GGRM
Contact our analyst Eka
Buy, 23% upside
18th June 2021
Price Rp 36,025
Target price Rp 44,400
18th June 2021
Price Rp 36,025
Target price Rp 44,400
Positive Sales Growth in 1Q2021
- Despite most of the peers recording a decline in sales, GGRM recorded positive sales growth in 1Q2021 of +9.1% YoY to IDR 29.7 trillion.
- Export sales grew +34.7% YoY to IDR 437 billion. Domestic sales also grew +8.8% to IDR 29.3 trillion.
- Machine-made clove cigarettes are still the biggest contributor with 91.3% of total sales, followed by Hand-rolled clove cigarettes with 7.34% 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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Margin Contraction
Valuation: TP 44,400, 23% upside
- As of February 2021, the new cigarette excise tax increase has been implemented. Most cigarette companies have to increases ASPs in order to pass on the excise. The increase in cigarette excise tax on the machine-made and white cigarettes has had a negative impact of contraction of the margins of most cigarette companies. As GGRM sales mainly came from machine-made clove cigarettes, GGRM margins in 1Q2021 contracted.
- In 1Q2021, GGRM net profit margin declined to 5.9% from 9% in 1Q2020. Net profit decreased by -28.6% YoY to IDR 1.74 trillion.
- GGRM’s cost of sales increased +15.8% YoY to IDR 25.8 trillion in line with the increase in raw materials +11% YoY. This resulted in lower gross profit -21% YoY to IDR 3.9 trillion with a lower gross profit margin of 13.1% from 18.1%.
- Operating profit decreased by -32.4% YoY to IDR 2.25 trillion in line with a lower operating profit margin, of 7.6% from 12.3%.
- From the impact of cigarette tax increases, we are expecting the margins for the full year 2021 will contract. We expect GGRM’s sales will grow single digit +9% YoY to reach IDR 124.9 trillion with a lower net profit of IDR 3.95 trillion.
Valuation: TP 44,400, 23% upside
- We are targeting GGRM to trade at a 10.3x 2022F PE within a year. Target Price is IDR 44,400 which represents 23% upside. Our recommendation is BUY.
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