FOCUS HM. Sampoerna Company Update 24 October 2016

Transcription

1 FOCUS XXX Company Update XX XXXXX 2013 FOCUS HM. Sampoerna Mandiri Sekuritas Analyst Adrian Joezer Lakshmi Rowter Sector : Cigarette NEUTRAL Current Price Rp4,170 Price Target Rp3,850 (-7.7%) Prev. TP:Rp3, wk range Rp4,485 - Rp3,267 Stock Data Bloomberg Code HMSP IJ Mkt.Cap (Rp bn/us$ mn) 485,046 / 37,128 Issued Shares (mn) 116,318 Avg. Daily T/O (Rp bn/us$ mn) 68.2/5.2 Major shareholder PT Philip Morris Indonesia 92. EPS consensus Mansek Cons Diff 2016F F (2.3) 2018F (4.5) Share price performance 3m 6m 12m Absolute (%) Relative to JCI (%) 0.6 (0.9) (10.4) What Stands Out in 3Q16 Earnings Call? The management believes double-digit EBIT growth guidance for this year remains achievable, though it may come at the expense of premium products' market shares. We sense that the sales mix shift toward low-margin product may still continue. Our Neutral call is unchanged. FY16 guidance unchanged. Management reiterates guidance for double-digit EBIT growth this year (we forecast 13%), despite 9M16 growth at 9%. This becomes an uneasy task as sales mix continues to shift toward the low-margin products. The management acknowledged that it balances this shift through price increase on premium products, albeit at the expense of market shares. Product mix shift may still continue. The management admitted that the competition from the low-priced cigarettes is easing while some have started raising prices, as also captured by our price tracker. Nonetheless, we think sales mix shift into the low-margin products may still continue. First, U Bold s reception has been strong, with market share reaching 1.8% in 3Q16, substantially up from 0.3%/0.9% in 1Q16/2Q16. Second is its premium A Mild. Management mentioned that A Mild 16 has crossed the FINANCIAL SUMMARY Rp20,000/pack level in only about 2 of the Jakarta area. We think this may further pressure A Mild 16 s market share as retail prices gradually move up to 20K. Marlboro Filter Black (MFB). Since launched in early September, MFB is now available in 25 cities. Management thinks it is too early to judge, but believes things are on the right track, though it also admitted the challenges in educating the consumers perception about Marlboro brand that is widely known as white cigarettes, not clove. Market share breakdown has not been disclosed. Incorporating 2017 excise; Neutral rating unchanged. We fine-tune 2017/2018 EPS by +0.8%/+1. as we incorporate actual 2017 excise duties into our model. That said, we slightly raise our DCF-based price target from Rp3,750 to Rp3,850. Neutral call is unchanged. EBITDA 14,235 14,467 16,522 17,871 19,622 Net Profit 10,181 10,363 12,021 12,996 14,259 Fully-diluted EPS (Rp) Fully-diluted EPS growth (%) (5.9) P/E Ratio (x) EV/EBITDA (x) P/B Ratio (x) Dividend Yield (%) ROAE (%) Source: Company ( ), Mandiri Sekuritas ( ) Please see important disclosure at the back of this report Page 1 of 7

