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Ultrajaya Milk Industry & Trading (ULTJ IJ) (Buy) - ULTJ defends its market leadership in UHT milk

Ultrajaya Milk Industry & Trading (ULTJ IJ) (Buy) - ULTJ defends its market leadership in UHT milk

Food Beverages n Tobacco SH JW SC 429 5th Mar, 2025

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ULTJ defends its market leadership in UHT milk

Weak RTD tea sales and higher A&P costs; maintain Buy, TP cut to IDR2,250

Higher marketing costs to sustain volume growth

ULTJ recorded high A&P-to-sales ratios of 9.2%/15.9% in 3Q24/4Q24 (vs the past-five-year average of 6.2%). Management raised A&P spending significantly in 2H24 in order to protect market share after substantial ASP hikes of 6-7% for UHT milk products in Jun-24. The company is positive that the additional promotional program may comfort customers with new prices, so that the company can stabilize volume growth in the long term.

Dairy performance helps offset sluggish ready-to-drink (RTD) tea business

ULTJ remains the market leader in UHT milk with a 36.6% share in FY24 (vs 35.9% in FY23). UHT clocked double-digit sales growth for UHT milk in 4Q24, offsetting the declining sales of its RTD tea business (Fig. 2 and 3). We appreciate the company’s ability to sustain low-to-mid-teens sales growth of UHT milk over the past five years (excluding 2020 during COVID) amid growing competition. We expect the total market value of UHT milk to continue to expand as consumers increasingly shift from sweetened condensed milk and powder milk to UHT milk. RTD tea, which contributed 17% ofFY24 sales (Fig. 5), was down 7% y-y last year, with a significant decline in 4Q24 due to competition, in our view; also, third-party sales were sluggish, dragged by the Buavita brand’s (Unilever [UNVR IJ, Reduce]) weak performance.

New factory along with lower A&P spending this year

The company will operate a new factory in 3Q25, which we believe should help boost UHT milk sales. Management also indicated to lower the A&P-to-sales ratio this year as market share remains steady. Our industry survey revealed that ULTJ’s UHT milk continued its healthy mid-to-high-single-digit growth y-y in 2M25, while the RTD tea business remains under pressure.

Maintain Buy, with a lower TP of IDR2,250 (~61% implied upside)

We lower FY25F/26F NPAT by 15.6%/11.1% owing to weaker-than-expected RTD tea performance and a higher A&P budget. We reaffirm our Buy rating with a lower TP of IDR2,250, implying a target P/E of 18.8x FY25F (unchanged, +2.2SD to its five-year mean). The stock currently trades at 11.8x FY25F P/E. A downside risk is consumers’ weaker-than-expected purchasing power.

Year-end 31 DecFY24FY25FFY26FFY27F
Currency (IDR)ActualOldNewOldNewOldNew
Revenue (bn)8,8749,7539,53610,74910,509011,691
Reported net profit (bn)1,1371,4641,2361,7081,51801,826
Normalised net profit (bn)1,1371,4641,2361,7081,51801,826
FD normalised EPS109.31140.84118.88164.27146.02175.60
FD norm. EPS growth (%)-2.818.88.816.622.820.3
FD normalised P/E (x)12.8–11.8–9.6–8.0
EV/EBITDA (x)9.0–8.1–6.6–5.4
Price/book (x)2.0–1.8–1.6–1.4
Dividend yield (%)2.7–3.0–3.7–4.4
ROE (%)16.317.516.018.217.618.8
Net debt/equity (%)net cashnet cashnet cashnet cashnet cashnet cash
Source: Company data, Verdhana estimates

