GGRM Apr2023

GGRM

Contact our analyst Eka

BUY, 22% upside
16th May 2023
Price Rp 29,000
Target price Rp 35,500

Stable sales

GGRM booked lower sales volume amid a decline in domestic cigarettes sales volume by -6.5% YoY. Sales value increased +1.5% YoY but was lower -3.4% QoQ at IDR 29.7 trillion in 1Q2023 due to the effects of a higher ASP.
GGRM’s export sales increased +12% YoY or +25% QoQ to IDR 388 billion in 1Q2023, while GGRM’s domestic sales slightly increased +1.4% YoY but were lower -3.6% QoQ at IDR 29.3 trillion in 1Q2023.
Machine-made clove cigarettes sales maintained positive growth of +1.2% YoY to IDR 27 trillion, hand-rolled clove cigarettes sales increased at a faster rate of +9.7% YoY to IDR 2.24 trillion in 1Q2023.
We expect GGRM will maintain positive sales growth of 4.7% YoY to reach IDR 137 trillion in 2023F because of higher prices and stable sales volumes.

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1Q2023 Results: Margin improvement

After a price hike earlier this year, GGRM had a significant improvement in margins.
GGRM booked a net profit of IDR 1.02 trillion which is +82% YoY or 53% QoQ growth in 1Q2023. The net profit margin improved to 6.6% from 3.7% last year.
Operating expenses were lower -6% YoY from cost efficiency with lower transportation, freight, advertising and promotion expenses by -18% YoY, resulting in an operating profit of IDR 2.6 trillion with a higher OPM of 8.9% in 1Q2023.
GGRM’s cost of sales was lower by -2% YoY or -7% QoQ from lower excise tax expenses which fell by -14% YoY, resulting in a higher gross profit of +28% QoQ or +33% YoY to IDR 4.35 trillion.
We revise up our forecast for GGRM 2023F bottom line profit to IDR 5.19 trillion because of the higher ASP in 1Q2023 and as we are expecting further demand recovery.

Valuation: BUY, TP 35,500

As we have revised up our forecasts for GGRM in 2023F, we maintain our recommendation to BUY. We are targeting GGRM to trade at a 13X PE within a year. Target Price is IDR 35,500 which represents 22% upside.

Previously

GGRM Jan2023