PT Hanjaya Mandala Sampoerna Tbk HMSP.JK / HMSP IJ

Transcription

04 January 2016
Asia Pacific/Indonesia
Equity Research
Tobacco
PT Hanjaya Mandala
Sampoerna Tbk (HMSP.JK / HMSP IJ)
Rating
OUTPERFORM*
Price (30 Dec 15, Rp)
94,000
Target price (Rp)
108,500¹
Upside/downside (%)
15.4
Mkt cap (Rp bn)
437,356.0 (US$ 31.7)
Enterprise value (Rp bn)
429,072
Number of shares (mn)
4,652.72
Free float (%)
7.5
52-week price range
101,900.0 - 64,529.0
ADTO - 6M (US$ mn)
3.9
*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
¹Target price is for 12 months.
Research Analysts
Ella Nusantoro
62 21 255 37917
[email protected]
Christy Halim
INITIATION
Leader of the pack
■ We initiate coverage on Hanjaya Mandala Sampoerna (Sampoerna) with an
OUTPERFORM rating and Rp108,500 target price. The company is
Indonesia's largest cigarette producer with a market share of 35% in 2014,
having sold 109.7 bn cigarettes in the year, according to the company's
estimate. It has more than 100 years of operating history and in 2005 was
acquired by Philip Morris International (PMI). It produces kretek cigarettes,
which are made with a blend of cloves and tobacco. Its main brands are
Sampoerna A, Dji Sam Soe, Sampoerna U, Sampoerna Kretek. It also
distributes the Marlboro brand in Indonesia.
■ The right market segment. Its 'premiumised' products are well targeted at the
rising middle- and premium-market segments. In addition, the rising
preference for SKM LTLN (machine-made low-tar, low-nicotine) bodes well for
Sampoerna, which had a market leading 21% share in the segment in 1H15.
■ Leading brands. We believe that brand plays a key role in customers'
purchasing decisions, whether as a catalyst to accelerate the decisionmaking process, or as an image enhancer. Sampoerna owns half of the topten cigarette brands in the market. We estimate its volume will increase by
5% and revenue will grow by 10% over the next two years, resulting in an
estimated net profit CAGR of 12% over 2015-17E.
■ Target price set at Rp108,500. Our target price of Rp108,500 implies 40x
P/E 2016E (37x P/E 2017E) with 12% earnings growth over the next two
years. The stock has around 9.4% weighting in JCI, based on 30 Dec 2015
closing price. We initiate with an OUTPERFORM rating.
■ Key risks. Regulatory, litigation, supply of raw materials, competition,
labour, and macroeconomic risks.
Share price performance
100000
90000
80000
70000
60000
Price (LHS)
Rebased Rel (RHS)
160
140
120
100
80
The price relative chart measures performance against the JSX
COMPOSITE INDEX which closed at 4519.96 on 27/11/15
On 27/11/15 the spot exchange rate was Rp13835./US$1
Performance over
Absolute (%)
Relative (%)
1M 3M 12M
-7.8 18.4 37.9
-11.0 10.4 50.1
—
—
Financial and valuation metrics
Year
Revenue (Rp bn)
EBITDA (Rp bn)
EBIT (Rp bn)
Net profit (Rp bn)
EPS (CS adj.) (Rp)
Change from previous EPS (%)
Consensus EPS (Rp)
EPS growth (%)
P/E (x)
Dividend yield (%)
EV/EBITDA (x)
P/B (x)
ROE (%)
Net debt/equity (%)
12/14A
80,690.1
14,235.2
13,805.4
10,181.1
2,322.86
n.a.
n.a.
-5.9
40.5
2.6
31.4
30.5
73.6
74.8
12/15E
90,608.1
15,103.1
14,623.2
10,950.6
2,353.45
12/16E
100,376.2
16,598.7
16,068.9
12,483.3
2,682.84
12/17E
108,786.8
17,922.9
17,343.1
13,670.1
2,937.92
2,325
1.3
39.9
2.7
28.4
12.8
45.9
Net cash
2,556
14.0
35.0
3.0
25.9
12.8
36.4
Net cash
2,853
9.5
32.0
3.3
24.1
12.8
39.9
Net cash
Source: Company data, Thomson Reuters, Credit Suisse estimates
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do
business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS
BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
04 January 2016
Table of contents
Focus charts
Leader of the pack
Best position in a growing market segment
Value lies in the brand
Initiating with OUTPERFORM and TP of Rp108,500
Key risks
PT Hanjaya Mandala Sampoerna Tbk HMSP.JK / HMSP IJ
Best position in a growing market segment
SKM LTLN continues to be the most popular product
KRETEK is Indonesia's unique cigarettes
Rising wealth fuels demand for premiumisation
Five largest players combined have 89% of the market share
Sampoerna has the largest share
...and leads in all categories but full-flavored
Five of Sampoerna's brands are leading
Leveraging strong brand equity with strong distribution network
Leveraging the PMI expertise
Revenue to grow at 10% over the next two years
Initiate with OUTPERFORM and TP Rp108,500
Comparables valuation
Comparables with Unilever Indonesia
Comparables with the parent company
Significant weighting in JCI
Flows indicate capitulation
Key risks
Regulatory risks
Litigation risks
Operational risks
Supply of raw materials
Competition
Labor-intensive industry
Unable to extend its arrangements with its third-party operators
Indonesia macro risks
Financials
Appendix 1: Comparables
Case #1: Sampoerna vs Gudang Garam
Case #2: Sampoerna vs Unilever Indonesia (UNVR)
Case #3: Sampoerna vs parent company (PMI)
Case #4: Unilever Indonesia vs parent company (ULVR L)
Appendix 2: Indonesia cigarette regulations
Excise and cigarette tax regulations
Health measures
Distribution, advertisement and promotional activities
Appendix 3: GoI excise target
Indonesia vs India: Why is it different?