Key data on Ultrajaya Milk Industry & Trading

Income statement (IDRbn)
Year-end 31 Dec
FY23
FY24
FY25F
FY26F
FY27F
Revenue
8,303
8,874
9,536
10,509
11,691
Cost of goods sold
-5,611
-5,852
-6,424
-7,019
-7,698
Gross profit
2,692
3,022
3,112
3,491
3,993
SG&A
-1,235
-1,623
-1,631
-1,691
-1,879
Employee share expense
0
0
0
0
0
Operating profit
1,456
1,399
1,481
1,800
2,114
EBITDA
1,602
1,533
1,672
2,007
2,333
Depreciation
-146
-134
-192
-206
-219
Amortisation
0
0
0
0
0
EBIT
1,456
1,399
1,481
1,800
2,114
Net interest expense
23
37
73
84
94
Associates & JCEs
0
0
0
0
0
Other income
28
71
70
111
190
Earnings before tax
1,507
1,507
1,624
1,995
2,397
Income tax
-321
-353
-380
-467
-562
Net profit after tax
1,186
1,154
1,243
1,528
1,836
Minority interests
-17
-17
-7
-9
-10
Other items
0
0
0
0
0
Preferred dividends
0
0
0
0
0
Normalised NPAT
1,169
1,137
1,236
1,518
1,826
Extraordinary items
0
0
0
0
0
Reported NPAT
1,169
1,137
1,236
1,518
1,826
Dividends
-416
-398
-433
-531
-639
Transfer to reserves
753
739
804
987
1,187
Valuations and ratios
Reported P/E (x)
12.5
12.8
11.8
9.6
8.0
Normalised P/E (x)
12.5
12.8
11.8
9.6
8.0
FD normalised P/E (x)
12.5
12.8
11.8
9.6
8.0
Dividend yield (%)
2.9
2.7
3.0
3.7
4.4
Price/cashflow (x)
6.3
11.5
11.0
9.6
7.7
Price/book (x)
2.2
2.0
1.8
1.6
1.4
EV/EBITDA (x)
8.8
9.0
8.1
6.6
5.4
EV/EBIT (x)
9.7
9.9
9.1
7.3
6.0
Gross margin (%)
32.4
34.1
32.6
33.2
34.2
EBITDA margin (%)
19.3
17.3
17.5
19.1
20.0
EBIT margin (%)
17.5
15.8
15.5
17.1
18.1
Net margin (%)
14.1
12.8
13.0
14.4
15.6
Effective tax rate (%)
21.3
23.4
23.4
23.4
23.4
Dividend payout (%)
35.6
35.0
35.0
35.0
35.0
ROE (%)
19.0
16.3
16.0
17.6
18.8
ROA (pretax %)
25.4
24.6
23.5
26.0
27.6
Growth (%)
Revenue
8.4
6.9
7.5
10.2
11.2
EBITDA
12.4
-4.3
9.1
20.0
16.3
Normalised EPS
21.7
-2.8
8.8
22.8
20.3
Normalised FDEPS
21.7
-2.8
8.8
22.8
20.3
Source: Company data, Verdhana estimates
Cashflow statement (IDRbn)
Year-end 31 Dec
FY23
FY24
FY25F
FY26F
FY27F
EBITDA
1,602
1,533
1,672
2,007
2,333
Change in working capital
-330
1,281
1,303
-205
-155
Other operating cashflow
1,028
-1,551
-1,654
-279
-286
Cashflow from operations
2,300
1,263
1,322
1,522
1,892
Capital expenditure
-232
-248
-559
-532
-548
Free cashflow
2,067
1,014
763
990
1,343
Reduction in investments
-48
-54
-10
-13
-14
Net acquisitions
0
0
0
0
0
Dec in other LT assets
0
0
0
0
0
Inc in other LT liabilities
0
0
0
0
0
Adjustments
-220
-311
26
-173
-95
CF after investing acts
1,799
650
779
804
1,235
Cash dividends
-312
-416
-398
-433
-531
Equity issue
-63
0
0
0
0
Debt issue
-598
0
0
0
0
Convertible debt issue
0
0
0
0
0
Others
100
26
-24
-41
-96
CF from financial acts
-873
-390
-421
-474
-627
Net cashflow
926
260
357
330
608
Beginning cash
1,249
2,174
2,434
2,792
3,122
Ending cash
2,174
2,434
2,792
3,122
3,730
Ending net debt
-2,173
-2,433
-2,790
-3,120
-3,727
Balance sheet (IDRbn)
As at 31 Dec
FY23
FY24
FY25F
FY26F
FY27F
Cash & equivalents
2,174
2,434
2,792
3,122
3,730
Marketable securities
0
0
0
0
0
Accounts receivable
767
912
964
1,050
1,158
Inventories
1,431
1,390
1,512
1,631
1,771
Other current assets
39
134
148
162
181
Total current assets
4,411
4,870
5,415
5,964
6,840
LT investments
329
383
393
406
420
Fixed assets
2,346
2,461
2,828
3,154
3,483
Goodwill
0
0
0
0
0
Other intangible assets
8
9
9
9
9
Other LT assets
429
739
713
886
981
Total assets
7,524
8,461
9,359
10,420
11,733
Short-term debt
2
2
2
2
2
Accounts payable
465
555
584
585
641
Other current liabilities
247
346
404
417
473
Total current liabilities
713
903
990
1,004
1,117
