PT HM Sampoerna Tbk (HMSP)
Tobacco Sector
Dividend Delight!
Financial Performance 9M19: Steady Bottom Line
HMSP posted 9M19 revenue of IDR77.51 trillion (-0.04% YoY; -0.47% QoQ). This 9M19 revenue isin linewith our forecast, representing 72.24%/71.94% of MNCS/Consensus estimate. HMSP’s revenue was dragged down by the SKT Divison (-5.43% YoY). Meanwhile SKM division, the main contributor to the revenue ~70.52% booked a positive growth (+1.24% YoY) and SPM Division grew by +1.98% YoY. Nevertheless, the EBITDA margin widened to 87bps to 17.38% level in 9M19 (vs 16.51% in 9M18) due to the cost efficiency. This reflects in HMSP’s net profit of IDR10.20 trillion (+5.26% YoY; -1.55% QoQ) with net profit margin (NPM) grew by 66 bps at the level of 13.16% (vs 12.50% in 9M18).
Strong Balance Sheet with Decent Dividend Yield
Over the past 5 years, HMSP paid dividend regularly with average DPR of ~99% and dividend yield at ~4.91%. The absence of cigarette excise tax increase in FY19 potentially widened the Net Profit Margin at the level of 13.13%. Supported by the recovery of the purchasing power, we expected for HMSP to maintain its performance with net profit reached to IDR14.08 trillion/IDR12.80 trillion in FY19E/FY20F and EPS worth IDR121/IDR110 per share in FY19E/FY20F. We assess the increase of bottom-line in FY19E lead to higher dividend yield at 5.38% in FY20F. Moreover, HMSP has a healthy balance sheet with a relatively zero debt level.
What if excise impact can be faced ?
Starting on January 1, 2020, the cigarette excise tax effectively implemented with average tariff for CHT Sigaret Kretek Mesin (SKM) increased to 23.29%, Sigaret Putih Mesin (SPM) to 29.95%, and Sigaret Kretek Tangan (SKT) to 12.84%. This policy could reduce sales volume in cigarettes industry, especially HMSP. We estimate the downturn of the volume around -10.66% YoY followed by upsurge of ASP reaching +15.62% YoY. Therefore, HMSP gradually increase the ASP of their products by average 4.48% YoY per December 2019, in able to maintain a stable growth especially in Operating Profit Margin (OPM) which is expected to reach 12.85% in FY20F. In addition, the government also enacts the increasing in retail selling price (HJE) up to 35% which could be an opportunity for premium brand cigarettes with the smaller price gap.
Valuation and Recommendation: BUY at Target Price IDR2,500
We maintain our BUY recommendation for HMSP with TP:IDR2,500, implying PE/PBV 17.01x/6.69x in FY19E and 18.73x/6.71x in FY20F. We believe the sales volume decline due to the new excise tax will be offset by higher ASP. Moreover, HMSP has strong balance sheet and higher dividend payout ratio, which enable to generate attractive return. Currently, HMSP is traded at -2 STD (3-year average) with PE at 17.65x.
