HM Sampoerna (HMSP IJ)

Trimming FY24F post weak 3Q24 earnings; expect modest FY25 growth outlook

• Following weak 9M24 results, we have trimmed our FY24F NP by 12.7%, with lower volume and ASP assumptions.
• FY25F offers a better outlook, with projected NP growth of 6.3% yoy and vol. growth of 2% yoy (assuming no excise tax increase).
• Maintain our Hold rating with an unchanged TP of Rp730 (FY25F PE of 11x) as we see uncertainty remains until the MOF regulation is released.

Weak 9M24 result; FY24F Net Profit revised down by 12.7%.

Following the release of 9M24 results, we have trimmed our FY24F vol. to -4.2% yoy (+0.3% yoy prev.) and reduced our ASP growth expectation to 5.8% (+11.8% yoy prev.). Downtrading pressures have continued to weigh on 9M24 HMSP's sales vol. (-4.6% yoy, with 3Q24: -8.9% yoy), limiting the company’s ability to further increase ASP. We do not anticipate any ASP adjustments in 4Q24 as we expect the government to keep excise tax tariffs unchanged for FY25. Consequently, we do not expect any forestalling impact to support 4Q24 sales vol. (our 4Q24 vol. projection: +1.4% yoy, -2% qoq). We estimate that FY24 GPM will remain at 15.7%, with opex-to-revenue decreasing to 8.7% (vs 8.9% in FY23). As a result, we have lowered our FY24F net profit estimate by 12.7% to Rp7.2tr (down 11.5% yoy).

FY25F net profit growth of 6.3% yoy, supported by 2% yoy vol. growth.

Assuming no excise tax increase in 2025, we project 2.1% yoy vol. growth with 2.7% yoy ASP adjustment, supporting FY25F rev. growth of 4.9% yoy. We expect positive vol. and modest ASP adjustment to lead to a 20bps GPM improvement, translating to FY25 net profit of Rp7.6tr, +6.3% yoy. If the government implements a 5% excise tax increase in FY25 (lower than previous years of 10% on average), we estimate HMSP will offset the tax hike with a 4% ASP increase. Under this scenario, with zero vol. growth, we project modest EPS growth of 4% yoy. However, if HMSP can achieve a 5% ASP increase alongside 3% yoy vol. growth, FY25F EPS growth could reach a stronger 10.7% yoy (exhibit 2).

Maintain Hold rating as uncertainly persists.

The waiting period for the 2025 excise tax regulation adds uncertainty for cigarette companies. While the plan on maintaining the FY25 excise tax tariff is positive for the industry, pressures on the new government to boost purchasing power, manage rising layoffs, and finance new initiatives may put pressure on tax revenue targets. Therefore, we believe the official MOF regulation is required before we can have better visibility on the sector’s outlook. We maintain our Hold rating with an unchanged target price of Rp730, implying an FY25F PE of 11.1x, approximately -1.5 standard deviations below the 3-year average PE.

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