2017F 2018F 2017F 2018F 2018F

Transcription

1 Equity Research Cigarette Monday,29 January 2018 NEUTRAL HMSP relative to JCI Index xxxx GGRM relative to JCI Index xxxx Cigarette Price hikes bode well for higher earnings Based on our survey conducted in minimarkets, the best value-for-money cigarettes experienced strong price increases yoy in January, while the prices of the major cigarette brands were only hiked moderately. All in all, we are confident that higher expected ASP combined with solid sales volume will sustain earnings growth this year. Maintain Neutral. HMSP: Higher yoy selling prices growth in DSS, Marlboro & U Mild. In January 2018, the retail selling prices of Marlboro continued to trend higher (around +2% mom and % yoy) based on our survey conducted in and. The retail selling price of Magnum Mild 16 - which was launched in May 2017 was also up in both minimarkets (+4% to 7% mom). We believe that these significant price adjustments were done to meet the requirement that the retail selling price is at least 85% of the banderole and in order to gradually pass on the higher expected excise tax increase this year. Based on our survey, of HMSP s four major products, the selling prices of Dji Sam Soe (12s), Marlboro Red (20s) and U Mild (16s) rose by 10-11% yoy based on the data collected from. We also note that HMSP launched a new product Platinum A (16s) - with a selling price of IDR22,000/pack. This product is only sold at stores. GGRM: 5-6% yoy price increases for major products. Based on our survey, there were no monthly prices in for 9 GGRM s products. However, in, the selling prices increased by % mom (+4.8% to 16.9% yoy). The price of GG Surya Promild - which was still offered below IDR1,000/stick -was raised the most. By contrast, the selling prices of the major SKM FF brands - GG International & Surya were only increased by 5-6% yoy. From our observations, we note that GGRM did not launch any new products in Source : Bloomberg x Natalia Sutanto (62-21) ext.3508 natalia.sutanto@danareksa.com Competitor products: Aggressive selling price hikes yoy for several products. Djarum has launched new products: Forte Menthol and Forte Original - 20s (SPM - Retail selling price of IDR15,000) and Chief -12s (SKM FF IDR10,000). On a yearly basis, the selling prices of Djarum Super mild MLD (20s) rose the most (+10.7% yoy), while the selling prices of the remaining products in our survey only increased by 4-6% yoy. For Bentoel (RMBA), the selling prices of three products under the brand of Dunhill were increased significantly by 13-19% yoy. By comparison, Lucky Strike Red (20s) - one of Marlboro s main competitors lowered its selling prices by 8% yoy, bringing its price to IDR933/stick (a 27% discount to Marlboro Red s selling price of IDR1,280/stick). Maintain Neutral. Based on our sensitivity analysis, any 1% ASP increase from our ASP assumption will lead to 7.3% higher earnings for GGRM and 3.5% for HMSP in All in all, we are confident that higher expected ASP combined with solid sales volume will sustain earnings growth this year. So far this year, however, HMSP and GGRM have increased by 11% and 1.8% ytd, respectively. This prompts us to maintain our Neutral stance on the sector. Target Price Market Cap. P/E (x) P/BV (x) ROE (%) Company Ticker Rec (Rp) (RpBn) 2017F 2018F 2017F 2018F 2018F HM Sampoerna HMSP IJ HOLD 4, , Gudang Garam GGRM IJ HOLD 83, ,