Appendix 4: Cigarette production process
Primary production process
Secondary production process
Appendix 5: Credit Suisse Indonesia Consumer Survey 2015
Cigarettes
Appendix 6: The power of brand investing
The search for brands
PT Hanjaya Mandala Sampoerna Tbk (HMSP.JK / HMSP IJ)
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2
04 January 2016
Appendix 7: Company background
Appendix 8: Taman Dayu
Appendix 9: Management profile
Board of Commissioners
Board of Directors
Senior management
Appendix 10: Indonesia cigarette prices
74
78
79
79
80
81
82
3
04 January 2016
Focus charts
Figure 1: 40 largest cigarette markets globally (2014)
Figure 2: Indonesia cigarette volumes
320
300
CAGR09-14: 4.6%
CAGR12-14: 2.0%
302
314
12%
YoY
growth:
-1.1%
10%
280
280
260
247
251
8%
6%
255
4%
238
240
220
308
235 232.3
229
2%
217
0%
200
-2%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 9M14 9M15
Industry vol (bn sticks)
YoY growth (%)
Markets selected represent 80% of total industry volumes excluding
Source: Company estimates, based on market share data from
China, the US and Duty Free. Source: PMI estimates
Nielsen Retail Audit, internal sales data, and other estimates, and
publicly reported data by industry players
Figure 3: Sampoerna is the dominant player, with a rising
Figure 4: ... with strength in a growing and preferred
market share ...
category—most of Sampoerna's products are SKM LTLN*
40%
35.6%
35%
34.9%
35.3%
SPM
14.4%
32.8%
30.2%
30%
27.4%
26.4%
28.0%
25.3%
23.1%
25%
21.2%
SKT
20.4%
23.8%
22.0%
21.6%
20.2%
19.4%
18.1%
20%
19.0%
SKM FF
6.8%
23.2%
22.2%
19.3%
19.5%
SKM LTLN
58.4%
15%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
HMSP
GG
Sep15
Djarum
Source: Reflects company estimates for Sampoerna and Nielsen
*SKT: Hand-rolled kretek cigarette, SKM FF: Machine-made full-
Retail Audit for other players
flavour cigarette, SKM LTLN: Machine-made low-tar, low-nicotine
cigarette. Source: Reflects company estimates for Sampoerna and
Nielsen Retail Audit for other players
Figure 5: Indonesia consumer companies' P/E
Figure 6: Indonesia consumer companies' ROIC
comparables (2016E)
comparables (2016E)
41.0
120% 110.6%
35.4
37
29.9
23.3 23.9 22.8
27
22
100%
Weighted average:
31.2x
19.6
80%
21.1
17.5
17
14.8
11.7 10.4
12
6.1
7
Weighted average:
50.3%
60%
35.3%
29.8%27.3%
23.6%22.9%
14.6%13.8%12.9%12.2%11.3%
7.8%
40%
20%
Erajaya Swasembada
Indofood Sukses Makmur
Tiphone Mobile
Matahari Putra Prima
Ramayana Lestari
Gudang Garam
Indofood CBP
Ace Hardware
Kalbe Farma
Mitra Adiperkasa
Erajaya Swasembada
Tiphone Mobile
Ramayana Lestari
Gudang Garam
Indofood CBP
Ace Hardware
Kalbe Farma
Matahari Dept Store
HM Sampoerna
Mitra Adiperkasa
Unilever Indonesia
*share price 30 December 2015. Source: Credit Suisse estimates
HM Sampoerna
0%
2
Unilever Indonesia
P/E 2016E (x)
32
ROIC (%)
42
Source: Credit Suisse estimates
4
04 January 2016
Leader of the pack
We initiate coverage on Hanjaya Mandala Sampoerna (Sampoerna) with OUTPERFORM
and a Rp108,500 target price. Sampoerna is Indonesia's largest cigarette producer with a
market share of 34.9% in 2014, having sold 109.7 bn cigarettes in the year, according to
the company. It has more than 100 years of operating history, and in 2005, Sampoerna was
acquired by Philip Morris International (PMI). It produces kretek cigarettes, which are made
with a blend of cloves and tobacco. Its main brands include: Sampoerna A, Dji Sam Soe,
Sampoerna U, and Sampoerna Kretek. It also distributes the Marlboro brand in Indonesia.
Best positioned in a growing segment
Indonesia is the second-largest cigarette market in the world after China, and it is the only
market among the three largest markets which has registered positive growth. In 2014,
314 bn cigarettes were sold in Indonesia (5% CAGR in 2009-14). Around 94% of
cigarettes sold in Indonesia are kretek, while white cigarettes account for the remaining
6%. Growing wealth has fuelled a 'premiumisation' trend in the sector, with mid-price and
premium products accounting for 83% of the total. This bodes well for Sampoerna with its
product positioning being targetted at middle and premium segments. This is in addition to
the growing preference for the machine-made low-tar, low-nicotine products (SKM LTLN),
which have shown the highest growth in 2009-14 (+13% CAGR)—Sampoerna, with a 21%
share in the segment, is the leading producer.
