Contact our analyst Eka
BUY, 22% upside
11th April 2022
Price Rp 30,800
Target price Rp 37,600
Investment Consideration
Fastest quarterly growth
- GGRM 4Q2021 sales growth was faster than other quarters in 2021 from a higher ASP and a recovery in sales volume as the industry enjoyed faster growth from domestic economic improvement.
- GGRM booked sales of IDR 32.8 trillion which is +5% YoY, +4% QoQ. Total domestic sales increased +6% YoY to IDR 32.4 trillion while export sales decreased -24% YoY to IDR 388.6 billion. For 2021 GGRM booked sales of IDR 124 trillion, an increase of 9% YoY. Export sales decreased -5.8% YoY to IDR 1.79 trillion. The domestic market continues to recover with sales up +9.34% YoY to IDR 123 trillion in 2021.
- Machine-made clove cigarettes sales increased +4.8% YoY to IDR 29.9 trillion, while hand-rolled clove cigarettes sales increased +2.7% to IDR 2.2 trillion after a decrease in 2Q2021 and 3Q2021.
- The easing of PPKM restrictions is having a positive impact on higher sales volume and we expect 2022F sales will grow 9.5% YoY to IDR 136.8 trillion.
4Q2021 Results: Lower margins
- GGRM net profit decreased by -26% YoY and -19% QoQ to IDR 766 billion with a margin decline in 4Q2021. GGRM NPM declined to 4.5% from 5.8% in 3Q2021.
- For 2021FY, net profit decreased by -26.7% YoY to IDR 5.6 trillion.
- Operating expenses increased +20% QoQ to IDR 1.83 trillion, resulting in a decrease in operating profit by -15% YoY or -13% QoQ to IDR 2.04 trillion in line with a lower operating profit margin, of 6.2% from 7.4%. GGRM’s cost of sales increased +8% YoY or +5% QoQ to IDR 28.9 trillion in 4Q2021. This resulted in a lower gross profit -12% YoY to IDR 3.87 trillion, inline with a lower gross profit margin of 11.8% from 12.2%. In 3Q2021.
- Despite the recovery in domestic sales volume, negative sentiment still weighs on the cigarette sector as the government has increased excise tax again in January 2022. After these results, we expect GGRM’s margin to contract for their resulting in a net profit of IDR 3.2 trillion.
Valuation: Maintain BUY, but lower TP 37.600
- We are targeting GGRM to trade at a 10.5x PE within a year. Target Price is IDR 37.600 which represents 22% upside. We maintain our recommendation to BUY.