HMSP Nov2024

HMSP

Contact our analyst Eka

Buy, 24% upside
13th November 2024
Price Rp 680
Target price Rp 840

Declining volume trend continues

HMSP reported lower sales volume, in line with the domestic market decline, driven by weak consumer purchasing power and higher average selling prices in 3Q2024.
The domestic market recorded a slight decrease of 3.3% in sales volume, totaling 75.5 billion sticks in 3Q2024, while HMSP experienced a sharper decline of 9.2% YoY to 20.6 billion sticks, resulting in a lower market share of 27.9%, down from 29.0% in 3Q2023. For the first nine months of 2024, domestic sales volume increased by 0.86% YoY to 221.4 billion sticks, but HMSP’s volume fell by 5.4% to 60.1 billion sticks.
The decrease in cigarette sales volume is attributed to rising cigarette prices and consumers shifting to lower-priced alternatives. This trend has also led to the growth of third-party manufacturing in Indonesia.
Consequently, HMSP’s sales dropped by 1.6% YoY but rose by 6.8% QoQ to IDR 30.65 trillion.
HMSP’s hand-rolled clove cigarettes (SKT) showed positive growth, up 7.8% YoY and 21.7% QoQ to IDR 11.07 trillion. Conversely, sales of hand-rolled white cigarettes (SPT) fell by 19.7% YoY to IDR 217.9 billion, and machine-made clove (SKM) sales declined by 7.9% QoQ to IDR 16.6 trillion. Machine-made white (SPM) cigarettes also saw a significant drop of 21.6% YoY to IDR 1.58 trillion.
In the heated tobacco unit (HTU) segment, HMSP posted substantial growth, up 99.9% to 0.3 billion units in 3Q2024, and 100% YoY to 0.8 billion units for 9M2024.

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3Q2024 Results: Improved quarterly Performance

HMSP’s net profit fell by 22.3% YoY but increased by 78.3% QoQ to IDR 1.9 trillion, with an improved net profit margin of 6.2%, up from 3.7% in 2Q2024.
Despite a 20% YoY increase in raw material costs, the cost of sales decreased slightly by 1.4% YoY to IDR 25.58 trillion, and excise tax costs dropped by 2.9% YoY. Consequently, HMSP’s gross profit margin improved to 16.5% in 3Q2024 from 13.7% in 2Q2024.
Advertising and promotion expenses increased by 20.7% in 3Q2024 to IDR 671 billion. Operating expenses rose by 27% YoY but decreased by 6% QoQ, leading to a 20% YoY drop in operating income to IDR 2.59 trillion, with an operating profit margin of 8.5%.
With a new government administration, the latest tobacco excise regulation has yet to be officially decided. Speculation about tobacco excise tax remaining unchanged or not increasing in 2024 presents a positive outlook for the cigarette sector.

Valuation: Maintain BUY TP 840

We are targeting HMSP to trade at 11x 2025F PE within a year, with a target price of IDR 840, representing a 24% upside. We maintain our recommendation to BUY.

Previously

HMSP Aug2024