Aday after Unilever Indonesia announced plans to expand its production in the country, analysts said it was the right decision if the company wanted to stay competitive in the growing market.
“The expansion is necessary to increase its revenue and expand its market share and product diversification,” Edwin Sebayang, head researcher of MNC Securities, said on Friday.
Edwin said competition in the market of “fast-moving consumer goods,” or products that can be sold quickly in small packages to consumers, is tight and is continuously putting pressure on Unilever’s profit margin.
Unilever said on Thursday that it planned to invest 90 million euros ($122 million) to expand its Surabaya plant that produces skin-care products and food. It also plans to invest Rp 1.1 trillion ($125 million) to build a factory that produces a fatty acid derivative, oleochemical, in North Sumatra.
Oleochemical is essential in manufacturing liquid cleansing products such as shampoo.
Harry Su, head researcher at Bahana Securities, said Unilever’s investment showed its confidence in Indonesia’s market.
“While competition remains tough for Unilever, continued large capital expenditures in Indonesia in the next two years suggest not only that the company is confident about the success of its products, but also the prospect and potential of the domestic growth story,” he said.
The company said its move was part of 350 million euros in investment from 2010 to 2012. The company has already spent about Rp 2.1 trillion from January 2010 to June of this year.
Kim Eng Securities said the three-year investment was higher than the $100 million spending plan by Procter & Gamble, Unilever’s closest competitor. Kim Eng is positive about Unilever’s plan and maintains its buy recommendation with a target share price of Rp 18,300.
Edwin said MNC Securities would maintain its recommendation to buy Unilever stock with a target price of Rp 18,350.
However, Bahana recommend to hold the stock with a Rp 18,250 target price, as the stock’s upside potential did not reach 15 percent, Harry said.
In 2010, the company’s net profit margin stood at 17.2 percent, higher than 16.7 percent in 2009. Unilever’s stock price rose by 5.1 percent to Rp 16,500 on Friday.