GGRM
Contact our analyst Eka
Hold, 16% upside
4th August 2021
Price Rp 32,700
Target price Rp 38,000
4th August 2021
Price Rp 32,700
Target price Rp 38,000
Positive Sales Growth
- GGRM maintained positive sales growth driven by higher volume in 2Q2021. GGRM recorded +16.8% YoY and +3.7% QoQ growth in 2Q2021 to IDR 30.84 trillion. For 1H2021 GGRM booked sales of IDR 60.58 trillion, an increase of 13% YoY.
- As global markets remain challenging, export sales decreased -5.7% YoY or -3.3% QoQ to IDR 423.4 billion in 2Q2021. But domestic sales grew +17.2% YoY or +3.8% QoQ to IDR 30.4 trillion.
- Machine-made clove cigarettes are still the biggest contributor with 92.2% of total sales, followed by Hand-rolled clove cigarettes at 6.6% of total sales.
- Despite the new cigarette tax, GGRM is managing to maintain positive growth and we expect this will continue throughout 2021.
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But Margins Decline
Valuation: TP 38,000 HOLD
- Despite higher sales in 2Q2021, GGRM net profit decreased by -59% YoY or -68% QoQ to IDR 562 billion. The increases in ASP due to the increase in excise has not been able to cover the decline in the bottom line.
- As a result, GGRM net profit margin declined to 1.8% from 5.9% in 1Q2021.
- For 1H2021, net profit decreased by -40% YoY to IDR 2.3 trillion. GGRM’s cost of sales increased +24% YoY or +9% QoQ to IDR 28.2 trillion in 2Q2021. For 1H2021 cost of sales also increased +20% to IDR 54 trillion in line with an increase in raw materials +15% YoY. This resulted in lower gross profit -24% YoY to IDR 6.54 trillion with a lower gross profit margin of 16.1 % from 10.8%.
- Operating profit decreased by -43% YoY to IDR 2.9 trillion in line with a lower operating profit margin, of 4.9% from 9.7%.
- Due to the weak performance in 2Q2021, we revise our GGRM 2021 forecasts. We expect GGRM’s sales will still grow +12% YoY to reach IDR 128.4 trillion but with a lower net profit of IDR 3.48 trillion.
Valuation: TP 38,000 HOLD
- We are targeting GGRM to trade at a 9.6x 2022F PE within a year. Target Price is IDR 38,000 which represents 16% upside. We downgrade our recommendation to HOLD.
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