Ensuring Recovery on Course
Key Takeaways :
▪️HMSP posted a revenue of IDR27.0tn in 1Q23, or increased +3.1% YoY, thanks to higher ASP blended +9.4% YoY. Net profit came in at IDR2.2tn, or soared +12.8% YoY, as gross margin recovered by +172 bps YoY and +128 bps QoQ to 18.0%, mainly due to aggressive price adjustments.
▪️The ongoing increase in weighted-averaged-excise-tax of 10% annually through FY23-FY24 potentially curbs recovery in purchasing power of cigarettes products. We anticipated domestic cigarettes sales volume in FY23E to drop to 281.4bn sticks (-9.1% YoY).
▪️However, we expect a manageable decline in HMSP's volume of -4.3% YoY in FY23E, supported by its product mix. In 1Q23, sales volume only fell by -5.8% YoY, or 19.7 billion sticks (vs 20.9 billion sticks in 1Q22), which kept its market share solid at 28.5% (vs 28.3% in 1Q22).
▪️we noted that HMSP has raised its retail prices significantly by approximately 3.2%-9.2% YTD, which we view as a pass-on measure to counter the impact of weighted-average-excise-tax increase in FY23-FY24. We take into account and compared the price differential between the total excise and its retail prices through PMK 191 2022, whereas the Sampoerna A Mild’16 margin widened to 30% (previously 29%).
▪️A solid market share coupled with aggressive price adjustments should be the right steps towards profitability recovery. We recommend BUY for HMSP at a TP of IDR1,250. Downside risks include: 1) lower-than-expected sales volume; 2) slow-moving price adjustments; 3) unexpected raw material price increases.
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