4

  1 Q

  2 Q

  2 Q

  Fig. 3: Gross profit and GPM trend Fig. 4: Quarterly opex trend Source: Company, IndoPremier Source: Company, IndoPremier

  1

  5

  3 Q

  1

  5

  4 Q

  1

  5

  1 Q

  1

  6

  Fig. 1: Quarterly sales growth trend Fig. 2: Net sales forecast by segment Source: Company, IndoPremier Source: Company, IndoPremier

• 30.0%
• 20.0%
• 10.0% 0.0% 10.0% 20.0% 30.0% 40.0%

  Fig. 5: Consumer industry growth trend Fig. 6: Huge potential for the Hijab products Source: Nielsen

• 0.7% 0.1% 1.8% 1.0% 0.7% 0.8%
• 2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%
>0.4%
• >1.9%
• 1.3%

  Source: BPS, IndoPremier ^{-10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% - 2,000 4,000 6,000 8,000 10,000 12,000 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Sales (Rp Bn; LHS) Home and Personal Care YOY Growth (%; RHS) Food and Refreshment YOY Growth (%; RHS) 34,512 36,484 40,053 41,204 42,927 45,465 - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 2014 2015 2016 2017 2018F 2019F} Food and Refreshment (Rp Bn) Home and Personal Care (Rp Bn)

  Fig. 7: Earnings Revision FY18F FY19F (RpBn) old new (%) old new (%) Net sales 43,784 42,927 -2.0% 46,168 45,465 -1.5%

  COGS 21,378 21,045 -1.6% 22,652 22,274 -1.7%

  Gross profit 22,407 21,882 -2.3% 23,515 23,191 -1.4%

  Operating cost 12,549 12,239 -2.5% 13,246 12,971 -2.1%

  Operating profit 9858 9,643 -2.2% 10,270 10,220 -0.5%

  Other -161 2,694 1770.5% -145 -145 0.0% Tax 2444 3,109 27.2% 2,551 2,539 -0.5%

  Net profit 7253 9,228 27.2% 7,573 7,536 -0.7% EPS 951 1,209 27.2% 995 988 -0.7% Margins (%)

  GPM 51.2% 51.0% 50.9% 51.0% OPM 22.5% 22.5% 22.2% 22.5% NPM 16.6% 21.5% 16.4% 16.6%

  Source: Company, IndoPremier Fig. 8: Results Summary (IDR Bn)

  3Q17

  2Q18

  3Q18 % QoQ % YoY

  9M17

  9M18 % YoY vs. cons vs. ours

Net Sales 9,950 10,437 10,348 -1% 4% 31,214 31,531 1% 73% 72%

  COGS 4,810 5,159 5,304 3% 10% 15,160 15,720 4%

  

Gross Profit 5,140 5,278 5,044 -4% -2% 16,053 15,812 -2% 71% 71%

  Operating Cost 2,954 2,991 (17) -101% -101% 8,968 5,954 -34%

  

Operating Profit 2,187 2,286 5,061 -121% 131% 7,086 9,857 39% 101% 100%

  Other (37) (33) (14) -58% -63% (93) (89) -4% Tax 544 562 1,274 127% 134% 1,763 2,465 40%

  

Net Profit 1,605 1,691 3,774 123% 135% 5,229 7,303 40% 97% 101%

  Gross Margin (%) 51.7% 50.6% 48.7% 51.4% 50.1% Oper. Margin (%) 22.0% 21.9% 48.9% 22.7% 31.3% Net Margin (%) 16.1% 16.2% 36.5% 16.8% 23.2%

  Source: Company, IndoPremier

  Year To 31 Dec (RpBn) 2016A 2017A 2018F 2019F 2020F Income Statement

  Net Revenue 40,054 41,205 42,927 45,465 48,600 Cost of Sales (19,595) (19,985) (21,045) (22,274) (23,867) Gross Profit 20,459 21,220 21,882 23,191 24,733 SG&A Expenses (11,752) (11,715) (12,239) (12,971) (13,993) Operating Profit 8,707 9,505 9,643 10,220 10,740 Net Interest (136) (124) (151) (135) (123) Forex Gain (Loss) Others-Net 1 (9) 2,845 (10) (10) Pre-Tax Income 8,572 9,372 12,337 10,075 10,608 Income Tax (2,181) (2,367) (3,109) (2,539) (2,673) Minorities Net Income 6,391 7,005 9,228 7,536 7,935