Leading in SKM FF, the
preferred type, and targets
the middle and premium
segments
Sampoerna has a leadership market share in most of the cigarette segments. We believe
that brand is a key determinant in customers' purchasing decisions, whether as a catalyst
to accelerate the decision-making process, or as an image enhancer. Despite the large
number of brands in the market, the top-ten brands combined continue to see
improvement in market share. According to Sampoerna and Nielsen Retail Audit, these
brands combined had a 65.5% market share in 1H15, up from 59.6% in 2012. Sampoerna
is leading with five brands, accounting for a 35.1% market share in 1H15. We believe this
is due to its strong brand execution as well as extensive distribution network. As such, we
estimate Sampoerna's volumes will increase by 3% and revenue will grow by 10% over
the next two years, resulting in a 12% net profit CAGR over 2015-17E. We run sensitivity
analysis on the volume and ASP where, assuming other things remain similar, for every
1% change in volume, it will impact the company's net profit by 1.1%. And for every 1%
change in the average selling price, it will impact the company's net profit by 4.7%.
Five of Indonesia's top
brands belong to
Sampoerna
Initiating with OUTPERFORM and TP of Rp108,500
Sampoerna's recent rights issue resulted in its shares float to be at 7.5% (from 1.8%), thus
the stock is eligible to be included in the JCI weighting. As of 30 Dec 2015, its weighting in
the JCI is at around 9.4%, making it the largest market cap or the second largest
consumer stock after Bank Central Asia (BBCA.JK), which has a 7% weighting in the JCI.
The significant weighting in the JCI, while backed by the sound fundamentals and
operations, warrants a premium valuation compared to peers, in our view.
We initiate coverage on HM Sampoerna (HMSP.JK) with an OUTPERFORM rating and a
target price of Rp108,500, implying a 40x P/E 2016E (37x P/E 2017E) with 12% estimated
earnings growth over the next two years. Our target price is derived based on premium
P/E multiple of Sampoerna over its parent company (PMI) as we benchmark premium
valuation of Unilever Indonesia and its parent company (ULVR.L) over the last one year.
The willingness of investors (particularly domestic) to pay such a premium also shows the
value of sound corporate governance. In addition, while the stock is significant in terms of
market cap, backed by sound fundamentals, we believe that when there is a capital inflow
to Indonesia, Sampoerna could be viewed as one of the stock picks.
Our target price of
Rp108,500, equates to 40x
P/E 2016E
Key risks
Key risks include regulatory, litigation, supply of raw materials, competition, labour, and
macroeconomic risks.
5
04 January 2016
PT Hanjaya Mandala Sampoerna Tbk
HMSP.JK / HMSP IJ
Price (30 Dec 15): Rp94,000, Rating:: OUTPERFORM, Target Price: Rp108,500, Analyst: Ella Nusantoro
Target price scenario
Scenario
Upside
Central Case
Downside
TP
111,100.00
108,500.00
105,700.00
Income statement (Rp bn)
Sales revenue
Cost of goods sold
SG&A
Other operating exp./(inc.)
EBITDA
Depreciation & amortisation
EBIT
Net interest expense/(inc.)
Non-operating inc./(exp.)
Associates/JV
Recurring PBT
Exceptionals/extraordinaries
Taxes
Profit after tax
Other after tax income
Minority interests
Preferred dividends
Reported net profit
Analyst adjustments
Net profit (Credit Suisse)
Cash flow (Rp bn)
EBIT
Net interest
Tax paid
Working capital
Other cash & non-cash items
Operating cash flow
Capex
Free cash flow to the firm
Disposals of fixed assets
Acquisitions
Divestments
Associate investments
Other investment/(outflows)
Investing cash flow
Equity raised
Dividends paid
Net borrowings
Other financing cash flow
Financing cash flow
Total cash flow
Adjustments
Net change in cash
Balance sheet (Rp bn)
Cash & cash equivalents
Current receivables
Inventories
Other current assets
Current assets
Property, plant & equip.
Investments
Intangibles
Other non-current assets
Total assets
Accounts payable
Short-term debt
Current provisions
Other current liabilities
Current liabilities
Long-term debt
Non-current provisions
Other non-current liab.
