FLASH | HM.

Sampoerna
Company Update | 22 July 2020

Mandiri Sekuritas Analyst

2Q20 Volume and Key Forward-Looking Statement
Adrian Joezer 2Q20 volume decline of 28% YoY came in-line, with a small beat in Sampoena A
+6221 5296 9415 given its marginal excise pass-through. Costs efficiencies were cited for Indonesia
adrian.joezer@mandirisek.co.id
in 2Q20, though it remains a challenging market in 2H20 with a newly guided 15%
Riyanto Hartanto industry volume decline this year indicating sequential improvement from 2Q20.
+6221 5296 9488
riyanto@mandirisek.co.id
Full retail price floor enforcement is expected by Sep-2020.

2Q20 volume down 28% but run-rate is still in-line. HMSP’s sales volume down 27.7%
Sector: Cigarette YoY to 18.0bn sticks in 2Q20, much weaker than the 7.8% YoY decline reported in 1Q20
given the stricter lockdown measures. 1H20 sales volume down 18.3% YoY to 38.4bn sticks,
meeting 48% of our FY20 of 80.7bn sticks (-18.0% YoY). While the prediction is made
tougher given the disruptions on both supply (lockdowns affecting distribution) and
BUY demand (lockdown leads to lower purchasing power and reduction in social smokers), we
keep our 2H20F volume decline estimate of -17.8% YoY (vs. -27.7% YoY in 2Q20) with
Current Price Rp1,825 quarterly run-rate of 21bn sticks, 15-20% lower than the typical 25-26bn sticks run-rate.
Target Price Rp2,400 (+31.5%)
52-wk range Rp3,160 - Rp1,085 Market share weakness could limit pricing power. PMI estimated total industry volume
decline of -17.5% YoY in 2Q20 or -22.1% YoY excluding the estimated trade inventory
Stock Data movements. HMSP’s market share fell 2.3ppt/4.0ppt QoQ/YoY to 28.1% in 2Q20; PMI
credited this towards: 1) elevated price gaps in tier-1, partly on delayed enforcement of
Bloomberg Code HMSP IJ retail price floor, 2) down-trading into lower-tier segment, estimated to have a 25%
Mkt.Cap (Rp bn/US$ mn) 212,280 / 14,401 industry market share in 2Q20 (vs. 22% in 1Q20) and 3) disproportionate impact of stricter
Issued Shares (mn) 116,318 lockdowns in urban areas where HMSP’s share is higher. We believe other factors include:
Avg. Daily T/O (Rp bn/US$ mn) 73.7/5.0 1) more competitive low-tar categories; 2) lower low-tar smoker loyalty given the lighter
taste; and 3) higher proportion of social smokers in low-tar SKM and white cigarettes.

Key Financials
PMI’s important statement on Indonesia. The earnings release and call mentioned a few
things on Indonesia, which include the following:
 2Q20 financials for South and Southeast Asia: the volume decline and unfavorable
2020F 2021F 2022F
EPS 72 115 142 pricing variance in Indonesia was partly offset by favorable mix, while it was also
PE (x) 25.4 15.9 12.9 mentioned that Indonesia partly contributed to the lower marketing, administration
PBV (x) 7.0 6.0 5.4 and research costs, and manufacturing costs.
EV/EBITDA (x) 19.8 11.8 9.6  Guiding for 15% industry volume decline: While PMI sees signs of improvement in
EPS Growth (%) (39.2) 60.4 23.3 Indonesia, the situation remains challenging, urging the importance of multi-tier excise
Div. Yld (%) 6.4 3.9 6.2 tax structure reforms as suggested by public experts and strict enforcement of retail
ROAE (%) 25.2 40.4 44.2 price floor. PMI now assumes 15% industry volume decline for Indonesia this year
(2Q20: -17.5% YoY or -22.1% ex-trade inventory movement), reflecting progressive
sequential improvement in daily consumption from the weak 2Q20. While the
government has started imposing the retail price floor, PMI assumes full enforcement
by Sep-20 at the earliest; hence a more favorable impact on HMSP’s business in 4Q20.
 Tier-1 volume market share at 75% in 2Q20 from 78%/80% in 1Q20/2Q19. This
approximately implies ca.23% YoY decline in tier-1 volume for 2Q20 and +3.1% YoY
increase in below-tier-1 volume.

(continued overleaf)

Please see important disclosure at the back of this report Page 1 of 3

FLASH | HM. Sampoerna
Company Update | 22 July 2020

Key brands’ performance:

 Sampoerna A. 2Q20 volume dropped to 7.3bn sticks, down 22.5% YoY, a reversal from
the 7.3% YoY increase in 1Q20. 1H20 sales volume down 8.4% YoY to 15.8bn sticks, 53%
of our FY20. Volume contribution remained high at 40%, though this would be partially
offset by the unfavorable pricing variance.
 Dji Sam Soe. About 5.8bn sticks were sold in 2Q20, down 26.0% YoY, weaker than
1Q20’s 8.3% YoY decline. Magnum Mild contributed to the weakness, likely due to the
aggressive ex-factory price hikes resulting in higher pricing gaps to lower-tier products.
 Other brands. Excluding the two above (73% of 2Q20 volume), volume for the rest
down 36.2% YoY to 4.9bn sticks in 2Q20. Sampoerna U and Marlboro were stated as part
of the volume weakness.
Buy rating and Rp2,400 PT. Our DCF-based price target implies 20.8x 2021 PE. Valuation
is reasonably attractive on a 12-month view given our expectations for a gradual
improvement in volume (as the reopening progresses) and margins (as retail price floor is
fully enforced), though near-term overhang remains on 2021 excise uncertainty.

