Uni-Charm Indonesia mid-2022 update
Margin pressure from higher oil price, otherwise on track. Estimated reading time: 11 minutes
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Uni-Charm Indonesia (UCID) is Indonesia’s larger producer of baby diapers, sanitary napkins for women and adult diapers.
In the past, UCID has been growing steadily at a mid-single-digit rate. The key driver of this growth is Indonesia’s excellent demographic and low penetration rate of disposable baby diapers at only 0.8 diapers per day compared to 4.8 in Japan.
Going forward, revenues should benefit from competitor Softex’s plan to increase its average selling prices. On the other hand, rising oil prices and management’s renewed focus on growth might put pressure on margins.
To combat higher raw materials prices, UCID started to raise prices by about 3-5% in the first half of 2022. This should defend the margins, at least to some extent.
The company’s 2023e valuation multiples are low at 0.39x sales, 7.4x EBIT and 14.1x P/E. Meanwhile, UCID’s parent company Unicharm Corporation trades at a whopping 3.19x sales, 21.1x EBIT and 32.5x P/E.
I don’t understand this disparity in valuation multiples. While UCID pays a 3% royalty fee to its parent, Indonesia is one of Unicharm’s fastest-growing markets.