HM Sampoerna (HMSP IJ)

HM Sampoerna

15 August 2018

(HMSP IJ)

Re-initiate coverage

BUY
Gaining ground in SKM

Stock Data
Target price (Rp)

Rp3,950

Prior TP (Rp)
Shareprice (Rp)

SKM-LT faces increasing troubles from public smoking ban and vaping


Rp3,510

Upside/downside (%)

Capitalizing HMSP’s flagship brand to capture bigger customer base

+12.5

Sharesoutstanding (m)

111

Marketcap. (US$ m)

Re-initiate at BUY with TP of Rp3,950 (based on target P/E of 32.5x)

27

Free float (%)


7.5

Avg. 6m dailyT/O (US$ m)

5.8

Minimal sign of recovery. Industry volume was in negative growth territory since
1H16, albeit moderating, declining only by 1.5% yoy in 1H18 (vs. -6.7% in 1H17).
Volume declined by 0.7% in 2Q18 (vs. 1Q18: -2.4%; 2Q17: -9.4%), signaling minor
improvement in cigarette consumption. Industry volume is expected to pick-up in 2H18
by 10% from 144.5bn in 1H18, mimicking general trend from last year (2H17: +9.5%),
as manufacturers are pilling-up inventories for year-end to avoid possibility of higher
excise in fiscal budget 2019 which to be announced next month, with expectation for
10% hikes in excise for 2019F (vs. 2018: 10.0%; 2017:10.5%; 2016: 14.2%).

Price Performance
3M

6M


12M

Absolute (%)

-2.0

-27.6

-2.2

Relative to JCI (%)

-1.7

-15.2

-0.7

52w high/low (Rp)


SKM-LT volume growth slumped. We still expect industry volume to drop further, by
-1.5% FY18F (vs-0.9% FY17), due to further volume decline in the hand-rolled
category (SKT) (1H18: -5.1%; 1H17: -8.3%) as consumers continue to shift towards
machine made kretek (SKM) cigarette products. SKT vs SKM composition stood at
17%: 78% in 1H18 (vs. 18%: 76% in 2016). Furthermore, within the SKM category,
SKM-Low Tar (LT) category had recorded negative volume growth since last year
(1H18: -7.4%; 1H17: -6.9%), contradicting trend of rising youth smokers. SKM-LT’s
share dropped to 40.1% of market in 1H18 (vs. 42.6% in 1H17). The decline might be
due to the impact of public smoking ban that restrict people from smoking in social
environments and rising popularity of vaping, particularly in the urban areas.

5,500 - 3,280

170
160
150
140
130
120
110


HMSP-Rebase

Jul-18

JCI Index-Rebase

Major Shareholders
Phillips Morris Indonesia

92.5%

Public

7.5%

Estimate Change; Vs. Consensus
2018F

2019F


Latest EPS (Rp)

115

121

Vs. Prior EPS (%)

N/A

N/A

Vs. Consensus (%)

-2.1

-3.6

Source: Bloomberg


Putri Tobing, CFA
PT Indo Premier Sekuritas
[email protected]
+62 21 5793 1168

Aug-18

Jun-18

Jun-18

Apr-18

May-18

Apr-18

Mar-18


Jan-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-17

Sep-17

90

Nov-17


100
Aug-17

Equity | Indonesia | Tobacco

Industry vol. might stay low as 1H18’s result was not too impressive

n.a

Aiming for bigger share. HMSP managed to book better-than-industry-performance,
recording +0.9% volume growth in 2Q18 (vs. 1Q18:-1.7%; 2Q17: -13.3%), bringing
1H18 volume to 48mn sticks, or -0.4% yoy (vs 1H17: -10.3%). Sales improved by
8.4% in 2Q18 (vs 2.5% in 1Q18; 2Q17: -5.5%), which indicated HMSP’s strong pricing
power to keep positive sales growth trends. HMSP’s market share increased to 33.2%
in 1H18 from 32.9% last year, in-line with improvement in market share of Dji Sam
Soe (DJJ). DJJ is HMSP’s flagship in the SKT category, only last year HMSP launched
DJJ Magnum Mild 16s variant under its SKM category. While, it is our view that HMSP’s
position might not too favorable compare to GGRM, due to HMSP’s lower exposure to
SKM-FF category (HMSP: 40% vs GGRM: 60%), we view HMSP’s strategy to use DJJ in
the SKM category as a positive catalyst. We expect HMSP’s position in the SKM to