FIGURE 1. HMSP’S QUARTERLY VOLUME TREND

6M18 9M18 12M18 3M19 6M19 9M19 12M19 3M20 6M20
Industry volume (bn sticks) 144.5 224.8 303.6 68.7 145.2 224.2 306.8 67.2 131.4
% YoY -1.4% -0.4% -1.2% -0.9% 0.5% -0.3% 1.1% -2.2% -9.5%
HMSP volume shipment (bn sticks) 48.1 74.6 101.5 22.5 47.1 72.1 98.5 20.4 38.4
% YoY -0.2% 0.3% 0.2% -2.3% -2.2% -3.4% -3.0% -9.4% -18.3%
Sampoerna A 18.8 29.1 39.5 8.0 17.3 26.0 35.1 8.5 15.8
% YoY -8.3% -6.1% -7.4% -7.6% -8.2% -10.5% -11.0% 7.3% -8.4%
Dji Sam Soe 13.6 21.1 29.2 6.7 14.5 23.1 32.4 6.2 12.0
% YoY 45.9% 34.4% 27.9% 0.5% 6.8% 9.3% 11.2% -8.3% -17.4%
Others 15.8 24.4 32.9 7.8 15.3 23.0 30.9 5.6 10.7
% YoY -14.3% -11.8% -8.3% 1.3% -2.7% -6.0% -6.2% -27.4% -30.4%
HMSP market share 33.3% 33.2% 33.4% 32.7% 32.4% 32.2% 32.1% 30.3% 29.3%
% YoY 0.4% 0.3% 0.5% -0.5% -0.9% -1.1% -1.4% -2.4% -3.2%
Sampoerna A 13.0% 12.9% 13.0% 11.6% 11.9% 11.6% 11.5% 12.7% 12.0%
% YoY -1.0% -0.8% -0.9% -0.8% -1.1% -1.3% -1.5% 1.1% 0.1%
Dji Sam Soe 9.4% 9.4% 9.6% 9.8% 10.0% 10.3% 10.6% 9.2% 9.1%
% YoY 3.0% 2.4% 2.2% 0.1% 0.6% 0.9% 1.0% -0.6% -0.9%
Others 10.9% 10.9% 10.8% 11.3% 10.6% 10.3% 10.1% 8.4% 8.1%
% YoY -1.6% -1.4% -0.8% 0.2% -0.3% -0.6% -0.8% -2.9% -2.4%

2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20

Industry volume (bn sticks) 75.2 80.3 80.9 68.7 77.6 79.0 83.4 67.2 64.0
% YoY -0.7% 1.4% -0.7% -0.9% 3.2% -1.6% 3.1% -2.2% -17.5%
HMSP volume shipment (bn sticks) 25.0 26.5 26.9 22.1 24.9 25.0 26.4 20.4 18.0
% YoY 0.7% 1.2% -0.1% -3.7% -0.1% -5.7% -2.0% -7.6% -27.8%
Sampoerna A 10.2 10.3 10.4 8.0 9.4 8.8 9.1 8.5 7.3
% YoY -4.0% -1.7% -10.8% -7.6% -8.0% -14.8% -12.2% 7.3% -22.5%
Dji Sam Soe 6.9 7.5 8.0 6.7 7.8 8.6 9.3 6.2 5.8
% YoY 41.9% 17.7% 13.4% 0.5% 14.0% 13.9% 16.2% -8.3% -26.0%
Others 7.9 8.7 8.5 7.4 7.8 7.7 7.9 5.7 4.9
% YoY -15.4% -6.9% 3.6% -3.0% -2.2% -11.9% -6.8% -23.0% -36.2%
HMSP market share 33.2% 33.0% 32.7% 32.2% 32.1% 31.7% 31.6% 30.4% 28.1%
% YoY 0.4% -0.1% -0.3% -0.9% -1.1% -1.4% -1.1% -1.8% -4.0%
Sampoerna A 13.5% 12.8% 12.8% 11.6% 12.1% 11.1% 10.9% 12.7% 11.3%
% YoY -0.5% -0.4% -1.5% -0.8% -1.5% -1.7% -1.9% 1.1% -0.7%
Dji Sam Soe 9.1% 9.4% 9.9% 9.8% 10.1% 10.9% 11.2% 9.2% 9.1%
% YoY 2.7% 1.3% 1.2% 0.1% 1.0% 1.5% 1.3% -0.6% -1.0%
Others 10.5% 10.8% 10.5% 10.8% 10.0% 9.7% 9.5% 8.5% 7.7%
% YoY -1.8% -1.0% 0.4% -0.2% -0.6% -1.1% -1.0% -2.3% -2.3%
Source: PMI, Mandiri Sekuritas

