Contact our analyst Eka
BUY, 27% upside
6th January 2023
Price Rp 16,600
Target price Rp 21,200
Investment Consideration
Stable sales
- GGRM sales increased +2.4% YoY or -0.4% QoQ to IDR 32.25 trillion bellow the total domestic cigarette sales growth of +11.6% in 3Q2022. For 9M2022, GGRM booked +2% sales growth to IDR 93.9 trillion.
- GGRM’s export sales decreased -30% YoY or -13% QoQ to IDR 385 billion in 3Q2022, while GGRM’s domestic sales increased +3% YoY but were slightly lower -0.2% QoQ to IDR 31.8 trillion in 3Q2022.
- Despite a higher ASP in 3Q2022, all of GGRM’s types of cigarettes maintained positive growth. Machine-made clove cigarettes sales maintained positive growth of +1.7% YoY to IDR 29.5 trillion, hand-rolled clove cigarettes sales increased at a faster rate of +13% YoY to IDR 2.38 trillion in 3Q2022.
- We expect GGRM will maintain positive sales growth of 4.7% YoY to IDR 137 trillion in 2023F because of higher prices and stable sales volumes.
Excise tax hike
- The government has increased tobacco excise tax again for 2023.
- As the details, the excise tax for SKM groups I and II will increase 11.5% and 11.75% respectively. While SPM excise will increase by 11% and 12%, For SKT tax also rises by 5%. The government also increased the excise tax for electric cigarettes by 15% every year until 2027.
- Amid differences in cigarette excise tax increases, there is a widening gap between cigarette prices for tier 1 (SKM 1) and non-tier 1 producers, resulting in a shift in cigarette consumption to the cheaper brands.
- As of 9M2022, most of GGRM revenue came from more expensive machine-made clove cigarettes (SKM) at 92%. The excise tax hike, will therefore likely have an impact on sales volume if GGRM passes on the tax by raising selling prices.
3Q2022 Results: More pressure from higher excise tax
- After a loss in 2Q2022, GGRM booked a profit in 3Q2022 of IDR 543 billion but still -70% YoY. For 9M2022, GGRM still booked a net profit of IDR 1.49 trillion, but that’s a drop of -64% YoY. This meant higher margins in 3Q2022, with the NPM at 5.8%.
- Operating expenses were lower QoQ from a gain in forex, resulting in an operating profit of IDR 753 billion with a higher OPM of 2.3% in 3Q2022.
- GGRM’s cost of sales was slightly lower quarterly but still higher YoY, resulting in a higher gross profit of +37% QoQ or -34% YoY to IDR 2.55 trillion.
- With more pressure on the bottom line profit from more excise hikes, we revise down our GGRM 2023F bottom line profit target to IDR 2.1 trillion.
Valuation: BUY, TP 21,200
- GGRM’s share price continues to drop pressured by the excise tax hike. However the margin improvement in 3Q2022, shows that GGRM can still grow. We are targeting GGRM to trade at a 19X PE within a year. Target Price is IDR 21,200 which represents 27% upside. We upgrade our recommendation to BUY.