Company Update

25 April 2024

Indonesia Tobacco (Neutral)

PX: IDR845
HM Sampoerna (HMSP IJ) JCI: 7,328.05
TP/consensus: 107%

Target price : IDR1,100 (Unchanged)

Christine Natasya
Rating : Buy (Unchanged) E-mail: [email protected]
Phone: +6221 2505081 ext. 3615

1Q24: in line; IQOS volume doubles; dividend play stock

 IQOS sales volume reached 200m sticks during the quarter (+100% y-y)
 Revenue was IDR29.1tn in 1Q24 (+1.5% q-q/ +7.9% y-y) driven by higher ASPs and volume growth
 Topline was supported by ASP hike of average c.5.4% on y-y basis according to our ground check

In line 1Q24 on slightly higher ASPs Exhibit A. Company information

Bloomberg ticker : HMSP IJ
For 1Q24 HMSP booked a bottom line of IDR2.2tn (+18.8% q-q/+4.0%
y-y), in line with our and consensus estimates by achieving 25.2% and Current Price (IDR) : 845

25.4%, respectively, of the full year. Meanwhile, top line was IDR29.1tn Target Price (IDR) : 1,100
(+1.5% q-q/ +7.9% y-y) driven by higher ASPs and volume growth on
Upside (%) : 30.2%
election money spillover. 1Q24 revenue was broadly in line by achieving
Market Cap (IDRtn/USDbn) : 124.7 / 7.9
23.3% and 23.7%, respectively, of our and consensus 2024 forecasts.
3M avg. daily t.o (IDRbn/USDmn) : 41.1 / 0.68

Some ASP hikes on HMSP products Note: based on 25 April 2024 closing price
Source: Bloomberg, Bahana
Topline was supported by ASP hikes on average of c.5.4% on a y-y
Exhibit B. Shareholders information (%)
basis according to our ground checks (see exhibit 6). On several
Philip Morris Indonesia (P) : 92.50
products, the retail price was increased in MTs such as A Mild Red,
which saw its price increase by c.6% with contribution of an estimated Public – scripless : 7.44

45% to overall sales volume, followed by Magnum (Mild 16’s and Filter Public – scrip treasury stock : 0.06
12’s), which had an increase in price by c.11% with an estimated Source: Company, IDX
contribution of 15% to overall sales volume, and Marlboro SPM (Red
Exhibit C. Relative share price performance
and Ice Burst), which had a price boost of c.12% with an estimated
contribution of 7% to overall sales volume.

During the quarter, we believe the spillover of election funds benefited

tier 2 and 3 players more, thanks to more attractive cigarette prices.
HMSP’s market share fell 50bps q-q during the quarter to 27.5% (vs.
4Q23 of 28.0%, 1Q23 of 28.6%). On a yearly basis, market share fell
by 1.1ppts. Despite losing 1.1%ppt in market share, we observed that
other cigarette players have not significantly increased their Average
Selling Prices (ASPs). Consequently, we anticipate they might follow Note: based on 25 April 2024 closing price
Source: Bloomberg, Bahana
suit to increase ASP in the coming quarters, potentially leading to a
Exhibit D. Key forecasts and valuation
better trajectory for HMSP's 2Q24 volume. Forecast and Valuation 2022 2023 2024E 2025E
Revenue (IDR bn) 111,211 115,983 124,989 136,324
EBITDA (IDR bn) 8,548 9,561 11,254 12,921
IQOS sales volume doubled in 1Q24 Net profit (IDR bn) 6,324 8,097 8,925 10,311
EPS (IDR) 54.4 69.6 76.7 87.9
We view IQOS as a potential game-changer for HMSP going forward, P/E ratio (x) 15.5 12.1 11.0 9.6
Note: based on 25 April 2024 closing price
which was also proved to be a success in 1Q24. According to data from Source: Company, Bloomberg, Bahana forecasts
Phillip Morris International (PMI), IQOS sticks sales volume reached
200m sticks in the quarter, an increase of 100m sticks y-y of HTU in
1Q24.
As HMSP has expanded commercialization to targeted areas in new
cities and introduced TEREA clove variants catering to kretek taste
preferences, the company has witnessed an uplift in user growth, and
now have over 150,000 estimated IQOS users in Indonesia. As a note,
HMSP’s share in Urban Jakarta is one indicator of this, with 1.6pp
growth to 3.4% in a growing total industry.

