Some top line weakness on downtrading and lingering boycott. In 1Q25, UNVR continued to suffer from downtrading and lingering boycott which resulted in revenue of IDR 9.5 tn (+22.6% QoQ; -6.1% YoY), lower than our estimate which necessitated 7.5% ­­­­­­downgrade in SSI’s full-year revenue to IDR 34,409 bn. With this lower top line, UNVR’s 1Q25 sales now account for 25.6% of our and 27.5% of consensus full-year estimates. On a more positive note, all business segments recorded positive quarterly growth, with HPC contributing IDR 5.9 tn (+21.2% QoQ; -9.1% YoY) and FnR generating IDR 3.6 tn (+24.9% QoQ; -0.8% YoY), helped by portfolio expansions.

 

Improved margins across the board resulted in our FY25-26 earnings upgrades. We have raised UNVR’s FY25-26 EBIT by 21.8%-22.7% and net profit by 22.8%-23.5% following better-than-expected margin performance in 1Q25. At the gross profit level, 1Q25 margin expanded to 48.2% (4Q24: 44.5%; 1Q24: 49.9%), mainly due to: 1) normalization of transformation and stock reduction program in 4Q24 (c.1.9%), 2) ASP adjustments (c.1.3%), and 3) lower materials costs (CPO prices fell -3.2% QoQ). In terms of EBIT, 1Q25 margin rose to 17.1% (4Q24: 6.7%; 1Q24: 18.7%) on normalization of transformation-related costs and improved human capital efficiencies. Notably, remuneration run-rate fell to 1.9% (4Q24: 7.8%; 1Q24: 3.3%), bringing total opex run-rate to 31.0% (4Q24: 37.9%; 1Q24: 31.3%). On the back of these improvements, our revised up UNVR FY25 net profit now accounts for 27.5% of full-year and 32.0% of consensus’.

 

Beneficiary of lower raw materials prices & improved inventory management. Looking ahead, we believe UNVR will experience improved operating performance, supported by favorable trends in key raw materials prices, including packaging and chemicals which track lower global oil prices. Additionally, UNVR demonstrated improved operational efficiencies, which had already reduced its opex-to-sales ratio to 31.0% in 1Q25. Notably, the revamped “Sahabat Warung” program contributed 22% to direct coverage sales (3Q24: 1%) and is projected to reach 80% by 2H25. This UNVR’s initiative will  expand its portfolio and address declining purchasing power. It is also worth noting that UNVR raised A&P spending to 9.2% (24A: 8.8%; 5-year average: 7.15%), which should help support sales volumes.

 

Higher earnings = raised TP to IDR 2,100; Reiterate BUY. As we increased our earnings forecasts, we raised our TP to IDR 2,100 (Previous: IDR1,400) and maintain our BUY rating for UNVR. Additionally, we believe UNVR’s FY25 P/E below 15x remains undemanding, helped by its attractive 10.4% potential dividend yield. Key risks: low sales volumes and higher raw materials prices.