2 HMSP - At a Glance FIGURE 1. SALES VALUE BREAKDOWN BY SEGMENTS SKM SKT Others FIGURE 2. SALES VOLUME BREAKDOWN BY SEGMENTS SKM SKT Others FIGURE 3. MARKET SHARE TREND Q15 3Q15 4Q15 1Q16 2Q16 3Q16 A Mild Dji Sam Soe U Mild Others FIGURE 4. PROFITABILITY TREND 18% 17% 17% 16% 16% EBIT margin ROE (RHS) FIGURE 5. GROWTH TREND 2 FIGURE 6. LEVERAGE TREND Revenue YoY EBIT YoY Net profit YoY Net Debt/Equity Please see important disclosure at the back of this report Page 2 of 7

3 3Q16 results review 3Q16 revenues/net profit of Rp22.9trn/Rp2.9trn met our forecast published earlier in our earnings preview. 9M16 EBIT/net profit achieved 72%/76% of our full-year forecast and 73%/76% of consensus'. Sales volumes were also within our expectations with 74% realization. 3Q16 YoY growth in revenue/ebit/net profit reversed to /1%/14% from /33%/43%, in-line with our expectation amidst the shift in Ramadan festivity. We think HMSP s 2Q16 volumes were also supported by front-loaded shipments due to the ASP hikes it took prior to Ramadan, as suggested by our monthly retail price tracker. In 9M16, EBIT grew 9% YoY while net profit 2 YoY. The latter, however, was assisted by the low-base last year when HMSP booked a one-off expense related to the reduction of its SKT lines. 3Q16 gross margin improved 1.3ppt QoQ to 24., albeit still lower on YoY, likely helped by ASP increases as product mix skewed toward the low-margin products. Operating expenses also dropped 11% QoQ amidst lower ad spend, helping EBIT margin to improve 1.4ppt QoQ. Seasonally, however, ad spend always pick up again in 4Q. FIGURE 7. 3Q16 RESULTS P&L (Rp bn) 9M16 9M15 YoY 3Q16 3Q15 YoY 2Q16 QoQ % of Mansek Revenue 70,275 65, % 22,939 21, % 25, % 69% 71% Gross profit 17,181 15, % 5,619 5, % 5, % 69% 71% EBIT 11,398 10, % 3,714 3, % 3, % 72% 73% Pretax profit 12,079 10, % 3,904 3, % 4, % 7 7 Net profit 9,081 7, ,933 2, , % 76% 76% Margins Gross 24.4% % % -0.7% 23.2% 1.3% EBIT 16.2% 15.9% 0.3% 16.2% 16.9% -0.7% 14.8% 1.4% Net profit 12.9% 11.6% 1.3% 12.8% 11.9% 0.9% 11.9% 0.9% Sales volume (bn sticks) A Mild % Dji Sam Soe % % U Mild % % Others % % Total % % 73.6% Note: 2016F is based on our pre-adjusted forecasts. Source: Company, Bloomberg, Mandiri Sekuritas estimates % of Cons. FIGURE 8. GROSS AND OPERATING MARGIN TREND FIGURE 9. AD SPEND SEASONALITY: LOW IN 3Q, HIGH IN 4Q Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Gross margin EBIT margin Ads spend to sales ratio Source: Company Source: Company Please see important disclosure at the back of this report Page 3 of 7

4 FIGURE 10. AVERAGE RETAIL PRICE GROWTH IN JAKARTA (YTD) % % 6.8% % Oct-16 HMSP GGRM Djarum WIIM RMBA Note: Key products only. Source: Mandiri Sekuritas survey FIGURE 11. HMSP S QUARTERLY SALES VOLUME Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Sales volume (bn sticks) YoY (RHS) Source: Company 8% 6% 4% 2% -2% -4% -6% -8% - -12% Forecast changes Incorporating 2017 excise. We largely maintain our 2016 forecasts, but fine-tune 2017/2018 EPS by 0.8%/1. higher to incorporate the actual 2017 excise duties that are slightly lower than our previous assumption. Given the lower excise duties, we slightly lower our blended ASP growth assumptions from 7. to 6. for next year. FIGURE 12. KEY FORECAST CHANGES New Old Changes 2016F 2017F 2018F 2016F 2017F 2018F 