Disclosure: PT. Bahana Sekuritas does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single
factor in making their investment decision.
Please see the important disclaimer information on the back of this report
 25 April 2024

SKT saw a pullback quarterly, but strong on a y-y basis

In 1Q24, HMSP’s hand-rolled cigarettes (SKT) segment continues to be
strong in revenue as it grew by 25.1% y-y to IDR9.1tn. Although lower
by 11.4% q-q, SKT contribution remains above 30% at 31.3% in 1Q24.
We think, as long as Indonesian smokers continue to switch to more
affordable cigarettes, the minimal increase in the SKT ASP due to SKT
experiencing the lowest rise in excise tax will remain advantageous.
This encourages smokers to shift to this price segment.
As a note, for 2024, SKM tier-1 excise tax per stick has been adjusted
by 11.8% y-y in 2024 to IDR1,231 (vs. IDR1,101), while SKT continues
to see the smallest increase in excise tax hike and the excise tariff per
stick gap between T1 SKM and T1 SKT has widen further to IDR748 in
2024 from IDR640 in 2023.
The hike of ASPs in the 1Q24 has yet to offset the hike in SKM excise
tax, thus, HMSP’s GPM experienced a 170bps y-y decline in the
quarter. HMSP booked some efficiencies as opex declined by 3.3% y-
y in the quarter leading to smaller decline in net margin by 30bps.

Maintain forecasts and BUY rating; dividend yield is attractive

Following the 1Q24 results, we maintain our 2024 earnings forecasts.

We believe the rising traditional cigarette excise tax per stick in 2024
will continue to: 1) benefit SKT as lower-income smokers down-trade to
SKT, 2) make higher-income smokers shift to e-cigarettes; notably
HMSP’s IQOS will likely be the beneficiary, and 3) down-trade to T2
players.

HMSP plans to distribute dividends amounting to IDR8.06tn or

equivalent to IDR69.3/share from the 2023 net profit, with an attractive
dividend yield at c.8.2% using the latest closing price of IDR845.
We maintain our BUY rating on HMSP with an unchanged 12-month
target price of IDR1,100, based on a 2024E P/E of 14.5x, at -1SD of its
past-5-year mean.
Downside risks to our call: 1) lower-than-expected sales volume growth,
and 2) lower-than-expected GDP growth, 3) lower market share of
HMSP, and 4) lower margins due to higher competition with tier-2
players.

PT. Bahana Sekuritas – Equity Research 2

 25 April 2024

Exhibit 1. HMSP 1Q24 results update

Q-Q Y-Y Bahana's % of % of

(IDRbn) 1Q23 4Q23 1Q24
(%) (%) 2024F Bahana Cons

Revenue 26,966 28,686 29,107 1.5 7.9 124,989 23.3% 23.7%

Cost of revenue 22,110 23,797 24,352 2.3 10.1
Gross profit 4,856 4,889 4,756 -2.7 -2.1 21,440 22.2% 22.3%
Opex 2,261 3,059 2,187 -28.5 -3.3
Operating profit 2,595 1,830 2,569 40.4 -1.0 10,269 25.0% 24.7%
Other Income 60 411 134 -67.5 122.8
Other income (expenses) -7 -14 -18 29.6 169.4
Finance Income 148 239 192 -19.8 29.4
Finance costs -12 -10 -10 8.2 -14.8
Share of net results of associates 2 -1 2 NM -10.8
Pre-tax profit 2,786 2,456 2,867 16.7 2.9 11,366 25.2% 26.4%
Final tax expense -626 -564 -620 9.9 -1.0
Net profit 2,160 1,892 2,247 18.8 4.0 8,925 25.2% 25.4%

Margins (%)
GPM (%) 18.0 17.0 16.3 17.2
OPM (%) 9.6 6.4 8.8 8.2
NPM (%) 8.0 6.6 7.7 7.1

Source: Company, Bahana forecasts

Exhibit 2. SKT revenue breakdown Exhibit 3. Cigarette classification breakdown

100.0%

(IDRbn) 8.8% 8.5% 8.1% 8.1% 7.5% 7.2% 6.5% 6.8% 6.4%

12,000 23.3% 22.4% 24.9% 27.1% 27.0% 27.8%

10,273 10,280 33.0%
35.8%
31.3%

10,000 9,105 65.0%

8,113
8,000 7,453 7,542 7,277
6,083 6,122
6,000
66.3% 67.0% 64.9%
30.0% 62.9% 63.1% 62.8%
58.0% 59.4%
4,000 54.1%

2,000
0 -5.0% 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24

1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 Machine-made clove cigarettes Hand-rolled clove cigarettes White cigarettes

Hand-rolled clove cigarettes Hand-rolled white cigarettes Others

Source: Bloomberg, Bahana Source: Bloomberg, Bahana

PT. Bahana Sekuritas – Equity Research 3

 25 April 2024

Exhibit 4. Market share in IQOS market~ PHILLIP MORRIS’ HTUs: Second-Largest ‘Brand’ in IQOS Markets

