UNVR - Expecting better result in the remaining year

2H23 could be more challenging as 1H23 came in below ours and street expectation. Market share likely to sustained, yet in terms of value could be lower as competition remain intense and thus should also limiting any ASP adjustment needed going forward. Softened cost input will stay as the main story and we expect UNVR soon to be able to take the benefit. We revisit our model and made some adjustment to accommodate with the disappointing 1H23 results. Upgrade to BUY, mainly as share price sharp drop has brought UNVR stock price entering the BUY zone (more than 10% upsides). Our new TP of IDR4,130 equal to 27.9x ‘23F P/E, while it is currently trading at 25.2x ‘23F P/E, or below its -1SD of 5-yr historical mean of 29.3x P/E Another disappointing result UNVR 1H23 net profit stood at IDR2.75tn, tanked by 19.6% yoy, driven by poor performance from top to bottom. Despite enjoying lower cost input which recorded 8.5% yoy lower which we believe as a result of lower commodity prices trend, gross profit continues to weakened (-2.2% yoy) as top line across all segment continue under pressure and dragged total revenue by -5.5% yoy. 1H23 result came in far below ours and consensus expectation at 44.1%/43.5% versus 51.2% of 5yr 1H to FY historical earnings average. On 2Q23 stand alone, PATMI was 3.9% yoy and 3.6% qoq lesser and arriving lower-than-anticipated to both ours and consensus ‘23F PATMI for UNVR at IDR1.41tn/IDR1.44tn (UNVR IDR1.35tn). Margin expansion across the boards on quarterly basis UNVR saw an improvement GPM to 49.9% from 48.2% in 1H22 mainly supported by softened cost input. Yet, a 42.9% increase on trademarks fees has made overall opex climbed 10.7% yoy amid lower adex expenses by 5.6% yoy. On the flip of coin, easing cost of sales by 13.6% yoy, 10.7% qoq coupled with lower opex by 3.4% yoy, 7.5% qoq brought quarterly basis net margin recover to 14.0% (+72bps yoy, +73bps qoq). 2H23 looks more challenging Poor 1H23 results has made 2H23 looks more challenging and tougher to achieve, since UNVR need to booked more than 80% yoy earnings growth in 2H23 to arrives with ours and consensus ’23 PATMI for UNVR of IDR6.26tn and IDR6.34tn, or equal to a run rate of 56%/57% far above its 5year historical at 49%. We believe, continuing pressure on UNVR brands will remains as landscape competition stay stiffer, while price sensitiveness also plays important role and overall will become as another drawback for UNVR brand going forward. Expecting UNVR to continue get benefit from lower cost input We might see margin improvement should remain intact as cost input normalization likely to continue (benefiting from motionless commodity prices). Additionally, we expect to witness UNVR market share will continue to gain traction. Yet, we think the escalation seems will be limited as competition remain intense and thus ASP adjustment likely will be limited. Post fine-tuned, 2H23 now looks more achievable ceteris paribus We revisit our model and make some adjustment. Our new ‘23F/’24F revenue for UNVR is -1.8% and -3.1% compared to our previous figure, as we lower our assumption on HPC and F&B segmentation volume index driver. We think there will be no significant shocked on operating expense. We have also incorporated higher trademark fees as well as the assumption on higher adex spending for UNVR’s brand awareness, and thus we keep our opex forecast unchanged. Ours and street new ‘23F earnings for UNVR which has accommodate its 1H23 unfortunate results now looks more achievable (1H23 run rate at 50%/49% vs 51%). Upgrade to BUY, with target price of IDR4,130 UNVR shares dropped by around 13.3% (less than 2 weeks) since its 1H23 disappointing results published and thus has made UNVR stocks now offering more than 10% of upside potential compared to yesterday closing. Using blended valuation of DCF, DDM, single stage fair PBV and rolling P/E, our new TP for UNVR of IDR4,130 (previously IDR4,580) implying 27.9x ‘23F PE, while it is currently trading at 25.2x ‘23F P/E, or below its -1SD of 5-yr historical mean of 29.3x P/E. Risks to our call: a) lower-than-expected purchasing power, volume and asp growth, b) higher than expected input costs which could pressure and dragged down margin further, c) lower-thanexpected market share and intensifying competition from substitutes brands.