2 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov sector earnings growth of 10% yoy We are optimistic on the prospect for both HMSP and GGRM. For 2018, we estimate the company to book positive sales volume ranging from 1-2%. Combined with higher ASP ranging from 9-10% in 2018 (2017: 8-9% yoy),we estimate 2018 sector earnings growth of 10.1% yoy (2017: +5.9% yoy) We continue to like HMSP given its strong product portfolio, tapping the low to high segments. New product launches over the past 2 years have created a success story and allowed the company to gain sizeable market share amidst declining industry sales volume. For GGRM, the company s success in maintaining its positive sales volume growth should pave the way for better performance in the coming years. However, the uncertainty on the airport project poses downside risk given the possibility of higher debt and lower free cash flow for the financing. At current price, both HMSP and GGRM are already trading above its +1SD of average 2-year PE. Therefore, we maintain our Neutral stance on the sector. Exhibit 1. HMSP PE Band Exhibit 2. GGRM PE Band P/E Average 2 year Std. Dev. +1 Std. Dev. -1 Std. Dev. +2 Std. Dev. -2 Source: Danareksa Sekuritas Source: BPS, Danareksa Sekuritas P/E Average 2-year Std. Dev. +1 Std. Dev. -1 Std. Dev. +2 Std. Dev. -2 Exhibit 3. GGRM s products GGRM GG Merah 12 13, % 9.2% na na na GG International 12s 17, % 4.8% 17, % 1,433 GG Surya 16s 22, % 5.7% 21, % 1,372 GG Surya Promild 16s 15, % 16.9% 15, % 969 GG Mild 16 sticks 16, % 8.6% 16, % 1,022 Other products - GGRM GG Mild Shiver 16s 16, % Na 16, % 1,022 Gudang garam surya 12s 15, % Na 16,000 Na 1,313 GG Surya Exclusive 16s 24, % Na 24, % 1,525 GG Signature Mild Blue 16s 15, % Na 16, % 969 Source: Danareksa, and

3 Exhibit 4. HMSP s products HMSP A Mild 16s 22, % 7.3% 21, % 1,359 Dji Sam Soe 12s 16, % 10.7% 16, % 1,367 Marlboro red 20s 25, % 11.4% 25, % 1,280 U Mild 16s 17, % 10.1% 17, % 1,100 Other products - HMSP A Mild merah 12 15, % 14.2% 15, % 1,271 A Mild menthol 16 22, % 7.8% 21, % 1,359 Dji Sam Soe Magnum Filter 12s 17, % 6.9% 16, % 1,413 Dji Sam Soe Super Premium 12 19, % na 18, % 1,588 Sampoerna Kretek 12s 12, % -4.8% 11, % 996 U Bold 12s 12, % na 12, % 1,038 Marlboro Filter Black 20s 21, % na 21, % 1,065 Marlboro black menthol 20 25, % 12.2% 25, % 1,288 Marlboro ice blast 20 26, % 12.6% 26, % 1,335 Marlboro menthol lights 20 25, % 12.2% 25, % 1,288 Marlboro lights 20 (gold light) 25, % 15.2% 25, % 1,288 New products launched in 2017 Dji Sam Soe Magnum Mild 16 15, % na 14, % 941 sampoerna platinum A -16 na na na 22,000 na 1,375 Source: Danareksa, and Exhibit 5. Competitors products Competitor products DJARUM Djarum black 16 (filter) 19, % 4.8% 19, % 1,228 Djarum black mild 16 17, % 4.7% 17, % 1,097 Djarum LA Light 16 19, % 4.2% 19, % 1,222 Djarum LA menthol light 16 19, % 5.3% 19, % 1,228 Djarum super 12 17, % 4.8% 17, % 1,450 Djarum super 16 21, % 3.4% 21, % 1,341 Djarum super mild 20 MLD 20, % 10.7% 19, % 1,015 Djarum LA Ice 16 19, % 4.2% 19, % 1,222 BENTOEL Lucky strike merah 20 18, % -8.0% 18, % 933 Dunhill fine cut mild 20 21, % 4.9% 21, % 1,083 Dunhill fine cut mild 16 17, % 13.3% 17, % 1,084 Dunhill fine cut filter 20 26, % 18.7% na na 1,300 Dunhill find cut inl menthol 20 26, % 17.1% na na 1,300 Lucky strike mild 16 15, % na 15, % 972 Lucky strike mild 12 12, % na na na 1,042 Lucky strike bold 12 11, % na 11, % 925 Source: Danareksa, and 3

4 Exhibit 6: New products launched in October to December 2017 Source: Danareksa, Various sources 4

5 5