12%
10.2%
10%
8.4%
8%

6%

4% 3.5%

2%

0%
Marlboro PMI HTUs Winston Camel Gudang L&M Cleopatra
Garam

Source: Company, Bahana

Exhibit 5. PMI HTU Offtake Shares (Q1’24)

Change vs. PY

+0.6pp +0.5pp +0.8pp +1.6pp +1.0pp +1.3pp +1.8pp +0.9pp +1.8pp +2.8pp +0.1pp +6.6pp +3.4pp

19.0%

17.6%

16.1%

13.9%
12.8%
New TEREA Clove
variants launched 11.3%
10.3%
9.1%

4.6%
3.3% 3.4% 3.4%
2.8%

Toronto Tunis Manila Urban Rabat Cairo Santo Kuala Seoul Belgrade Sofia Beirut Podgorica
Jakarta Domingo Lumpur

Source: Company, Bahana

PT. Bahana Sekuritas – Equity Research 4

 25 April 2024

Exhibit 6. Retail price of HMSP products according to our ground check and calculation

Klikindomaret
Contribution to price
Manufacturer Product name Sticks Segment Mar-23 Mar-24 Price increase Weighting
increase
Sampoerna Marlboro Ice Burst 20 SPM 39,933 44,800 12.2%
7% 0.9%
Sampoerna Marlboro Red 20 20 SPM 39,933 44,800 12.2%
Sampoerna A Mild Red 16 16 SKM LTN 32,100 33,900 5.6%
45% 2.8%
Sampoerna A Mild Red 12 12 SKM LTN 24,800 26,500 6.9%
Sampoerna Sampoerna Kretek 12 12 SKT 16,500 17,040 3.3% 11% 0.4%
Sampoerna Dji Sam Soe 12 12 SKT 21,420 21,420 0.0% 13% 0.0%
Sampoerna Marlboro Filter Black 20 20 SKM FF 38,060 0.0% 7% 0.0%
Sampoerna Magnum Mild 16 16 SKM Mid-tar 30,600 0.0%
15% 0.7%
Sampoerna Magnum Filter 12 12 SKM FF 23,533 25,800 9.6%
Sampoerna A Ultra Mild (U Mild) 16 SKM LTN 30,350 31,875 5.0% 2% 0.1%
Total 4.8%
Alfamart
Contribution to price
Manufacturer Product name Sticks Segment Mar-23 Mar-24 Price increase Weighting
increase
Sampoerna Marlboro Ice Burst 20 20 SPM 40,100 44,700 11.5%
7% 0.8%
Sampoerna Marlboro Red 20 20 SPM 40,100 44,700 11.5%
Sampoerna A Mild Red 16 16 SKM LTN 32,000 33,900 5.9%
45% 2.6%
Sampoerna A Mild Red 12 12 SKM LTN 24,600 26,000 5.7%
Sampoerna Sampoerna Kretek 12 12 SKT 15,500 15,500 0.0% 11% 0.0%
Sampoerna Dji Sam Soe 12 12 SKT 19,500 20,500 5.1% 13% 0.7%
Sampoerna Marlboro Filter Black 20 20 SKM FF 35,600 39,800 11.8% 7% 0.8%
Sampoerna Magnum Mild 16 16 SKM Mid-tar 30,600 0.0%
15% 1.0%
Sampoerna Magnum Filter 12 12 SKM FF 22,700 25,600 12.8%
Sampoerna A Ultra Mild (U Mild) 16 16 SKM LTN 30,600 31,300 2.3% 2% 0.0%
Total 5.9%
Average ASP increase in MT 5.4%
Source: Bahana

Exhibit 7. HMSP financials

Year to 31 December 2021 2022 2023 2024 E 2025 E

PROFIT & LOSS (IDRbn)
Revenue 98,874.8 111,211.3 115,983.4 124,988.7 136,324.5
COGS -82,061.4 -94,053.1 -96,653.0 -103,549.0 -112,074.3
Gross Profit 16,813.3 17,158.2 19,330.4 21,439.7 24,250.2
Opex -8,447.6 -9,405.0 -10,366.3 -11,171.2 -12,184.4
Operating Profit 8,365.7 7,753.2 8,964.1 10,268.5 12,065.8
Other income/(expenses) 351.4 101.5 643.6 693.5 756.4
Interest income 483.6 463.9 740.4 455.8 364.8
Interest expense -56.5 -50.0 -41.7 -56.2 -61.4
Profit before income tax 9,144.2 8,268.6 10,306.3 11,361.6 13,125.7
Income tax expenses -2,015.1 -1,949.3 -2,214.4 -2,441.0 -2,819.9
Net profit 7,137.1 6,323.7 8,096.8 8,925.4 10,310.7
EBITDA 8,978.6 8,547.7 9,561.5 11,254.5 12,921.0
Source: Company, Bahana forecasts

