A Biting Year Ahead
Key Takeaways :
▪️ Based on our channel checks, tobacco companies under our coverage were relatively slow in adjusting ASPs in 2Q24 to offset the FY25 excise tax hike (+10%). We believe producers are being cautious in adjusting ASPs amid relatively weak consumer spending power, particularly after the rise in food staple prices in 1H24.
▪️ We note that the excise revenue target in the 2025 draft state budget is IDR244.2 tn. However, it is down by -0.8% YoY compared to the 2024 draft state budget (IDR246.1 tn). At first glance, this suggests that there will be no change in the tobacco excise tax (CHT) for FY25. However, we still anticipate increases in the tobacco excise tax for the SPM and SKM segments, while the SKT segment remains unchanged.
▪️ All in all, we set our scenarios for excise increases for FY25/FY26 as follow: SPM: 5%; SKM: 5%; and SKT: 0% (unchanged). We believe this will further pressure profitability going forward. Thus, We downgrade the Tobacco sector to NEUTRAL. We assess HMSP IJ (HOLD; TP: IDR800) as having a buffer due to its high SKT segment contribution (~31%), while GGRM IJ (SELL; TP: IDR14,100) has a ~8% contribution.
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