Hold, 18% upside

4th November 2022

Price Rp 975

Target price Rp 1150

Investment Consideration

Higher volume, higher market share

• HMSP recorded double-digit growth in 3Q2022 in line with domestic  cigarettes sales volume growth. Domestic cigarettes sales grew by +11.6% YoY in 3Q2022 to 83 billion units. For 9M2022, sales were up by +8% YoY to 235 billion units.
• HMSP also booked higher sales volume in 3Q2022 which reached 23.3 billion units, up by +12% YoY with a higher market share of 28.2%. For 9M2022, sales volume increased +7.9% YoY to 65.6 billion units.
• With higher volumes, HMSP’s sales increased +19.6% YoY or +8.8% QQ to IDR 29.7 trillion.
• HMSP’s hand-rolled white cigarettes (SPT) maintained the fastest growth of +34.7% YoY to IDR 246.4 billion, while the machine-made clove cigarettes (SKM) booked sales of IDR 19.4 trillion, up +18.9% YoY or +5.8% QoQ in 3Q2022.
• Hand-rolled Kretek (SKT) sales grew +26.5% YoY to IDR 7.4 trillion, while Machine-Made White (SPM) cigarettes increased slightly +3.9% to IDR 2.41 trillion.
• In terms of brands, Sampoerna A recorded +6.6% growth with higher sales volume of 29,3 billion units. While Dji San Soe grew +19.9% to 10.4 billion units in 9M2022.
• With higher prices and higher sales volumes, we expect better growth in 2022F in line with a recovery in domestic consumption.

3Q2022 Results: Margins improved

• HMSP recorded a NPM of 5.8% in 3Q2022, an increase from 2Q2022’s 4.1%, from higher volumes and  prices. Net profit increased at a double digit rate to IDR 1.72 trillion, +52.% QoQ or +21.4% YoY.
• In line with higher sales, cost of sales were up by +21% YoY or +7.4% QoQ to IDR 25.3 trillion in 3Q2022, boosted by higher raw material costs (+13% YoY) and excise tax (+16% YoY). Gross profit still booked growth of +12.7% YoY or +18% QoQ to IDR 4.4 trillion with an improvement in the gross profit margin to 14.8% in 3Q2022 from 13.6% in 2Q2022.
• Operating profit also increased +45.2% YoY to IDR 2.08 trillion, resulting in a higher OPM at 7.0% in 3Q2022.
• With higher volumes expected to continue in 4Q2022 as well as higher prices, we expect HMSP’s sales will grow +12% YoY to reach IDR 110.7 trillion in 2022F with a bottom line profit of IDR 6.5 trillion.

Valuation: TP 1,150 HOLD

• We are targeting HMSP to trade at a 18x 2023F PE within a year. Target Price is ID 1,150 which represents 18% upside. We maintain our recommendation to HOLD.