Contact our analyst Eka
Hold, 11% upside
6th July 2022
Price Rp 31,750
Target price Rp 35,240
Investment Consideration
Sales decline while peers rise
- As of 1Q2022, GGRM sales decreased slightly -1.5% YoY or -10.7% QoQ to IDR 29.29 trillion while peers like HMSP and WIIM had growth of +11% +32% YoY respectively. The total domestic cigarette market sales volume also increased 5.8% YoY to 75.1 billion sticks.
- GGRM’s export sales decreased -20.8% YoY or -10.7% QoQ to IDR 346.9 billion. GGRM’s domestic sales also declined -1.2% YoY or -10.7% YoY to IDR 28.94 billion in 1Q2022.
- Machine-made clove cigarettes sales decreased -1.7% YoY or -10.9% QoQ to IDR 26.7 trillion, while hand-rolled clove cigarettes sales also decreased -6.3% YoY or -8.3% QoQ to IDR 2.05 trillion in 1Q2022.
- With Ramadan season in 2Q2022 we expect slower growth compared to other quarters. But for 2022F, we expect GGRM sales will have positive growth of 9.5% YoY to IDR 136.8 trillion.
Lower margins
- GGRM net profit decreased by -38% YoY and -27% QoQ to IDR 1.07 trillion.
- The margins continued to decline in 1Q2022, with the NPM falling to 3.7% from 4.5% in 4Q2021.
- Operating expenses continue to increased +9% YoY to IDR 1.8 trillion, resulting in a decrease in operating profit by -35% YoY or -28% QoQ to IDR 1.46 trillion in line with a lower operating profit margin, of 5.0% from 6.2%.
- GGRM’s cost of sales increased +1% YoY but was lower compared to the 4Q2021 by -10% QoQ to IDR 26.01 trillion in 1Q2022. This resulted in a decline in gross profit of -16% YoY to IDR 3.27 trillion, inline with a lower gross profit margin of 11.2% from 11.8% in 4Q2021.
- Despite the margin contraction, we expect GGRM’s bottom line will reach IDR 5.76 trillion this full year.
- In 30 June 2022, GGRM declared a dividend for fiscal year 2021, with a total value of IDR 4.32 trillion or IDR 2,250 per share, which is a yield of 7%.
Valuation: HOLD, TP 35,240
- We are targeting GGRM to trade at a 10.57X PE within a year. Target Price is IDR 35,240 which represents 11% upside. We downgrade our recommendation to hold.