Contact our analyst Eka
BUY, 40% upside
16th October 2023
Price Rp 25,025
Target price Rp 35,000
Investment Consideration
Lower sales, higher ASP
- In 1H2023, Indonesia’s cigarette sales volume decreased by -4.7% to 72 billion units due to higher cigarette prices following the excise hike in early 2023.
- GGRM also reported lower sales volume amid the decline in domestic cigarette sales. As a result, revenue decreased to IDR 55.85 trillion in 1H2023, a decline of -9.4%. For 2Q2023, sales also decreased by -19.3% YoY to IDR 26.1 trillion. Machine-made clove cigarette sales decreased by -20.5% YoY to IDR 23.7 trillion, while hand-rolled clove cigarette sales slightly increased by +1.5% YoY to IDR 2.16 trillion in 2Q2023.
- GGRM’s export sales decreased by -0.8% YoY but increased by +12.6% QoQ to IDR 437.6 billion in 2Q2023, while GGRM’s domestic sales decreased by a larger -19.6% YoY or -12.5% QoQ to IDR 25.68 trillion in 2Q2023.
- As cigarette consumption in 1H2023 remained weak due to higher cigarette prices and the fasting month, we expect an improvement in demand in 2H2023. The political year is also expected to boost election spending and consumer spending. We anticipate that GGRM will maintain positive sales growth of +3.75% YoY, reaching IDR 129 trillion in 2023F.
2Q2023 Results: Better YoY performance
- Despite lower sales, GGRM achieved a higher margin after a price hike earlier this year.
- GGRM reported a net profit of IDR 1.32 trillion, a significant improvement from a loss of IDR 122 billion in 2Q2022. For 1H2023, the net profit significantly increased by +244% YoY to IDR 3.28 trillion, with the net profit margin improving to 5.9% from 1.5% last year.
- Due to lower sales volume, GGRM’s cost of sales also decreased by -26% YoY or -11% QoQ to IDR 22.54 trillion, including lower excise tax expenses, which fell by -39% YoY, resulting in a higher gross profit of +92% YoY, reaching IDR 3.57 trillion.
- Operating expenses remained stable with higher transportation, freight, advertising, and promotion expenses by +9.7% YoY, which resulted in an operating profit of IDR 1.87 trillion after an operating loss of IDR 72 billion in 2Q2022.
- With a better bottom line profit in 1H2023 and improved margins, we are targeting GGRM’s profit to reach IDR 3.2 trillion in 2023FY.
Valuation: BUY, TP 35,000
- We maintain our recommendation to BUY. We are targeting GGRM to trade at an 11X PE within a year, with a Target Price of IDR 35,000, representing 40% potential upside.