SKT Plays Continued to Drive
Key Takeaways:
▪️HMSP reported 2Q23 revenue of IDR 29.2tn (+8.2% QoQ/+6.7% YoY), bringing 1H23’s revenue to IDR 56.2tn (+5.0% YoY), the growth was supported by a strong performance in the Hand-rolled clove cigarettes (SKT) segment, with a YoY increase of 26.1%. Net profit in 2Q23 came at IDR 1.6tn (-26.4% QoQ/+40.3% YoY), resulting in 1H23’s net profit of IDR 3.8tn (+23.0% YoY).
▪️We maintain a positive view on HMSP, given the effectiveness of SKT products as a performance buffer. According to PMI, they have already increased third-party manufacturing in Indonesia, as the volume of industry below Tier 1 reaches around 40% (approximately 113 billion sticks based on our estimate).
▪️Our channel checks indicate that the pricing adjustments made by HMSP in 2Q23 were relatively soft. Looking forward, we expect HMSP to be able to adjust its selling prices by mid-low single digits in 3Q23, which is anticipated to improve profitability while maintaining market share.
▪️We recommend BUY for HMSP at a TP of IDR1,250, implying PE/PBV of 18.1x/5.4x in FY23E. Downside risks include: 1) lower-than-expected sales volume; 2) slow-moving price adjustments; 3) unexpected raw material price increases.
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