improve, as HSMP has larger products portfolio, complementing its two pioneer’s
brands, Sampoerna A (SKM-FF) and Sampoerna U (SKM-LT), while at the same time
creating mid-price-SKM-product to capture bigger customer based.
Valuations. We re-initiate coverage with BUY rating and TP of Rp 3,950, which is
based on our target P/E of 32.5x, in-line with HMSP’s 5 years average. We expect sales
growth of 4.3%/5.3% FY18F/FY19F (vs. CAGR 7.1% over FY14-FY17) and GPM of
c.24% (vs. 25% over FY15-FY17), assuming 9% average increase in excise for FY19F
in our model. We expect HMSP’s EBIT margin to remain at c.16%, in-line with HMSP’s 3
years average, as we expect company to maintain its selling expense stable, as evident
in OPEX-to-sales ratio that continued to decline to 7.9% in 1H18 (vs 8.3% over FY15FY17). HMSP’s share price has underperformed the overall market index due to
industry weak sales growth. Today, stock traded at 1.5-SD below HMSP’s trading
average. Thus, any positive news could trigger share price acceleration, in our view.
Year To 31 Dec
Revenue (RpBn)
EBITDA (RpBn)
EBITDA Growth (%)
Net Profit (RpBn)
EPS (Rp)
EPS Growth (%)
Net Gearing (%)

PER (x)
PBV (x)
Dividend Yield (%)
EV/EBITDA (x)
Source : HMSP, IndoPremier

Refer to Important disclosures in the last page of this report

2016A
95,467
16,745
13.9
12,762
115
23.1
(14.5)
30.6
11.4
2.6
23.6

2017A
99,091
16,977
1.4
12,670
114
(0.7)
(21.7)
30.9
11.5
3.2
23.5

2018F
103,580
17,199
1.3
12,836
115
1.3
(17.0)
30.5
11.6
3.2
23.1

2019F
109,088
18,112
5.3
13,471
121
4.9
(15.9)
29.0
11.3
3.3
21.9

2020F
115,016
19,421
7.2
14,403
129
6.9
(15.6)
27.1
11.0
3.4
20.4

Share Price Closing as of : 14-August-2018

HMSP IJ Re-Initiate Coverage
Fig. 1: Indonesia’s cigarette production

Source: Indo Premier

Fig. 3: Industry segmentation (%)

Source: Indo Premier

Fig. 5: HMSP’s market share

Source: Indo Premier

Refer to Important disclosures in the last page of this report

Fig. 2: Industry breakdown (%) as of 2Q18

Source: Indo Premier

Fig. 4: SKM breakdown (%)

Source: Indo Premier

Fig. 6: HMSP’s market share in each segment

Source: Indo Premier

2

HMSP IJ Re-Initiate Coverage
Fig. 7: HMSP’s sales breakdown as of 1H18

Source: Indo Premier

Fig. 9: HMSP’s quarterly volume trends

Source: Indo Premier

Fig. 11:

Our sales and sales growth forecast

Source: Indo Premier

Refer to Important disclosures in the last page of this report

Fig. 8: GGRM’s sales breakdown as of 1Q18

Source: Indo Premier

Fig. 10: HMSP’s quarterly sales trends

Source: Indo Premier

Fig. 12:

Our gross margin forecast

Source: Indo Premier

3

HMSP IJ Re-Initiate Coverage
Fig. 13:

HMSP’s cost structure as of 1H18

Source: Indo Premier

Fig. 15:

HMSP’s quarterly EBIT and EBIT margin trends

Source: Indo Premier

Fig. 17:

Our EBIT and EBIT margin forecast

Source: Indo Premier

Refer to Important disclosures in the last page of this report

Fig. 14:

HMSP’s excise expense trends

Source: Indo Premier

Fig. 16: OPEX growth trends

Source: Indo Premier

Fig. 18: :

Our Earnings forecast

Source: Indo Premier

4

HMSP IJ Re-Initiate Coverage
Year To 31 Dec (RpBn)

2016A

2017A

2018F

2019F

2020F

Income Statement
Net Revenue

95,467

99,091

103,580

109,088

115,016

Cost of Sales

(71,612)

(74,875)

(79,296)

(83,149)

(87,107)

Gross Profit

23,855

24,216

24,284

25,939

27,909

SG&A Expenses

(7,834)

(8,104)

(7,935)

(8,744)

(9,472)

Operating Profit

16,020

16,112

16,349

17,195

18,438

832

791

775

775

775

Net Interest
Forex Gain (Loss)
Others-Net

0

0

0

0

0

159

(9)

(9)

(9)

(9)

Pre-Tax Income

17,011

16,894

17,115

17,961

19,204

Income Tax

(4,249)

(4,224)

(4,279)

(4,490)

(4,801)