Please see important disclosure at the back of this report Page 2 of 3

 Mandiri Sekuritas A subsidiary of PT Bank Mandiri (Persero) Tbk
Menara Mandiri Tower I, 25th floor, Jl. Jend. Sudirman Kav. 54 – 55, Jakarta 12190, Indonesia
General: +62 21 526 3445, Fax : +62 21 527 5374 (Equity Sales)

RESEARCH
Adrian Joezer Head of Equity Research, Strategy, Consumer adrian.joezer@mandirisek.co.id +6221 5296 9415
Tjandra Lienandjaja Deputy Head of Equity Research, Banking tjandra.lienandjaja@mandirisek.co.id +6221 5296 9617
Ariyanto Kurniawan Automotive, Coal, Metal Mining, Chemical ariyanto.kurniawan@mandirisek.co.id +6221 5296 9682
Kresna Hutabarat Telecom, Media kresna.hutabarat@mandirisek.co.id +6221 5296 9542
Lakshmi Rowter Healthcare, Consumer, Retail lakshmi.rowter@mandirisek.co.id +6221 5296 9549
Robin Sutanto Property, Building Material robin.sutanto@mandirisek.co.id +6221 5296 9572
Edbert Surya Construction, Transportation edbert.surya@mandirisek.co.id +6221 5296 9623
Silvony Gathrie Banking, Research Assistant silvony.gathrie@mandirisek.co.id +6221 5296 9544
Riyanto Hartanto Poultry, Research Assistant riyanto@mandirisek.co.id +6221 5296 9488
Henry Tedja Research Assistant henry.tedja@mandirisek.co.id +6221 5296 9434
Wesley Louis Alianto Research Assistant wesley.alianto@mandirisek.co.id +6221 5296 9510
Leo Putera Rinaldy Chief Economist leo.rinaldy@mandirisek.co.id +6221 5296 9406
Imanuel Reinaldo Economist imanuel.reinaldo@mandirisek.co.id +6221 5296 9651

INSTITUTIONAL SALES
Silva Halim Managing Director silva.halim@mandirisek.co.id +6221 527 5375
Lokman Lie Head of Equity Capital Market lokman.lie@mandirisek.co.id +6221 527 5375
Andrew Handaya Institutional Sales andrew.handaya@mandirisek.co.id +6221 527 5375
Feliciana Ramonda Institutional Sales feliciana.ramonda@mandirisek.co.id +6221 527 5375
Henry Pranoto Institutional Sales henry.pranoto@mandirisek.co.id +6221 527 5375
Kevin Giarto Institutional Sales kevin.giarto@mandirisek.co.id +6221 527 5375
Sharon Anastasia Tjahjadi Institutional Sales sharon.tjahjadi@mandirisek.co.id +6221 527 5375
Talitha Medha Anindya Institutional Sales talitha.anindya@mandirisek.co.id +6221 527 5375
Angga Aditya Assaf Institutional Sales angga.assaf@mandirisek.co.id +6221 527 5375
Ilona Carissa Institutional Sales Ilona.simanungkalit@mandirisek.co.id +6221 527 5375
Kusnadi Widjaja Equity Dealing kusnadi.widjaja@mandirisek.co.id +6221 527 5375
Edwin Pradana Setiadi Equity Dealing edwin.setiadi@mandirisek.co.id +6221 527 5375
Jane Theodoven Sukardi Equity Dealing jane.sukardi@mandirisek.co.id +6221 527 5375
Michael Taarea Equity Dealing michael.taarea@mandirisek.co.id +6221 527 5375

RETAIL SALES
Andreas M. Gunawidjaja Head Retail Equities andreas@mandirisek.co.id 6221 5296 9693
Boy Triyono Jakarta boy.triyono@mandirisek.co.id 6221 5296 5678
Iedprima Intan Maradi Online Jakarta intan.maradi@mandirisek.co.id 6221 5296 9516
Ruwie Medan ruwie@mandirisek.co.id 6261 8050 1825
Linawati Surabaya linawati@mandirisek.co.id 6231 535 7218
Maulidia Osviana Lampung maulidia.osviana@mandirisek.co.id 62721 476 135
Aidil Idham Palembang aidil.idham@mandirisek.co.id 62711 319 900
Dhanan Febrie Handita Bandung dhanan.handita@mandirisek.co.id 6222 426 5088
Yuri Ariadi Pontianak yuri.ariadi@mandirisek.co.id 62561 582 293
Yogiswara Perdana Yogyakarta yogiswara.perdana@mandirisek.co.id 62274 560 596
Achmad Rasyid Bali achmad.rasyid@mandirisek.co.id 62361 475 3066
www.most.co.id care_center@mandirisek.co.id 14032

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 (15% or higher), Neutral (-15% to15%) and Sell (-15% or lower).

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