2016F 2017F 2018F Revenues 101, , , , , , % Gross profit 25,027 26,221 29,347 25,027 26,159 29, % 0. Operating expenses (9,091) (8,977) (10,393) (9,091) (9,056) (10,451) % -0.6% EBIT 15,936 17,244 18,954 15,936 17,103 18, % 1. Pretax profit 16,027 17,328 19,012 16,027 17,187 18, % 1. Net profit 12,021 12,996 14,259 12,021 12,891 14, % 1. Gross margin 24.7% 24.2% 24.3% 24.7% % % 0.2% EBIT margin 15.7% 15.9% 15.7% 15.7% 15.7% % 0.2% Sales volume (bn sticks) Sales volume YoY -2.6% 0.6% 0.6% -2.6% 0.6% 0.6% Blended ASP YoY 16.7% % 16.7% % SKM excise tax YoY 10.4% % SKT excise tax YoY 7.8% % Source: Mandiri Sekuritas estimates New price target at Rp3,850; Neutral call unchanged. Taking into account the newly revised EPS, we adjust our DCF-based price target from Rp3,750 to Rp3,850, while maintaining our WACC assumption at 9.1%. Our new price target implies 2017F PE of 34.5x. While we like HMSP s strong positioning in the growing mild cigarettes category and its management and corporate governance quality, we still think that the upside is limited from the current level. We also expect EPS growth to moderate to 8% next year from 16% this year. We reiterate our Neutral rating. Please see important disclosure at the back of this report Page 4 of 7

5 FIGURE STAGE DCF VALUATION DCF Valuation 2016F 2017F 2018F 2019F 2020F 2021F Revenue 101, , , , , ,829 Operating profit 15,936 17,244 18,954 21,046 23,609 26,616 Income tax (4,007) (4,332) (4,753) (5,275) (5,922) (6,678) Depreciation Chg in working capital (1,112) (1,213) (2,350) (1,338) (1,383) (3,023) Capital expenditure (765) (748) (731) (714) (698) (682) Free-cash-flow 10,638 11,579 11,787 14,427 16,352 17,016 PV of FCF 10,638 10,617 9,911 11,122 11,560 11,030 PV F 54,240 Debt/equity 3 PV F 66,140 Beta 0.6 PV F 72,128 Risk-free 6. PV of terminal value 251,379 Risk premium 5. Sum of PV 443,888 Cost of equity 9. Debt 41 After-tax cost of debt 8. Cash 2,216 WACC 9.1% Minority interest - Terminal growth 3. Equity of subsidiary - Equity value 446,063 No. of shares (m) 116,318 Equity per share (Rp/sh) 3,850 Source: Mandiri Sekuritas estimates FIGURE 14. HMSP S 12-MONTH FORWARD PE BAND FIGURE 15. HMSP S 12-MONTH FORWARD EV/EBITDA BAND PE (x) HMSP +2 StDev +1 StDev EV/EBITDA (x) HMSP +2 StDev Mean -1 StDev StDev Mean StDev StDev -2 StDev 0 5 Mar-11 Dec-11 Aug-12 May-13 Jan-14 Oct-14 Jul-15 Mar-16 0 Apr-11 Dec-11 Sep-12 May-13 Feb-14 Oct-14 Jul-15 Apr-16 Source: Bloomberg, Company, Mandiri Sekuritas estimates Source Bloomberg, Company, Mandiri Sekuritas estimates Please see important disclosure at the back of this report Page 5 of 7

6 HM. Sampoerna Profit & Loss Revenue 80,690 89, , , ,715 Gross Profit 20,500 21,764 25,027 26,221 29,347 Oper. Profit 13,805 14,048 15,936 17,244 18,954 EBITDA 14,235 14,467 16,522 17,871 19,622 Net Interest 10 (69) Interest Expense (47) (138) Interest Income Forex Losses/Gains Net Other (97) (46) Pre-Tax Profit 13,718 13,933 16,027 17,328 19,012 Income Tax (3,537) (3,569) (4,007) (4,332) (4,753) Others Minority Interests Net Profit 10,181 10,363 12,021 12,996 14,259 Cash Flow Operating Profit 13,805 14,048 15,936 17,244 18,954 