Total liabilities
Shareholders' equity
Minority interests
Total liabilities & equity
%Up/Dwn
18.19
15.43
12.45
12/14A
80,690
60,190
6,695
(429.8)
14,235
429.8
13,805
(10.0)
(111.3)
14.1
13,718
—
3,537
10,181
—
—
—
10,181
—
10,181
12/14A
13,805
10.0
(3,537)
961
332.6
11,572
(1,641)
9,931
—
—
—
—
(235.4)
(1,876)
(21)
(10,817)
393.5
156.6
(10,288)
(592)
—
(592)
12/14A
65
1,098
17,432
2,183
20,778
5,920
599.2
60.4
1,024
28,381
2,761
10,107
—
732
13,600
33.5
—
1,249
14,883
13,498
—
28,381
Assumptions
Based on 41.4x P/E 2016E
12/15E
90,608
68,309
7,676
(479.8)
15,103
479.8
14,623
(27.1)
(146.8)
13.8
14,517
—
3,567
10,951
—
—
—
10,951
—
10,951
12/15E
14,623
27.1
(3,567)
(6,506)
346.8
4,924
(1,000)
3,924
—
—
—
—
(49.5)
(1,050)
20,769
(10,951)
(196.7)
264.3
9,886
13,761
—
13,761
12/15E
13,826
1,514
19,116
2,278
36,734
6,440
599.9
60.4
1,073
44,907
2,755
5,485
—
853
9,093
36.9
—
1,510
10,640
34,267
—
44,907
12/16E
100,376
75,956
8,351
(529.8)
16,599
529.8
16,069
(383.5)
—
—
16,452
—
3,969
12,483
—
—
—
12,483
—
12,483
12/16E
16,069
383.5
(3,969)
(1,117)
529.8
11,896
(1,000)
10,896
—
—
—
—
(25.0)
(1,025)
—
(12,483)
98.4
366.5
(12,018)
(1,147)
—
(1,147)
12/16E
12,678
1,677
20,746
2,465
37,567
6,910
600.0
60.4
1,098
46,235
3,161
5,896
—
999
10,055
36.9
—
1,876
11,969
34,267
—
46,235
12/17E
108,787
82,628
8,816
(579.8)
17,923
579.8
17,343
(614.3)
—
—
17,957
—
4,287
13,670
—
—
—
13,670
—
13,670
12/17E
17,343
614.3
(4,287)
(1,851)
579.8
12,399
(1,000)
11,399
—
—
—
—
(19.8)
(1,020)
—
(13,670)
(49.2)
458.1
(13,261)
(1,882)
—
(1,882)
12/17E
10,796
1,799
23,026
2,648
38,269
7,330
600.0
60.4
1,117
47,377
3,466
6,107
—
1,166
10,739
36.9
—
2,334
13,110
34,267
—
47,377
Key earnings drivers
GDP growth (%)
Average inflation (%)
Average exchange rate
Cigarette
(IDR/USD)volume (bn
ASP
(Rp/stick)
sticks)
Per share data
Shares (wtd avg.) (mn)
EPS (Credit Suisse) (Rp)
DPS (Rp)
BVPS (Rp)
Operating CFPS (Rp)
Key ratios and
valuation
Growth(%)
Sales revenue
EBIT
Net profit
EPS
Margins (%)
EBITDA
EBIT
Pre-tax profit
Net profit
Valuation metrics (x)
P/E
P/B
Dividend yield (%)
P/CF
EV/sales
EV/EBITDA
EV/EBIT
ROE analysis (%)
ROE
ROIC
Asset turnover (x)
Interest burden (x)
Tax burden (x)
Financial leverage (x)
Credit ratios
Net debt/equity (%)
Net debt/EBITDA (x)
Interest cover (x)
12/14A
5.00
6.40
11,885
110.9
724.9
12/14A
4,383
2,323
2,468
3,080
2,640
12/14A
12/15E
4.80
6.30
13,700
111.1
814.9
12/15E
4,653
2,353
2,498
7,364
1,058
12/15E
12/16E
5.20
4.70
14,650
114.0
880.3
12/16E
4,653
2,683
2,848
7,364
2,557
12/16E
12/17E
5.40
5.30
15,100
117.7
924.6
12/17E
4,653
2,938
3,119
7,364
2,665
12/17E
7.6
(5.4)
(5.9)
(5.9)
12.3
5.9
7.6
1.3
10.8
9.9
14.0
14.0
8.4
7.9
9.5
9.5
17.6
17.1
17.0
12.6
16.7
16.1
16.0
12.1
16.5
16.0
16.4
12.4
16.5
15.9
16.5
12.6
40.5
30.5
2.63
35.6
5.55
31.4
32.4
39.9
12.8
2.66
88.8
4.74
28.4
29.3
35.0
12.8
3.03
36.8
4.29
25.9
26.8
32.0
12.8
3.32
35.3
3.98
24.1
25.0
73.6
44.1
2.84
0.99
0.74
2.10
45.9
44.5
2.02
0.99
0.75
1.31
36.4
45.6
2.17
1.02
0.76
1.35
39.9
46.2
2.30
1.04
0.76
1.38
74.8
0.71
(1,374)
(24.2)
(0.55)
(540)
(19.6)
(0.41)
(42)
(13.5)
(0.26)
(28)
Source: Company data, Thomson Reuters, Credit Suisse estimates.
12MF P/E multiple
45
40
35
30
25
20
15
10
5
0
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
12MF P/B multiple
25
20
15
10
5
0
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Source: IBES
6
04 January 2016
Best positioned in a growing
segment
Indonesia is the second-largest cigarette market in the world after China, and it is the only
market in the three largest markets which has registered positive growth. In 2014, 314 bn
cigarettes were sold in Indonesia, with a 5% CAGR in 2009-14. Around 94% of cigarettes
sold in Indonesia were kretek, with white cigarettes accounting for the remaining 6%.
Growing wealth has fuelled a 'premiumisation' trend in the sector, with mid-price and
premium products accounting for 83% of the total. This bodes well for Sampoerna's
product positioning, which is targeted at middle and premium segments. This is in addition
to the growing preference for the machine-made, low-tar, low-nicotine products (SKM
LTLN) which have the highest growth (+13% CAGR in 2009-14)—Sampoerna, with a 21%
share in the segment, is the leading producer.
Indonesia saw 314 bn
cigarette sales in 2014 and
is the second-largest
cigarette market in the world
SKM LTLN continues to be the most popular product
Indonesia's cigarette industry witnessed a 5% CAGR in 2009-14 to reach 314 bn sticks in
2014. Indonesia is the second-largest market in the world, after China, followed by Russia
(310 bn sticks) and Japan (186 bn sticks), according to PMI. Also, Indonesia is the only
country in the three largest markets in the world to have registered positive growth in
2010-14.