PT. Bahana Sekuritas – Equity Research 5

 25 April 2024

Exhibit 8. HMSP financials

Year to 31 December 2021 2022 2023 2024 E 2025 E

BALANCE SHEET (IDRbn)
Assets
Cash and equivalents 17,844 3,283 2,695 12,974 12,841
Receivables 2,897 3,394 3,612 3,867 4,218
Inventories 17,782 18,375 19,014 22,565 24,566
Others 2,801 16,311 14,745 2,159 2,339
Total current assets 41,323 41,363 40,066 41,565 43,965
Fixed assets - net 6,039 6,697 9,253 6,771 6,853
Others 5,729 6,727 5,997 6,703 7,079
Total non-current assets 11,767 13,424 15,250 13,474 13,932
Total assets 53,090 54,787 55,316 55,039 57,897
Liabilities and equity
ST bank loans and CM
Accounts payables 4,244 5,539 6,844 5,465 6,226

Others current liabilities 17,720 19,007 16,459 16,292 16,732

Total current liabilities 21,964 24,546 23,303 21,757 22,958

Deferred tax liabilities 1 5 6 1 2

Others 1,934 2,066 2,137 2,545 2,776
Total non-current liabilities 1,935 2,071 2,144 2,547 2,778
Total liabilities 23,899 26,617 25,446 24,304 25,736
Shareholders' equity 29,191 28,170 29,870 30,735 32,161
CASH FLOW (IDRbn)
Net profit 7,137 6,324 8,097 8,925 10,311
Depreciation/amortization 613 794 597 986 855
Change in working capitals 3,183 -13,316 356 6,525 -1,708
Others -767 -20 120 474 214
Cash flow from operation 10,165 -6,218 9,170 16,910 9,672
Net capex -69 -1,453 -3,153 1,496 -937
LT investments 15 14 138 -61 -22
Cash flow from investments -53 -1,439 -3,015 1,435 -960
Increase/(decrease) in debt 114 442 -346 -7 40
Increase/(decrease) in equity 54 -17 -2 0 0
Dividend payments -8,468 -7,363 -6,363 -8,060 -8,885
Others 227 35 -33 0 0
Cash flow from financing -8,073 -6,903 -6,743 -8,067 -8,845
Net change in Cash 2,039 -14,561 -588 10,279 -133
Beginning balance 15,804 17,844 3,283 2,695 12,974
Ending balance 17,844 3,283 2,695 12,974 12,841

Source: Bloomberg, Bahana forecasts

PT. Bahana Sekuritas – Equity Research 6

 25 April 2024

Exhibit 9. HMSP financials

Year to December 31 2021 2022 2023 2024 E 2025 E

Ratios
Growth (%)
Revenue y-y 7.0 12.5 4.3 7.8 9.1
EBITDA y-y -21.1 -4.8 11.9 17.7 14.8
Net profit y-y -16.8 -11.4 28.0 10.2 15.5
EPS y-y -16.8 -11.4 28.0 10.2 14.5
Profitability (%)
Gross margin 17.0 15.4 16.7 17.2 17.8
Operating margin 8.5 7.0 7.7 8.2 8.9
EBITDA margin 9.1 7.7 8.2 9.0 9.5
Net margin 7.2 5.7 7.0 7.1 7.6
ROE 24.4 22.4 27.1 29.0 32.1
ROA 13.4 11.5 14.6 16.2 17.8
Dividend yield (%) 8.6 7.5 6.5 8.2 9.0
Leverage (X)
Cash conversion cycle (days) 458.5 451.3 451.3 432.1 432.1
Current ratio (x) 1.9 1.7 1.7 1.9 1.9
Quick ratio (x) 1.1 0.9 0.9 0.9 0.8
Debt to equity (x) 0.8 0.9 0.9 0.8 0.8
Net debt to equity (x) 0.2 0.8 0.8 0.4 0.4
Interest coverage (x) 148.0 154.9 214.7 182.6 196.7
P/E ratio (x) 13.8 15.5 12.1 11.0 9.6
P/BV ratio (x) 3.4 3.5 3.3 3.2 3.1
EV/EBITDA (x) 9.0 11.2 10.0 7.6 6.7

Source: Bloomberg, Bahana forecasts

PT. Bahana Sekuritas – Equity Research 7

 25 April 2024

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PT. Bahana Sekuritas – Equity Research 10

Investment Banking Relationships
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Relevant Relationships (Bahana Sekuritas)

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PT. Bahana Sekuritas – Equity Research 11