Net Interest 10 (69) Depr & Amort Other expenses/income (97) (46) Other Gain / Loss Tax (3,537) (3,569) (4,007) (4,332) (4,753) Chg in Working Capital 981 (9,971) (1,112) (1,213) (2,350) Other Oper. Cash Flow Oper. Cash Flow 11, ,495 12,411 12,577 Capital Expenditure (1,641) (781) (765) (748) (731) FCF (OPCF after Capex) 9, ,730 11,663 11,846 Other Investing CF (235) (3,754) (147) (212) (224) CF From Investing (1,876) (4,534) (912) (960) (954) Net Chg in Debts 373 (2,828) Equity Funds Raised (21) 20, Dividend (10,651) (12,250) (10,156) (11,780) (12,736) Other Financing CF (9) CF From Financing (10,308) 5,377 (10,085) (11,706) (12,658) Non-Recur. Inc (Exp) Extraord. Inc(Exp) Net Change in Cash (592) 1, (255) (1,036) Cash at beginning ,719 2,216 1,961 Cash at End 65 1,719 2,216 1, Valuation YE Dec 2014A 2015A 2016F 2017F 2018F PER (x) EV/EBITDA (x) P/BV (x) P/CF (x) Dividend Yield (%) Balance Sheet Cash & ST Investment 65 1,719 2,216 1, Acct. Receivable 1,010 2,459 2,795 2,994 3,332 Inventory 17,432 19,072 21,184 22,401 24,388 Others 2,271 6,558 7,214 7,936 8,729 Current Assets 20,778 29,807 33,409 35,292 37,375 Investments Fixed Assets 5,920 6,281 6,461 6,581 6,644 Others 1,684 1,922 2,069 2,281 2,505 Total Assets 28,381 38,011 41,939 44,154 46,524 Curr. Liabilities 13,600 4,539 6,532 7,457 8,225 Acct. Payable 10,033 3,605 5,551 6,427 7,144 ST Borrowings 2, Others ,030 1,081 Long-Term Liabilities Long-Term Payable Others 1,249 1,415 1,486 1,560 1,638 Total Liabilities 14,883 5,995 8,058 9,058 9,904 Shareholder s Equity 13,498 32,016 33,881 35,097 36,620 Key Ratios YE Dec 2014A 2015A 2016F 2017F 2018F Growth (% YoY) Sales EBIT (5.4) EBITDA (3.9) Net Profit (5.9) Profitability (%) Gross Profit Margin Oper. Margin EBITDA Margin Net Margin ROAA ROAE Leverage Net Debt / Equity (%) 20.8 (5.2) (6.4) (5.5) (2.4) EBITDA/Gross Int. (x) n.m n.m n.m Per Share Data (Rp) EPS CFPS BVPS DPS Please see important disclosure at the back of this report Page 6 of 7

7 Mandiri Sekuritas A subsidiary of PT Bank Mandiri (Persero) Tbk Plaza Mandiri 28 th Floor, Jl. Jend. Gatot Subroto Kav , Jakarta 12190, Indonesia General: , Fax : (Equity Sales) RESEARCH John Rachmat Head of Equity Research, Strategy john.rachmat@mandirisek.co.id Tjandra Lienandjaja Banking tjandra.lienandjaja@mandirisek.co.id Liliana S Bambang Property, Building Material liliana.bambang@mandirisek.co.id Adrian Joezer Consumer adrian.joezer@mandirisek.co.id Ariyanto Kurniawan Telecom, Coal, Metal, Automotive ariyanto.kurniawan@mandirisek.co.id Bob Setiadi Construction, Toll Road bob.setiadi@mandirisek.co.id Francis Lim Quant, Health Care, Hospital francis.lim@mandirisek.co.id Yudha Gautama Mining, Plantation yudha.gautama@mandirisek.co.id Laura Taslim Retail laura.taslim@mandirisek.co.id Priscilla Thany Banking priscilla.thany@mandirisek.co.id Ferdy Wan Building Material, Industrial Est., Media ferdy.wan@mandirisek.co.id Lakshmi Rowter Research Assistant lakshmi.rowter@mandirisek.co.id Gerry Harlan Research Assistant gerry.harlan@mandirisek.co.id Leo Putera Rinaldy Chief Economist leo.rinaldy@mandirisek.co.id Wisnu Trihatmojo Economist wisnu.trihatmojo@mandirisek.co.id