Among the three-largest
markets in the world, only
Indonesia has been
registering positive growth
This, we believe, is on the back of rising economic growth over the past nine years, during
which Indonesia's GDP per capita doubled to around US$3,565 in 2014, according to
Credit Suisse's estimates. This is also due to the demographics, whereas there are a large
number of smokers in Indonesia, of which, according to the American Cancer Society,
there were approximately 87 mn smokers in Indonesia in 2013, of which 97% were males.
This is about 34% of the population, or, to put it in another way, around 68% of Indonesian
males are smokers.
Figure 7: Indonesia—cigarette volumes
320
302
CAGR09-14: 4.6%
CAGR12-14: 2.0%
300
314
260
247
251
YoY growth:
8%
-1.1%
6%
255
4%
238
240
12%
10%
280
280
220
308
235
229
232.3
217
2%
0%
200
-2%
2005
2006
2007
2008
2009
2010
Industry vol (bn sticks)
2011
2012
2013
2014
9M14
9M15
YoY growth (%)
Source: Company estimates, based on market share data from Nielsen Retail Audit, internal sales data,
and other estimates, and publicly reported data by industry players
7
04 January 2016
Figure 8: 40 largest cigarette markets globally (2014)
* Markets selected represent 80% of total industry volumes excluding China, the US and Duty Free.
Source: PMI estimates
Figure 9: Global cigarette market volume growth
Top 10 markets*
No. Market
Top 10 growing markets*
2014 vol
2010-2014
(bn sticks)
No. Market
2014 vol
2010-2014
(bn sticks)
1
Indonesia
314
Vol growth
(bn sticks)
59.3
1
Indonesia
314
Vol growth (bn
sticks)
59.3
2
Russia
310
-72
2
Iran
47.2
12.3
3
Japan
186.2
-32.7
3
Bangladesh
83.5
9.8
4
India
94.8
-10.1
4
Belarus
29.6
8.1
5
Turkey
93.9
0.5
5
Algeria
32.5
8.1
6
Korea
89.4
-1.1
6
Saudi Arabia
31.1
6.8
7
Bangladesh
83.5
9.8
7
Jordan
11.4
3.9
8
Philippines
82.3
-19.2
8
Nigeria
17.9
3.8
9
Egypt
82
1.5
9
Thailand
37.3
2.4
10
Germany
80.4
-3.6
10
Egypt
82
1.5
* Excludes China, the US and Duty Free.
Source: PMI estimates
Kretek is Indonesia's unique cigarette
Kreteks are cigarettes made with a blend of tobacco, cloves and other flavors (sauces),
and are an Indonesian creation. The majority of the cigarettes sold in Indonesia are
kreteks, or better known as clove cigarettes. Kreteks are estimated by Sampoerna to have
accounted for around 94% of total cigarette sales in 2014, with an estimated 5% CAGR in
2009-14. The remaining 6% was accounted for by white cigarettes, which has seen a 2%
CAGR over the past nine years.
94% of cigarettes sold in
Indonesia are kreteks
Kretek cigarettes have two types, namely SKT (Sigaret Kretek Tangan, or hand-rolled) and
SKM (Sigaret Kretek Mesin, or machine-made). The difference between the two is tar and
nicotine content, with SKT being stronger in tar and nicotine and, therefore, having a
stronger flavour, whereas SKM contains a filter. There are two types of SKM cigarettes,
full-flavoured (FF) and low-tar, low-nicotine (LTLN), which differ in terms of tar and nicotine
content—SKM LTLN has a milder taste.
Kretek: Hand-rolled (SKT)
and machine-made (SKM).
SKM types: Full flavoured
(FF), low-tar, low-nicotine
(LTLN)
8
04 January 2016
In the past nine years, the industry has seen a shift in consumer preference from SKT to
SKM, and within SKM, a shift from SKM FF to SKM LTLN. In 2014, SKT accounted for
20% of the total cigarette volume, down from 30% in 2009, while SKM's contribution was
up from 62% to 74%. Volume of SKT declined by 2.6% p.a. in 2005-14, while SKM
volumes surged 7.5% during the same period. The declining preference for SKT continued
in 2015, with SKTs accounting for 19% of total cigarettes sold in 1H15, while SKM's share
increased to 75%.
Shift in consumer
preference from SKT to
SKM
Within the SKM segment, LTLN is gaining popularity due to its lighter taste as well as the
images portrayed targeting the urban, young smoker. SKM FF volume accounted for 32%
of total volume in 2014, down from 40% in 2005. However, over the past three years, SKM
FF has been rising from 29% of the total volume registered in 2011, due to a shift in
consumer preference mostly from SKT. Although SKM FF volume showed a CAGR of
1.7% in 2005-14, it has grown faster over the past five years (+4% CAGR in 2009-14). In
1H15, SKM FF accounted for 34% of the total cigarette volume.
SKM LTLN continues to
gain popularity
SKM LTLN, on the other hand, grew the fastest in 2005-14 (+16% CAGR), as it also
started from a low base. Over the past three years, SKM LTLN has registered a CAGR of
9%. It has registered a 12.7% CAGR over the past five years. SKM LTLN volume
accounted for only 16% of the total volume in 2005, but this rose to 41% in 1H15.
