The JCI December 16, 2020

𝐃𝐞𝐜𝐞𝐦𝐛𝐞𝐫 𝟏𝟔, 𝟐𝟎𝟐𝟎

* 𝐓𝐡𝐞 𝐉𝐂𝐈 𝐭𝐫𝐚𝐝𝐢𝐧𝐠 𝐫𝐚𝐧𝐠𝐞: 𝟓,𝟗𝟓𝟎𝐩𝐭 – 𝟔,𝟏𝟐𝟓𝐩𝐭  (𝐘𝐞𝐬𝐭𝐞𝐫𝐝𝐚𝐲 𝐜𝐥𝐨𝐬𝐞: 𝟔,𝟎𝟏𝟎𝐩𝐭)

* 𝐖𝐚𝐥𝐥 𝐒𝐭𝐫𝐞𝐞𝐭 𝐞𝐧𝐝𝐞𝐝 𝐡𝐢𝐠𝐡𝐞𝐫 𝐰𝐢𝐭𝐡 𝐍𝐚𝐬𝐝𝐚𝐪 𝐢𝐧𝐝𝐞𝐱 𝐡𝐢𝐭 𝐧𝐞𝐰 𝐫𝐞𝐜𝐨𝐫𝐝 , 𝐚𝐥𝐬𝐨 𝐨𝐧 𝐧𝐞𝐰𝐬 𝐭𝐡𝐚𝐭 𝐀𝐩𝐩𝐥𝐞 𝐈𝐧𝐜. 𝐩𝐥𝐚𝐧𝐬 𝐭𝐨 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞 𝐩𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐛𝐲 𝟑𝟎% 𝐢𝐧 𝐭𝐡𝐞 𝟏𝐇𝟐𝟏

* 𝐓𝐡𝐞 𝐉𝐂𝐈 𝐢𝐬 𝐞𝐱𝐩𝐞𝐜𝐭𝐞𝐝 𝐭𝐨 𝐠𝐚𝐢𝐧 𝐞𝐝𝐠𝐞 𝐚𝐥𝐬𝐨 𝐬𝐮𝐩𝐩𝐨𝐫𝐭𝐞𝐝 𝐛𝐲 𝐬𝐭𝐚𝐛𝐥𝐞 𝐔𝐒𝐃𝐈𝐃𝐑 𝐚𝐧𝐝 𝐨𝐢𝐥 𝐜𝐥𝐨𝐬𝐞

Morning,

The Jakarta Composite Index (JCI) today (12/16) is expected to be in the range of 5,950pt – 6,125pt, also be supported by stable USDIDR and oil close.  Meanwhile, yesterday  (12/15), the DJIA closed higher by 337 points or 1.1% to 30,198pt, while the S&P500 and the Nasdaq both ended higher by  1.3%.  Progress on the next round of the United States (US)  economic aid worth  USD748bn by the lawmakers as well as Apple’s plan of 30% hike in production rate supported buyings.

𝐂𝐢𝐠𝐠𝐚𝐫𝐞𝐭𝐭𝐞𝐬 𝐜𝐨𝐧𝐬𝐮𝐦𝐩𝐭𝐢𝐨𝐧 𝐩𝐚𝐜𝐞 𝐡𝐚𝐬 𝐲𝐞𝐭 𝐭𝐨 𝐝𝐞𝐜𝐥𝐢𝐧𝐞 𝐦𝐞𝐚𝐧𝐢𝐧𝐠𝐟𝐮𝐥𝐥𝐲 𝐢𝐧 𝐈𝐧𝐝𝐨𝐧𝐞𝐬𝐢𝐚

𝐆𝐮𝐝𝐚𝐧𝐠 𝐆𝐚𝐫𝐚𝐦 : 𝐌𝐚𝐢𝐧𝐭𝐚𝐢𝐧 𝐁𝐔𝐘 𝐫𝐚𝐭𝐞 𝐰𝐢𝐭𝐡 𝐚 𝟏𝟐𝐌-𝐓𝐏 𝐈𝐃𝐑𝟓𝟓,𝟎𝟎𝟎/𝐬𝐡𝐚𝐫𝐞 (𝐩𝐫𝐞𝐯𝐢𝐨𝐮𝐬𝐥𝐲 𝐈𝐃𝐑𝟔𝟐,𝟏𝟎𝟎)

On account on investment and trading perspective, and factoring-in the latest development of the company’s business environment, we maintain BUY call on the company  for the following reasons 1) the company has proven record to ride on resilient consumption pattern of cigarettes consumption in the country 2) this to say, the company within the medium term , is expected to be able to adjust products and pricing in favor of profitability and growth simultaneously 3) keyed-in lower profitability margins into the next 15 years, and attaching lower sales growth we came in with a DCF equity value of IDR55,000/share (WACC:10%, LTG1%)  that we set as a 12M Target Price. At current price of IDR42,000, the counter is trading at 10.6x FY20F  earnings and 10.3x FY21F earnings, representing significant discounts.

Main driver on GGRM earnings volatility is the excise tax rates charges by the government. In 2019, GGRM financials and market shares reached its best performances also due the unchanged of excise tax rates from the previous year.  Next year, the government has set the increase of excise tax rates of 12.5% (2020: 23% YoY), mainly to curb number of young smokers as well as to increase revenues.

The size of Indonesia smokers as well as several main cigarettes companies has created a unique role for the sector, and GGRM being one of the player is expected to benefit in the medium term.

Smoking pattern in the country can not be significantly altered without a firm political will from the government, in our note. Smoking dates back to the early 16th century when tobacco brought by the Portuguese were consumed by the then Indonesian kingdom, and later on by almost all level of society. Indonesia original cigarettes, known as kretek cigarettes, are made with a blend of tobacco, cloves and other flavors. Unexpectedly, in its history kretek cigarettes had been applied to effectively cure chest pains. Be it rumor or otherwise, the news spread and to have leveraged the habit of kretek smoking in Indonesia.

At the other end, yesterday  the WTI price closed higher by  1.3% to USD47.6/barrel, amid hopes that a rollout of coronavirus vaccines will balanced out tighter lockdowns in Europe.  Meanwhile, the USDIDR  closed  at IDR14.171  vs. IDR14.158  the previous one.

We advise the following recommendations, for both trading and longer-time investment purpose. 𝐀𝐀𝐋𝐈, 𝐋𝐒𝐈𝐏 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘈𝘨𝘳𝘪, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘜𝘯𝘥𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵 ), 𝐔𝐍𝐓𝐑, 𝐈𝐓𝐌𝐆, 𝐀𝐃𝐑𝐎, 𝐏𝐓𝐁𝐀 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘊𝘰𝘢𝘭 𝘔𝘪𝘯𝘪𝘯𝘨, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵), 𝐆𝐆𝐑𝐌, 𝐔𝐍𝐕𝐑, 𝐈𝐂𝐁𝐏 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘊𝘰𝘯𝘴𝘶𝘮𝘦𝘳, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘖𝘷𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵 ), 𝐀𝐒𝐈𝐈 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘈𝘶𝘵𝘰𝘮𝘢𝘵𝘪𝘷𝘦, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵), 𝐚𝐧𝐝 𝐀𝐂𝐄𝐒, 𝐒𝐂𝐌𝐀, 𝐌𝐀𝐏𝐈 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘛𝘳𝘢𝘥𝘦, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘖𝘷𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵),𝐚𝐧𝐝 𝐓𝐊𝐈𝐌 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘉𝘢𝘴𝘪𝘤 𝘐𝘯𝘥𝘶𝘴𝘵𝘳𝘺, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵).

Cheers,