Analisa Saham HMSP | 12 November 2018

Strong 3Q18 earnings, 9M18 results in-line with our expectation

HMSP recorded revenue growth of 9.1% QoQ in 3Q18 supported by higher volume and

ASPs for its entire cigarette segments. Coupled with better profitability, this brought 3Q18

net income up by 16.1% QoQ at Rp3.57 tn. The company raised ASP in 3Q18 by around 2- 3% to balance off the excise tax hike and raw material prices. Meanwhile, HMSP net

profit was 3.8% YoY higher, reaching Rp9.69 tn, in-line with our expectations (73.3% of our

FY18F). HMSP booked 9M18 revenue growth of 7.2% YoY to Rp77.53 tn, which came at

73% of our FY18F and consensus. As COGS and Opex increased at a faster rate of 8.3%

and 7.9% YoY, these resulted gross and operating profit slightly increased by 4.1% and

2.2% YoY at Rp18.3 tn and Rp12.1tn, respectively. GPM and OPM contracted by 70-80bps to

23.6% and 15.6% in 9M18, respectively. The main revenue contributor, machine-made

cigarettes experienced double digit sales growth of 12.5% YoY. While, hand rolled

cigarettes booked 3.3%YoY sales growth. Meanwhile, export segment and white cigarettes

suffers double-digit decline by -22.9% YoY and -13.5% YoY.

SKM booked solid performance

HMSP sales volume strengthened by +6.2% QoQ to 26.5 bn sticks in 3Q18 after recorded

+8.6% QoQ volume growths in 2Q18. However, HMSP’s market share dropped slightly by - 0.1%YoY or -0.2% QoQ but to around 33%, due to the lower market share on SKM (23.4% in

3Q18 from 23.9% in 2Q18). We noticed, Sampoerna A and U Mild reported volume

decreased in 3Q18 due to the continuous rising of prices (2%-2.5%). On the other hand,

Marlboro Filter Black 20s and Dji Sam Soe Magnum Mild 16s constantly record a growing

volume. Stronger demand also enables HMSP to increase Magnum Mild price by 1.5% in

3Q18 after 5% hike in Q2; and another 3.7% QoQ for Marlboro Filter Black after similar

rate increased in Q2. Hence, we expect SKM division will be able to deliver better

performance in 2018F by +9.1% and +8.3% sales growth in 2019F despite the slowing

performance in Sampoerna A and U Mild.

SKT unexpectedly recorded significant sales growth

In 3Q18, SKT reported significant improvement in revenue by 3.3%YoY and 14.8% QoQ,

compared to flattish performance in last 1H18. Further, in 3Q18 backed by the strong

volume growth (+11%QoQ) to 5.2bn sticks; HMSP was able to increase the Sampoerna

Kretek 12s ASP by 0.5% vs 0.2% price increased in 2Q18. Phillip Morris Indonesia (PMI)

data shows stronger volume and ASP has broadly offset the higher production costs on

weaker Rupiah, higher tax and marketing expense.

Upgrade to BUY rating with higher TP of Rp4,500/share

As we rollover our valuation to 2019F, our DCF based TP increased to Rp 4,500/share

from the previous Rp 4,300. We expect HMSP is still able to raise its ASP and generate

higher net income going forward on stronger demand supported by election sentiment

next year. We upgrade our Hold rating to BUY for HMSP, since our new TP offers 15%

upside potential. HMSP currently trades at 2018-19F PER of 33.5-31.7x.

Stella Amelinda

+62 21 2557 4800 ext. 740

amelindastella@ciptadana.com