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Hold, 10% upside
25th May 2022
Price Rp 1070
Target price Rp 1165
Investment Consideration
Higher Sales Volume
- In 1Q2022 HMSP’s sales increased +11% YoY to IDR 26.16 trillion, with higher sales volume, up by +5.2% YoY to 20.9 billion cigarettes, plus a price hike.
- The growth is primarily reflecting a stronger overall market, which offset a lower market share due to adult smokers down-trading to the cheaper tier one cigarettes which have a significantly lower retail price. For the total domestic cigarette market, sales volume increased +5.8% YoY to 75.1 billion sticks.
- For HMSP, hand-rolled white cigarettes (SPT) recorded the fastest growth of +421% YoY sales growth to IDR 191 billion, while the biggest contributor to sales is still machine-made clove cigarettes (SKM) with a 66.3% contribution of IDR 17.34 trillion, up +10.6% YoY in 1Q2022.
- Hand-rolled Kretek (SKT) sales grew +14.2% YoY to IDR 6.08 trillion, while Machine-Made White (SPM) cigarettes decreased slightly -1.2% to IDR 2.29 trillion.
- With higher prices and higher sales volume, we expect better growth in 2022F inline with a recovery in domestic consumption.
Higher margins
- The rising trend of higher quarterly margins continued in 1Q2022 in line with higher volumes and ASPs.
- HMSP NPM was 7.3% in 1Q2022, up from 6% in the 4Q2021. Net profit still decreased by -26% YoY but grew +21% QoQ to IDR 1.91 trillion. The decrease is due to higher excise tax +21.6% YoY to IDR 17.6 trillion.
- This resulted in a higher cost of sales up by +18.3% YoY to IDR 21.9 trillion in 1Q2022. This resulted in a lower gross profit -15.42% YoY but +1.8% QoQ to IDR 4.28 trillion with a slightly higher gross profit margin of 16.3% from 15.9% in 4Q2021.
- Profit before tax decreased by -25% YoY but was higher +21.6% QoQ to IDR 2.48 trillion.
- We expect margins will continue to increase with the recovery in sales volume, and we expect HMSP’s sales will grow +8% YoY to reach IDR 107 trillion in 2022F with slightly faster bottom line growth of +5% YoY to give a net profit of IDR 7.5 trillion.
Valuation: TP 1,165 HOLD
- We are targeting HMSP to trade at a 17x 2023F PE within a year. Target Price is IDR 1,165 which represents 10% upside. We maintain our recommendation to HOLD.