Aziza Nabila Amani Research Assistant aziza.amani@mandirisek.co.id INSTITUTIONAL SALES Lokman Lie Co-Head Institutional Equities lokman.lie@mandirisek.co.id Silva Halim Co-Head Institutional Equities silva.halim@mandirisek.co.id Aditya Sastrawinata Institutional Sales aditya.sastrawinata@mandirisek.co.id Andrew Handaya Institutional Sales andrew.handaya@mandirisek.co.id Cindy Amelia P. Kalangie Institutional Sales cindy.amelia@mandirisek.co.id Feliciana Ramonda Institutional Sales feliciana.ramonda@mandirisek.co.id Kevin Halim Institutional Sales kevin.halim@mandirisek.co.id Mirna Santikara Salim Institutional Sales santikara.salim@mandirisek.co.id Oos Rosadi Institutional Sales oos.rosadi@mandirisek.co.id Zahra Aldila Niode Institutional Sales zahra.niode@mandirisek.co.id Kusnadi Widjaja Equity Dealing kusnadi.widjaja@mandirisek.co.id Edwin Pradana Setiadi Equity Dealing edwin.setiadi@mandirisek.co.id Jane Theodoven Sukardi Equity Dealing jane.sukardi@mandirisek.co.id Michael Taarea Equity Dealing michael.taarea@mandirisek.co.id RETAIL SALES Andreas M. Gunawidjaja Head Retail Equities andreas@mandirisek.co.id Boy Triyono Plaza Mandiri boy.triyono@mandirisek.co.id A. A. Damargumilang Pondok Indah Office Tower damar.gumilang@mandirisek.co.id Herianto Pondok Indah Prioritas herianto@mandirisek.co.id Hendra Riady Mangga Dua hendra.riady@mandirisek.co.id Indra Mas'ari Bandung indra.mas ari@mandirisek.co.id Yogiswara P. Yogyakarta yogiswara.perdana@mandirisek.co.id Widodo Solo widodo@mandirisek.co.id Linawati Surabaya Linawati@mandirisek.co.id Bambang Suwanto Malang bambang.suwanto@mandirisek.co.id Ruwie Medan ruwie@mandirisek.co.id Aidil Idham Palembang aidil.idham@mandirisek.co.id Yuri Ariadi Pontianak yuri.ariadi@mandirisek.co.id INVESTMENT RATINGS: Indicators of expected total return (price appreciation plus dividend yield) within the 12-month period from the date of the last published report, are: Buy ( or higher), Neutral (- to) and Sell (- or lower). DISCLAIMER: This report is issued by PT. Mandiri Sekuritas, a member of the Indonesia Stock Exchanges (IDX) and Mandiri Sekuritas is registered and supervised by the Financial Services Authority (OJK). Although the contents of this document may represent the opinion of PT. Mandiri Sekuritas, deriving its judgement from materials and sources believed to be reliable, PT. Mandiri Sekuritas or any other company in the Mandiri Group cannot guarantee its accuracy and completeness. PT. Mandiri Sekuritas or any other company in the Mandiri Group may be involved in transactions contrary to any opinion herein to make markets, or have positions in the securities recommended herein. PT. Mandiri Sekuritas or any other company in the Mandiri Group may seek or will seek investment banking or other business relationships with the companies in this report. For further information please contact our number or fax ANALYSTS CERTIFICATION: Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her views about the companies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are not and will not be influenced by any part or all of his or her compensation.