GGRM Jul2022

GGRM

Contact our analyst Eka

Hold, 11% upside
8th July 2022
Price Rp 31,575
Target price Rp 35,240

Sales decline while peers rise

As of 1Q2022, GGRM sales decreased slightly -1.5% YoY or -10.7% QoQ to IDR 29.29 trillion while peers like HMSP and WIIM had growth of +11% +32% YoY respectively. The total domestic cigarette market sales volume also increased 5.8% YoY to 75 1 billion sticks.
GGRM’s export sales decreased -20.8% YoY or -10.7% QoQ to IDR 346.9 billion. GGRM’s domestic sales also declined -1.2% YoY or -10.7% YoY to IDR 28.94 billion in 1Q2022.
Machine-made clove cigarettes sales decreased -1.7% YoY or -10.9% QoQ to IDR 26.7 trillion, while hand-rolled clove cigarettes sales also decreased -6.3% YoY or -8.3% QoQ to IDR 2.05 trillion in 1Q2022.
With Ramadan season in 2Q2022 we expect slower growth compared to other quarters. But for 2022F, we expect GGRM sales will have positive growth of 9.5% YoY to IDR 136.8 trillion.

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Lower margins

GGRM net profit decreased by -38% YoY and -27% QoQ to IDR 1.07 trillion.
The margins continued to decline in 1Q2022, with the NPM falling to 3.7% from 4.5% in 4Q2021.
Operating expenses continue to increased +9% YoY to IDR 1.8 trillion, resulting in a decrease in operating profit by -35% YoY or -28% QoQ to IDR 1.46 trillion in line with a lower operating profit margin, of 5.0% from 6.2%.
GGRM’s cost of sales increased +1% YoY but was lower compared to the 4Q2021 by -10% QoQ to IDR 26.01 trillion in 1Q2022. This resulted in a decline in gross profit of -16% YoY to IDR 3.27 trillion, inline with a lower gross profit margin of 11.2% from 11.8% in 4Q2021.
Despite the margin contraction, we expect GGRM’s bottom line will reach IDR 5.76 trillion this full year.
In 30 June 2022, GGRM declared a dividend for fiscal year 2021, with a total value of IDR 4.32 trillion or IDR 2,250 per share, which is a yield of 7%.

Valuation: HOLD, TP 35.240

We are targeting GGRM to trade at a 10.57X PE within a year. Target Price is IDR 35.240 which represents 11% upside. We downgrade our recommendation to hold.

Previously

GGRM Apr2022