GGRM’s 1H13
earnings disappointed, making up only 41% and 45% of our and consensus’
estimates respectively. We cut our FY13F/FY14F earnings by 21%/18% due to the
underperformance and also on expectations of lower 3Q13 earnings arising from
the fasting season in July-Aug. Maintain NEUTRAL, but at a lower TP of
IDR46,500.
¨
Earnings
grow, but slower than expected. Gudang
Garam (GGRM)’s 2Q13 net profit of IDR1,155bn (+10.3% q-o-q and +29.5% y-o-y)
brought its 1H13 earnings to IDR2,202bn (+4.8% y-o-y), accounting for 41% and
45% of our and consensus’ estimates respectively. This was a disappointment as
we expected the company to promptly adjust its selling prices in response to
rising raw material prices and excise duty early this year. Meanwhile, its 1H13
revenue of IDR26.6trn (+13.1% y-o-y), came in relatively within our estimate –
at 50% of FY13F. GGRM’s gross margin has been improving consistently since 2Q12
as it resolved the temporary hiccups it faced from imposition of the excise tax
as well as raw material price hikes by gradually raising its selling prices in
tandem with its competitors. Our channel checks reveal that current tobacco and
clove prices are relatively stable vis-à-vis 1Q13.
¨
Cutting
2013/2014 earnings by 21%/17%. We see
GGRM’s 3Q13 bottomline declining on a q-o-q basis as the fasting season falls
during the quarter, which is also historically the weakest period for the
Company. On account of its weaker 1H13 results and expectations of a q-o-q drop
in 3Q13, we slice our earnings by 21% and 18% for 2013 and 2014 respectively. We
also raise our excise tax and raw material costs assumptions and pare down our
gross profit assumption by 10% and 6% for 2013 and 2014 respectively.
¨
Share price
duly punished. We revise
lower our TP to IDR46,500 from IDR49,000 as we lower our earnings estimates. The
upside to our call lie in: i) lower raw material costs, and ii) an increase in
selling prices. As its share price has been punished owing to its lower than
expected fundamentals, we lower our TP to IDR46,500 (from IDR49,000). Maintain
NEUTRAL.
Source: RHB
OSK Indonesia Research Institute dated 1 August 2013