This is in line with the findings in the Credit Suisse Indonesia Consumer Survey 2015
(refer to Appendix 5: Credit Suisse Indonesia Consumer Survey 2015), which indicated
that smokers prefer SKM. Of the total respondents, 33% of smokers preferred SKM-full
flavoured (32% in last year's survey). Those that favoured SKM low-tar, low-nicotine were
down to 28%, from 30%, and SKT smokers are now at 22% (versus 24% in the 2013
survey)—the lowest in the five years we have done the survey. While white cigarettes
continue to be the least-popular type, only favoured by 6% of the respondents, the number
is relatively stable compared with our previous survey.
Figure 10: Industry volume breakdown by segment (2005)
Our findings have similar
results
Figure 11: Industry volume breakdown by segment (1H15)
SPM
6.2%
SPM
7.8%
SKM FF
39.7%
SKT
18.9%
SKM FF
33.5%
SKT
36.8%
SKM LTLN
15.6%
SKM LTLN
41.3%
* SKT: Hand-rolled kretek cigarette, SKM FF: Machine-made full-
flavour cigarette, SKM LTLN: Machine-made low-tar low-nicotine
flavour cigarette, SKM LTLN: Machine-made, low-tar, low-nicotine
cigarette, SPM: White cigarette.
Source: Company estimates
Rising wealth fuels demand for 'premiumisation'
Our Indonesia Consumer Survey 2015 indicated that Indonesians are the second-ranked
most confident nation in terms of expectations of future income. In fact, 28% of
Indonesians are expecting an increase in income, by more than 10%, over the next 12
months. Only 3% of our respondents expect a lower-to-flat income growth in the next 12
months, which is the lowest among the emerging countries we surveyed. Moreover, the
9
04 January 2016
high confidence and optimism of the respondents were also supported by a significant
increase in the average monthly income by around 43%. The average monthly income of
Indonesians has increased across regions—in particular, those residing in urban areas
have actually seen their incomes increase by around 47%, based on our Consumer
Survey 2015.
This is in line with the survey by the Boston Consulting Group (BCG), which reported that
Indonesia is seeing a growth in more affluent consumers, which is defined as consumers
with a monthly household expenditure of Rp2 mn and above. The more affluent
consumers constituted around 30% of the population in 2012, and is expected to grow to
53% of the population in 2020, in tandem with Indonesia's GDP growth of around 5%,
going forward, according to Credit Suisse's estimates.
Figure 12: Indonesia's MAC population 2012-20
1
Monthly household expenditure numbers are stated in real 2011 terms (adjusted for inflation) and include
regular household expenditures such as food, utilities, transportation, communication, and regular
household supplies and exclude discretionary spending such as entertainment, restaurant dining and
similar categories. Note that the expenditure level is based on data from BPS, which uses regression
analysis to remove irregular expenditures. The spending levels used to define wealth classes in this model
may differ from those used by market research agencies to define socioeconomic status levels because of
different data collection methodologies and models.
Source: BCG Population and Household Expenditure Database 2012; BCG analysis; Indonesian
Government Statistics Office (BPS).
The increase in consumer wealth is creating higher spending power, thus resulting in a
'premiumisation' trend in the cigarette sector as well. According to Sampoerna's estimates,
cigarette volume for low-priced products declined from 21% of the total volume in 2010 to
17% in 2014, whereas volumes of mid-priced and premium products increased from 44%
and 36% in 2010 to 45% and 38% in 2014, respectively. As of 9M15, around 38% of total
cigarettes sold in Indonesia were categorised as premium products, 46% mid-priced, and
16% low-priced.
This bodes well for Sampoerna's strategy to target its products at the middle and higher
consumer segments. In 2014, around 68% of Sampoerna's volumes were constituted by
the premium-priced segment, while the remaining 32% were from the mid-priced
segments, while in 9M15, Sampoerna's premium-priced products accounted for 69% of
total, and mid-priced products accounted for the remaining 31%.
10
04 January 2016
Figure 13: Industry price segmentation (volume)
50%
40%
43.7%
43.6%
45%
35.5%
46.3%
45.2%
37.6%
37.5%
37.1%
35.8%
34.5%
35%
43.3%
42.9%
30%
25%
21.9%
20.9%
21.3%
19.6%
20%
17.3%
16.1%
15%
10%
2010
2011
2012
Premium
2013
Mid-price
2014
Sep-15
Low-price
Note: Segmented by Sampoerna's internal price classification criteria.
Five-largest players combined have 89% of the
market share
The industry is competitive, with the three largest players, namely Sampoerna, Gudang
Garam (GG), and Djarum, holding about 78% of the total market share in 1H15, according
to Nielsen Audit Retail. The next two largest players, namely BAT Indonesia and Nojorono,
have a combined market share of 11%. In total, the five-largest cigarette players together
hold approximately 89% of the market share. The remaining 11% market share is shared
by the 950 smaller-sized producers who have mainly penetrated local markets, instead of
having a nationwide presence.
The three-largest cigarette
players have a combined
market share of 78%
As Indonesia is an archipelago, an extensive distribution network is needed, as more than
90% of cigarette sales rely on small, local retail shops. The modern retail outlets handle a
very small proportion of the sales.
