Unilever Unit Has Worst Two-Day Drop in 12 Years: Jakarta Mover

PT Unilever Indonesia, a unit of the world’s second-largest consumer goods company, posted its worst two-day slump in 12 years in Jakarta trading after a series of downgrades and target price cuts by five brokerages.

Unilever Indonesia sank 11 percent to 20,550 rupiah as of 12 p.m. local time after tumbling 11 percent yesterday when the company said it will pay higher royalties to its parent Unilever NV. The stock was the biggest drag on the Jakarta Composite index, which lost 0.7 percent.

Erwan Teguh, Jakarta-based analyst at CIMB Group Holdings Bhd., downgraded the stock to underperform and cut his share-price estimate by 35 percent to 20,000 rupiah. The company’s move to pay higher royalties has damaged its “pristine corporate governance,” he wrote in a note dated yesterday.

“The company mentioned the change in royalty structure is to strengthen its position as the exclusive Indonesian arm of its parent,” Octavius Oky Prakarsa, analyst at PT Mandiri Sekuritas, said in a client note today. “We are doubtful. We may see this as another way to maximize returns of its Indonesia investment.” He reduced his rating to sell from neutral.

The stock’s two-day slump, the worst since August 2000, has sliced more than $4 billion off the company’s market value. It’s the second-worst performer in the Jakarta Composite index in the past five days. Trading volume was more than six times its three-month daily average.

Unilever Indonesia said yesterday before the market opened that total royalties to Unilever NV would increase to 5 percent of its revenue beginning next year from 3.5 percent now. Katarina Setiawan, analyst at PT Kim Eng Securities, cut her target price for Unilever Indonesia to 23,400 rupiah from 26,350 rupiah, she wrote in a research note today. Credit Suisse Group AG lowered its share-price estimate to 15,725 rupiah from 18,800 rupiah yesterday, according to data compiled by Bloomberg. JPMorgan Chase & Co. reduced its target to 20,000 rupiah from 22,000 rupiah.

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