Report Date and Broker Information
Date: October 30, 2024
Broker: PT Maybank Sekuritas Indonesia

Investment Recommendation

• Rating: Maintain BUY
• Target Price (TP): Revised to IDR850 (from IDR1,050), offering a potential upside of 30% over the next 12 months.
• Current Share Price: IDR700

Company Overview
HM Sampoerna (HMSP IJ) is one of Indonesia’s leading cigarette manufacturers, known for its premium brand positioning and strong market share in the consumer staples sector. The company operates in the machine-rolled (SKM), hand-rolled (SKT), and white cigarette (SPM) categories, with a presence in both domestic and export markets.

Financial Performance Highlights

• Revenue: 3Q24 revenue grew to IDR30.6 trillion (+7% QoQ, -2% YoY), driven by a 4% increase in sales volume.
• Profit Margin: Net profit margin improved to 6.2% in 3Q24 from 3.7% in 2Q24, supported by a decrease in operational expenses.
• 9M24 Earnings: IDR5.2 trillion, a 16% YoY decline, meeting only 68% of the FY24 forecast due to weak consumer purchasing power.
• Dividend: A high payout ratio of 100% is projected, with a FY24 yield expected at 9%.

Market Position and Challenges

• Market Share: HMSP holds a stable market share of 27.6% as of 9M24, despite increased competition from tier-II and III cigarette manufacturers.
• Competitive Landscape: Rising competition in Indonesia, particularly in Jakarta’s General Trade (GT) market, is exerting pressure on HMSP as more low-cost brands enter the market.
• Downtrading Trend: Consumers are opting for more affordable cigarette brands, impacting HMSP’s premium product sales volume.

Segment Performance

• Machine-Rolled Cigarettes (SKM): This category is HMSP’s largest revenue driver, though it faces increased price sensitivity from consumers.
• Hand-Rolled Cigarettes (SKT): Benefiting from downtrading trends, SKT enjoys a 12% lower excise tax, aiding its appeal amidst cost-conscious consumers.
• Export Growth: Exports increased by 64% QoQ, driven by sales of IQOS HEETS to APAC markets, although regulatory and distribution risks remain.

Financial Forecasts

• Revenue Forecasts: Projected revenue is expected to reach IDR116.9 trillion in FY24, marginally up from FY23.
• Earnings CAGR: FY23-26E earnings CAGR forecasted at 6%, an improvement from a -22% CAGR in FY19-22.
• Adjusted Sales Volume: Anticipated lower sales volumes of 80 billion sticks per annum for FY24-26E due to weak purchasing power.

Key Financial Ratios

• EBIT Margin: Expected to reach 9.2% in FY25, a marked improvement due to operational efficiency.
• Dividend Yield: Strong yield projected at 11.8% for FY26, with a consistent 100% dividend payout.
• ROAA: Return on average assets projected to improve from 12.5% in FY24 to 15.9% in FY26.

ESG and Sustainability Initiatives

• Environmental Goals: HMSP is working towards carbon neutrality in production facilities by 2025 and implementing water conservation measures in all plants.
• Social Impact: Targeting the elimination of child labor in the tobacco supply chain by 2025 and increasing female representation, currently at 65% of its workforce.
• Corporate Governance: A strong governance framework ensures decision-making alignment with shareholder interests, with a balanced representation in board meetings.

Risks and Considerations

• Competitive Pressures: Increased market competition from lower-cost brands may continue to impact sales volume and pricing.
• Regulatory Environment: Ongoing excise tax increases pose potential challenges to profit margins and consumer affordability.
• Health Awareness: Rising health consciousness among consumers could reduce cigarette consumption, potentially impacting HMSP’s long-term growth.

This comprehensive breakdown provides insight into HM Sampoerna’s position, financial performance, and forward outlook based on the October 30, 2024 report by PT Maybank Sekuritas Indonesia.