Figure 14: Market share of Sampoerna, GG, and Djarum
40%
8.8%
9%
35.6%
35%
34.9%
35.2%
32.8%
30.2%
30% 27.4%
26.4%
6.8%
7%
23.8%
22.0%
20.2%
18.1%
22.2%
21.6%
19.4%
19.0%
19.5%
8.1%
7.7%
8%
6%
25.3%
23.1%
21.2%
8.3%
6.4%
28.0%
25%
20%
Figure 15: Market share of BAT Indonesia and Nojorono
6.4%
5.9%
5.7%
5.8%
23.2%
5.5%
5.2%
5%
4.4%
19.3%
15%
4%
6.5%
6.1%
3.6%
4.3%
3.9%
3%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sep15
HMSP
GG
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sep15
Djarum
BAT
Nojorono
11
04 January 2016
Sampoerna has the largest share …
In 2006, Sampoerna overtook GG as Indonesia's largest cigarette producer, with its
market share steadily increasing to 35.3% in 1H15, from 26.4% in 2005. Excluding SPM's
contribution (5.1% share of the total volumes), Sampoerna's market share in kretek
cigarettes stood at 30.2% in 1H15. The company's volume breakdown by segment in
1H15 was as follows: 58% from SKM LTLN, 20% from SKT, 14% from SKM FF, and 14%
from SPM.
Sampoerna had a 35.3%
market share in 1H15
Sampoerna's share gain is underpinned by a surge in its share in SKM LTLN (20.6% in
1H15). At the same time, its SKM FF and SPM volumes are also improving, albeit volumes
being still insignificant in terms of share (2.4% for SKM FF). Sampoerna's SKT volume, on
the other hand, is decelerating, along with the industry's, due to a shift in consumers'
preference to SKM in general, with its market share declining to 7.2% in 1H15 from 12.7%
in 2005.
GG is Indonesia's second-largest cigarette producer with a market share of 23.2% in 1H15.
This is a decline from the 27.4% share it had in 2005 as consumers shifted to SKM LTLN,
a segment in which GG is a late-comer. Even though it is starting to gain share in SKM
LTLN, it is still insignificant (3% market share). The company continues to do well in SKM
FF, in which GG is the largest player, with its market share surging to 16.9% in 1H15, from
15.8% in 2012. Its share in SKT was small at 3% in 1H15. As of 1H14, GG's largest
volume contribution was from SKM FF, which accounted for 73 % of the total volume, with
13% each for SKM LTLN and SKT.
GG is a large player in SKM
FF, with a market share of
23.2% in 1H15
Djarum is the third-largest cigarette player in Indonesia, with a market share of 19.3% in
1H15. This is a decline from 21.2% in 2005, underpinned by a decline in both SKT and
SKM FF, as consumers have been switching their preferences to SKM LTLN. In SKM
LTLN, Djarum's market share steadily improved from 1.3% in 2005 to 7.6% in 1H15. Its
SKT declined to 4.3% in 1H15 from 9% in 2005. Its SKM FF declined from 10.8% to 7.4%.
Djarum's volume is more balanced in each of the segments. In 1H15, 39% of its volume
came from SKM LTLN, 38% from SKM FF, and 22% from SKT.
Djarum is the third-largest
player, with a 19.3% market
share in 1H15
BAT Indonesia is the fourth-largest cigarette player in Indonesia. BAT acquired a local
company, Bentoel, in 2009. Despite being the fourth largest, the gap between BAT
Indonesia and Djarum is wide in terms of market share. BAT Indonesia's market share
stood at 6.4% in 1H15 which is an improvement compared with the 5.7% share in 2005.
However, this share is lower compared with the 8.8% share it had in 2010. Its main
segment is SKM LTLN, with a 4.1% market share, followed by SKM FF at 1.4%, while its
SKT and SPM constituted 0.5% and 0.3% share, respectively, in 1H15. In 1H15, BAT
Indonesia's volume was mostly derived from SKM LTLN, at 65% of the total volume—22%
from SKM FF, 8% from SKT, and 5% from SPM.
As the fourth-largest
cigarette player, BAT had a
6.4% market share in 1H15
The fifth-largest cigarette player in Indonesia is Nojorono, which had a market share of
4.3% in 1H15. Its share was mainly in the SKM LTLN segment, at 3.5%, while SKT
constituted 0.6% and SKM FF 0.2%.
Nojorono had a 4.3%
market share in 1H15
12
04 January 2016
Figure 16: Cigarette producers' segment breakdown
Figure 17: Cigarette producers' segment breakdown by
(2005)
category (1H15)
100%
90%
100%
6.2%
14.0%
90%
80%
80%
70%
70%
51.2%
37.1%
60%
61.4%
62.9%
60%
86.4%
50%
48.1%
13.6%
42.7%
5.3%
7.0%
HMSP
GG
Djarum
BAT
SKT
SKM FF
SKM LTLN
20%
31.4%
Nojorono
81.4%
72.8%
38.3%
30%
26.3%
20%
0%
65.1%
58.4%
40%
5.7%
30%
10%
39.4%
50%
40%
4.8%
13.4%
14.4%
10%
0%
6.8%
22.2%
4.7%
20.4%
13.4%
22.3%
7.9%
14.0%
HMSP
GG
Djarum
BAT
Nojorono
SPM
SKT
SKM FF
SKM LTLN
SPM
* SKT: Hand-rolled kretek cigarette, SKM FF: Machine-made full
Source: Company data
... and leads in all categories but full-flavored
SKT: Sampoerna has a 38% market share
SKT accounts for 19% of the industry's total volume in 1H15, a decline from 37% in 2005.
In the SKT segment, Sampoerna is the leading player, with a market share of 38% in
1H15, up from 35% in 2005. Its brands include Djie Sam Soe and A-Hijau. The second
largest SKT player is Djarum with a 24% market share with brands, Djarum 76 and Djarum
Coklat, followed by Gudang Garam as the third largest SKT player with a market share of
17%. GG brands include GG Merah, Sriwedari and Djaja, as well as GG Gold.