  Balance Sheet

  374 405 2,567 392 591 Cash & Equivalent

  3,810 4,855 3,902 4,133 4,418 Receivable

  2,318 2,394 2,338 2,475 2,652 Inventory 86 288 293 300 308 Other Current Assets

  6,588 7,942 9,101 7,300 7,970 Total Current Assets

  9,529 10,422 11,233 11,968 12,329 Fixed Assets - Net 472 453 431 410 389 Goodwill

  156

  90

  90

  90

  90 Non Current Assets 16,746 18,906 20,855 19,768 20,777

  Total Assets 2,393 3,450 3,000 2,800 2,500

  ST Loans 4,642 4,527 5,303 5,683

  Payable 3,843 4,555 4,036 4,272 4,577

  Other Payables Current Portion of LT Loans

  10,878 12,532 12,047 12,375 12,760 Total Current Liab. Long Term Loans

  1,163 1,201 1,201 1,201 1,201 Other LT Liab. 12,041 13,733 13,248 13,576 13,961

  Total Liabilities 172 172 172 172 172 Equity

  4,532 5,001 7,435 6,020 6,644 Retained Earnings Minority Interest

  4,704 5,173 7,607 6,192 6,817 Total SHE + Minority Int. Total Liabilities & Equity 16,746 18,906 20,855 19,768 20,777

  Source : UNVR,IndoPremier

  Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Cash Flow

  6,391 7,005 9,228 7,536 7,935 Net Income (Excl.Extraordinary&Min.Int) 498 496 689 764 839 Depr. & Amortization 189 (887) 1,117

  56

  88 Changes in Working Capital 587 (227) 313 (15) 220 Others

  7,665 6,387 11,347 8,343 9,082 Cash Flow From Operating

  (1,548) (1,304) (1,479) (1,479) (1,179) Capital Expenditure

  7

  4

  10

  10

  10 Others (1,541) (1,300) (1,469) (1,469) (1,169)

  Cash Flow From Investing 693 1,057 (450) (200) (300) Loans Equity

  (5,843) (6,494) (6,794) (8,951) (7,310) Dividends 245 (90) (161) (145) (133) Others

  (4,905) (5,527) (7,406) (9,296) (7,743) Cash Flow From Financing

  1,219 (440) 2,473 (2,422) 171 Changes in Cash

  FinancialRatios

  51.1

  51.5

  51.0

  51.0

  50.9 Gross Margin (%)

  21.7

  23.1

  22.5

  22.5

  22.1 Operating Margin (%)

  21.4

  22.7

  28.7

  22.2

  21.8 Pre-Tax Margin (%)

  16.0

  17.0

  21.5

  16.6

  16.3 Net Margin (%)

  39.4

  39.3

  46.4

  37.1

  39.1 ROA (%) 134.1 141.8 144.4 109.2 122.0

  ROE (%)

  93.9

  89.2

  96.1

  77.0

  86.8 ROIC (%)

  33.8

  38.4

  37.2

  32.3

  32.1 Acct. Receivables TO (days)

  0.0

  0.0

  0.0

  0.0

  0.0 Acct. Receivables - Other TO (days)

  8.5

  8.5

  8.9

  9.3

  9.3 Inventory TO (days)

  88.3

  83.7

  82.7

  84.5

  84.0 Payable TO (days)

  0.0

  0.0

  0.0

  0.0

  0.0 Acct. Payables - Other TO (days)

  50.9

  66.7

  39.4

  45.2

  36.7 Debt to Equity (%)

  0.0

  0.0

  0.0

  0.0

  0.0 Interest Coverage Ratio (x)

  42.9

  58.9

  5.7

  38.9

  28.0 Net Gearing (%)

  Source : UNVR,IndoPremier

  Head Office PT INDO PREMIER SEKURITAS Wisma GKBI 7/F Suite 718 Jl. Jend. Sudirman No.28 Jakarta 10210 - Indonesia p +62.21.5793.1168 f +62.21.5793.1167

INVESTMENT RATINGS

  BUY : Expected total return of 10% or more within a 12-month period HOLD : Expected total return between -10% and 10% within a 12-month period SELL : Expected total return of -10% or worse within a 12-month period ANALYSTS CERTIFICATION.

  The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

  DISCLAIMERS

  This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this