0

0

0

0

0

12,762

12,670

12,836

13,471

14,403

Cash & Equivalent

5,056

7,501

5,868

5,598

5,654

Receivable

4,996

3,781

4,503

4,743

5,001

19,442

18,023

19,824

20,787

21,777

Minorities
Net Income
Balance Sheet

Inventory
Other Current Assets
Total Current Assets
Fixed Assets - Net
Goodwill
Non Current Assets
Total Assets

4,153

4,875

3,462

3,568

3,681

33,647

34,180

33,657

34,696

36,113

6,895

6,891

6,991

7,024

6,991

60

60

60

60

60

1,843

1,947

1,947

1,947

1,947

42,508

43,141

42,718

43,790

45,174

0

0

0

0

0

Payable

3,871

3,666

0

4,157

4,355

Other Payables

2,537

2,787

2,390

2,506

2,625

ST Loans

21

29

29

29

29

6,428

6,482

6,384

6,692

7,009

66

81

81

81

81

1,839

2,465

2,465

2,465

2,465

8,333

9,027

8,929

9,238

9,555

Equity

21,549

21,531

20,914

20,914

20,914

Retained Earnings

12,626

12,582

12,875

13,638

14,705

0

0

0

0

0

34,175

34,113

33,789

34,552

35,619

42,508

43,140

42,718

43,790

45,174

Current Portion of LT Loans
Total Current Liab.
Long Term Loans
Other LT Liab.
Total Liabilities

Minority Interest
Total SHE + Minority Int.
Total Liabilities & Equity
Source : HMSP,IndoPremier

Refer to Important disclosures in the last page of this report

5

HMSP IJ Re-Initiate Coverage
Year to 31 Dec

2016A

2017A

2018F

2019F

2020F

12,762

12,670

12,836

13,471

14,403

Depr. & Amortization

595

598

850

917

983

Changes in Working Capital

126

624

(821)

(1,105)

(1,152)

Cash Flow
Net Income (Excl.Extraordinary&Min.Int)

Others
Cash Flow From Operating
Capital Expenditure
Others
Cash Flow From Investing

(3,443)

1,144

559

(1,164)

(669)

10,040

15,036

13,425

12,119

13,564

(1,252)

(698)

(950)

(950)

(950)

854

815

800

800

800

(398)

117

(150)

(150)

(150)
0

Loans

(608)

23

1

0

Equity

(19)

(18)

0

0

0

10,352

12,527

12,543

12,708

13,336

Dividends

361

600

(642)

(25)

(25)

10,087

13,132

11,902

12,683

13,311

19,728

28,285

25,177

24,652

26,725

Gross Margin (%)

25.0

24.4

23.4

23.8

24.3

Operating Margin (%)

16.8

16.3

15.8

15.8

16.0

Pre-Tax Margin (%)

17.8

17.0

16.5

16.5

16.7

Net Margin (%)

13.4

12.8

12.4

12.3

12.5

ROA (%)

31.7

29.6

29.9

31.1

32.4

ROE (%)

38.6

37.1

37.8

39.4

41.1

ROIC (%)

40.6

39.4

40.0

41.6

43.2

Acct. Receivables TO (days)

Others
Cash Flow From Financing
Changes in Cash
Financial Ratios

18.6

16.2

14.6

15.5

15.5

Acct. Receivables - Other TO (days)

0.0

0.0

0.0

0.0

0.0

Inventory TO (days)

3.7

4.0

4.2

4.1

4.1

18.0

18.4

17.6

17.8

17.8

Acct. Payables - Other TO (days)

0.0

0.0

0.0

0.0

0.0

Debt to Equity (%)

0.3

0.3

0.3

0.3

0.3

Interest Coverage Ratio (x)

0.0

0.0

0.0

0.0

0.0

(14.5)

(21.7)

(17.0)

(15.9)

(15.6)

Payable TO (days)

Net Gearing (%)
Source : HMSP,IndoPremier

Refer to Important disclosures in the last page of this report

6

Head Office
PT INDO PREMIER SEKURITAS
Wisma GKBI 7/F Suite 718
Jl. Jend. Sudirman No.28
Jakarta 10210 - Indonesia
p +62.21.5793.1168
f +62.21.5793.1167

INVESTMENT RATINGS
BUY
: Expected total return of 10% or more within a 12-month period
HOLD
: Expected total return between -10% and 10% within a 12-month period
SELL
: Expected total return of -10% or worse within a 12-month period
ANALYSTS CERTIFICATION.
The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the
research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
DISCLAIMERS
This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any
responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for
general circulation. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the
particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or
sell any securities. PT. Indo Premier Sekuritas or its affiliates may seek or will seek investment banking or other business relationships with the companies in this
report.