Long-term debt
0
0
0
0
0
Convertible debt
0
0
0
0
0
Other LT liabilities
124
132
152
178
210
Total liabilities
837
1,034
1,142
1,182
1,326
Minority interest
86
88
93
113
133
Preferred stock
0
0
0
0
0
Common stock
566
566
566
566
566
Retained earnings
6,062
6,783
7,568
8,569
9,718
Proposed dividends
0
0
0
0
0
Other equity and reserves
-28
-10
-10
-10
-10
Total shareholders' equity
6,601
7,339
8,124
9,125
10,274
Total equity & liabilities
7,524
8,461
9,359
10,420
11,733
Liquidity (x)
Current ratio
6.18
5.39
5.47
5.94
6.13
Interest cover
–
–
–
–
–
Leverage
Net debt/EBITDA (x)
net cash
net cash
net cash
net cash
net cash
Net debt/equity (%)
net cash
net cash
net cash
net cash
net cash
Per share
Reported EPS (IDR)
112.44
109.31
118.88
146.02
175.60
Norm EPS (IDR)
112.44
109.31
118.88
146.02
175.60
FD norm EPS (IDR)
112.44
109.31
118.88
146.02
175.60
BVPS (IDR)
634.80
705.81
781.30
877.54
988.07
DPS (IDR)
40.00
38.26
41.61
51.11
61.46
Activity (days)
Days receivable
32.0
34.6
35.9
35.0
34.5
Days inventory
100.1
88.2
82.4
81.7
80.7
Days payable
35.6
31.9
32.4
30.4
29.1
Cash cycle
96.6
90.9
86.0
86.3
86.0
Source: Company data, Verdhana estimates
Company profileULTJ is Indonesia's leading dairy company, primarily engaged in manufacturing aseptic-packaged ultra-high-temperature (UHT) beverages. Its products include UHT milk (70% of sales), UHT tea (22% of sales) and others (8% of sales). Besides UHT beverages, the company also manufactures non-UHT products, such as sweetened condensed milk, tropical fruit juice concentrate and powdered milk. ULTJ markets its products under various brand names, such as Ultra Milk and Susu Sehat for its UHT fresh milk, Teh Kotak and Teh Bunga for its UHT tea, and Cap Sapi and Golden Choice for its sweetened condensed milk.
Valuation MethodologyWe derive our TP of IDR2,250 based on 18.8x 2025F P/E (+2.2SD of 5-year-historical average). We use JCI as our benchmark index.
Risks that may impede the achievement of the target priceDownside risk would be weaker-than-expected buying power condition.
ESGIn carrying out its business activities and operations, ULTJ is committed to ensure provision of benefits to its employees and communities, as well as to actively participate in protecting the environment. The company completes production facilities with necessary waste processing equipment, and employs personnel to monitor compliance with environmental standards when of disposing solid and liquid waste. ULTJ has also been using eco-friendly cardboard packaging since its inception.

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. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.


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ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.


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Rating Table

Rating
Remains
Buy
Target price
Reduced from IDR 2,700
IDR 2,250
Closing price
3 March 2025
IDR 1,400
Implied upside+60.7%
Market Cap (USD mn)981.8
ADT (USD mn)0.1

Relative performance chart



Source: LSEG, Verdhana
M cap (USDmn)
981.8
Free float (%)
24.6
3-mth ADT (USDmn)
0.1
(%)
1M
3M
12M
Absolute (IDR)
-9.7
-22.2
-15.4
Absolute (USD)
-9.9
-24.8
-19.4
Rel to Jakarta Stock Exchange Composite Index
-2.4
-12.8
-4.6

Research Analysts

Sandy Ham (sandy.ham@verdhana.id)

Jody Wijaya (jody.wijaya@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)

Tags: FOOD AND BEVERAGE, ULTJ, ULTJ JK, ULTJ IJ, Sandy Ham, Jody Wijaya, Samuel Christian
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