De-Stressing as Higher Profitability Given Margins Improved
Key Takeaways :
▪️ GGRM’s revenue in 1Q23 was relatively flat (+1.5% YoY) at IDR29.7tn, or slightly below consensus/ours estimates, achieving 22.5%/22.8% of FY23E target. Net profit came at IDR2.0tn, or soared +82.3% YoY, which exceeded consensus/ours estimates, implying 43.0%/31.1% of FY23E target.
▪️ We noticed Gudang Garam International’12 was a preferred brand, and has experienced a YTD price increase of +8.6%, or +17.2% compared to 3Q22. We take into account and compared the price differential between the total excise and its retail prices through PMK 191 2022, whereas the Gudang Garam International’12 margin widened to 33% (previously 31%).
▪️ We remain positive that sales volume could be solid at 82.6 billion sticks (vs 82.5 billion sticks in FY22), lifted by higher sales in the run-up to the country’s elections in 4Q23.
▪️ We recommend BUY for GGRM at a TP of IDR32,500, implying PE/PBV of 9.9x/1.0x in FY23E. Downside risks to our call include: 1) lower-than- expected sales volume; 2) slow-moving price adjustments; 3) muted by competitors favored by downtrading behaviour.
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