Company Overview

HM Sampoerna (HMSP) is one of Indonesia’s leading cigarette manufacturers, known for its production, marketing, and distribution of various cigarette products. The company has a significant market presence with a share of 27.6% in the Indonesian cigarette market as of 9M24.

Broker Information

• Broker Name: PT Maybank Sekuritas Indonesia
• Date of Report: October 30, 2024

Financial Performance

• 3Q24 Earnings: HMSP reported earnings of IDR 5.2 trillion, representing a 16% year-over-year decline, which was below both MIBG and consensus estimates. The earnings constituted only 25% of the FY24 forecasts.
• Revenue: In 3Q24, the company achieved a revenue of IDR 30.6 trillion, showing a 7% quarter-over-quarter increase but a 2% decline year-over-year.
• Profit Margin: HMSP’s net profit margin improved to 6.2% in 3Q24, up from 3.7% in 2Q24.

Market Challenges

• Weak Purchasing Power: The decline in earnings was primarily attributed to weak purchasing power among consumers, leading to down-trading behavior.
• Increased Competition: The company faces stiff competition from tier-II and tier-III cigarette manufacturers, which are gaining market share through aggressive marketing strategies.

Future Outlook

• Earnings Forecast: The broker maintains a BUY recommendation with a target price (TP) of IDR 850, adjusted from IDR 1,050, reflecting a decrease in earnings projections for FY24/25/26.
• Volume and Pricing: The forecasted sales volume for the upcoming years is expected to decline, with projected average selling prices (ASP) increasing to IDR 1,346 in FY24.
• Dividend Policy: HMSP is projected to maintain a high dividend payout ratio of 100%, offering an estimated yield of 9% for FY24.

Value Proposition

• Product Offering: HMSP has been shifting its focus from premium products to a wider variety, including hand-rolled cigarettes, which benefit from lower excise taxes.
• Branding and Market Strategy: The company aims to enhance its brand presence and product offerings to mitigate challenges posed by economic factors and competition.

Key Financial Metrics

• Market Capitalization: IDR 81.4 trillion (approximately USD 5.2 billion)
• Issued Shares: 116,318 million
• Core EPS (IDR): 61 for FY24E, with an expected growth trajectory.

Conclusion

HM Sampoerna (HMSP) is navigating through a challenging market landscape, adapting its strategies to maintain its position as a leading cigarette manufacturer in Indonesia while facing external pressures. The company’s focus on high dividend payouts and branding initiatives is aimed at sustaining investor confidence amid fluctuating consumer behavior and competitive dynamics.