EVA Brief: ULTJ (Ultra Jaya)

Ultrajaya has been a consistent value creator and in general, it has been steadily and slowly increasing its value as shown by EVA momentum 0,6% on 3 years average. EVA grew from IDR 429 Billion in 2016 to IDR 515 Billion in LTM Q3 2019.

This is why its share price has been increasing from IDR 800/share in 2015 to IDR 1.470/share currently.

You saw that its share price rose quite big during 2015-2017. There is more to the story than an increase in EVA.

ULTJ managed to not only increased its EVA during that period but also managed to beat market expectations in 2016. Look at the table below. EVA momentum was 3,7% in 2016 while the market was expecting 2,0% in momentum. That is the major reason why ULTJ share price increased significantly....until it was not in 2018 when disappointing reality came in the middle of record-high expectation. That is the context of the 30% fall in 2018.

Where are we now?

At the current price of IDR 1.470/share, the market is effectively expecting EVA momentum of 1,9%. The good news is historically speaking, it is quite achievable for ULTJ. The bad news is, we have seen a very high expectation in the background. At its peak at IDR 1.800/share, investors' expectation was very high. MIM was 3%, the second-highest after 2017.

I believe if ULTJ could manage to get EVA momentum just around 1% this year, its share price is likely to increase further.

How plausible is that?

It is quite possible if ULTJ could still grow its sales somewhere around 10%.

Sales growth would be the main value (EVA) driver at least this year. That's because EVA margin has been pretty much stable as a result of a stable gross margin in the 35-37% range. It appears that there is not much room for improvement in EVA margin.

Unfortunately, I don't think sales would be good this year.

To my understanding, coronavirus incidence would make people less agile. Less agile people mean less milk consumption. Coffee shops would not be as crowded as in 2019.

I am tempted to predict ULTJ sales would contract by 10% this year: back to 2018 level.

Which translates into

And that would bring EVA momentum of -1,3%, and likely to be worse.

Remember that we just saw high expectations at its peak by the end of 2019.

It is not clear if ULTJ has ever experienced extreme optimism. The expectation was high, yes, but it is not ridiculously high. However, there is one thing clear: just recently, the expectation was high, and the investors tend to punish (self-correcting) severely when their high expectations are met with bad performance (negative EVA growth). I think that would be the situation for ULTJ.

From another perspective, I would pay extra attention to these lines as shown below.

A break to the downside would spell bear market. At that point, ULTJ needs re-examination.

-------Today's Update (16 March 2020)----

ULTJ continues to crash. Price is now at 1.280/share. That implies expected EVA momentum of 1,3%, down from 1,9% at the start of this analysis. ULTJ EVA could contract in this year as said before. Expect ULTJ to reach the lower channel line first. Should there comes a point when the market is viewing ULTJ as a wealth destroyer (meaning negative EVA producer), I would say that as an extreme pessimism. We are still very far from that point.

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Climate Awareness

You think coronavirus brings positive news to carbon emission? This is an excerpt from an article in The Guardian:

The International Energy Agency (IEA) has warned that the coronavirus crisis may “lead to a slump in global carbon emissions this year”, reports the Guardian, but “the outbreak poses a threat to long-term climate action by undermining investment in clean energy”[...] “what counts in terms of meaningful action to address the climate crisis is long-term structural change”. Norton also warns of disruption to the “intensive programme of diplomatic activity” in the run up to the COP26 climate talks in Glasgow in November.

Read it full here at The Guardian