Sampoerna has a 38%
market share in SKT, and
Djarum has 24%, while GG
has 17% in 1H15
BAT Indonesia's market share in SKT increased to 3% in 1H15, from 1% in 2005, with
brands such as Tali Jagat Raya, Bintang Buana Raya, Sejati, Joged, Rawit, and Prinsip.
The fifth-largest market share in SKT is Nojorono, whose market share is relatively flat at
3%, with brand Minak Djinggo. The other smaller-sized players have been losing their
share in SKT which combined account for 14% in 1H15, down from 26% in 2005, as clove
prices rose and consumer preferences shifted to SKM.
Figure 18: SKT—volume vs YoY growth
40000
5%
CAGR12-14: -18%
CAGR15-17E: 1.5%
36611
YoY
growth:
-9.2%
35000
0%
31926
mn sticks
-5%
30000
-10%
24619
25000
21921
22140
22583
23034
23495
23965
-15%
20000
18594
16875
15000
-20%
-25%
2012
2013
2014
2015E
2016E
2017E
Volume (mn sticks)
2018E
2019E
2020E
9M14
9M15
YoY growth (%)
Source: Reflects Company estimates for Sampoerna and Nielsen Retail Audit for other players
13
04 January 2016
Figure 19: Industry's market share of SKT (2005)
Figure 20: Industry's market share of SKT (1H15)
Nojorono
3.4%
Others
26.3%
BAT
3.4%
Sampoerna
35.0%
Nojorono
2.5%
BAT
1.3%
Sampoerna
37.9%
Djarum
24.1%
GG
10.0%
Djarum
25.0%
Others
13.8%
GG
17.2%
Source: Reflects Company estimates for Sampoerna and Nielsen
Source: Reflects Company estimates for Sampoerna and Nielsen
SKM: Sampoerna has a 31% market share …
SKM accounted for 75% of the industry's volume in 1H15, up from 55% in 2005,
underpinned by the rise in SKM LTLN. In 1H15, Sampoerna's market share in SKM
increased from 18% in 2005 to 31% in 1H15, while GG's market share declined to 27%,
from 43% during the same period. Djarum's market share is relatively flat at ~21%. The
fourth-largest SKM player is now BAT Indonesia, which saw its market share surge to 7%
in 1H15, up from 3% in 2005, while Nojorono's market share was flat at 4%. The other
smaller-sized players combined had a flat market share of ~11%. The surge in
Sampoerna's market share in SKM was due to a surge in the SKM LTLN volume, as SKM
LTLN accounted for 41% of total SKM in 1H15, up from 16% in 2005.
Sampoerna's market share
in SKM was 31%, with GG
at 26% and Djarum at 21%
in 1H15
Figure 21: SKM—volume vs YoY growth
100000
13%
CAGR12-14: 10.4%
CAGR15-17E: 3.8%
90000
90021
85734
81652
mn sticks
80000
68969
70000
60000
72220
74731
77764
YoY
growth:
4.2%
11%
9%
7%
63268
5%
56588
51046
53210
50000
3%
1%
40000
-1%
2012
2013
2014
2015E
2016E
Volume (mn sticks)
2017E
2018E
2019E
2020E
9M14
9M15
YoY growth (%)
14
04 January 2016
Figure 22: Industry's market share of SKM (2005)
Nojorono
4.2%
BAT
3.3%
Others
10.8%
Figure 23: Industry's market share of SKM (1H15)
Nojorono
4.3%
Sampoerna
17.5%
Others
11.1%
Sampoerna
30.8%
BAT
6.8%
Djarum
21.7%
Djarum
20.5%
GG
42.5%
GG
26.5%
... and leads in SKM LTLN …
SKM LTLN accounted for 55% of total SKM (41% of total industry) in 1H15, up from 28%
of total SKM (16% of total industry) in 2005. It has been the fastest growing segment
within the sector, with volumes witnessing a 16% CAGR over 2005-14, versus the
industry's 4% during the same period. Sampoerna is the leader in the segment, with a
market share of 50% in 1H15, even though it was down from 62% in 2005, as both Djarum
and GG started increasing their foothold in the segment. Sampoerna's brands in SKM
LTLN include A-Mild and U-Mild.
Sampoerna leads in the
SKM LTLN segment, with
Djarum and GG increasing
their footholds
The second-largest player in SKM LTLN is Djarum, whose market share had accelerated
to 19% in 1H15, up from 9% in 2005, with brands such as Djarum Black, Djarum Super
Mild, Djarum Black, and LA Lights. GG, on the other hand, is the latecomer in the
segment, with it holding an 8% market share in SKM LTLN in 1H15. Its brands include GG
Signature, GG Mild, and GG Pro Mild. BAT Indonesia with a 9% market share in the
segment in 1H15, is the fourth-largest player, with brands Dunhill Mild, Club Mild, Neo
Mild, Uno Mild, X Mild, and Star Mild. Nojorono is now the fifth-largest SKM LTLN player
with its market share declining to 8%, from 14%, with Clas Mild brand. The smaller-sized
players have a stable market share of 6%.
Figure 24: SKM LTLN—volume vs YoY growth
70
64
60
60
25%
55
20%
50
bn sticks
30%
44
40
33
15%
35
10%
28
30
21
24
5%
24
20
0%
10
-5%
2005
2006
2007
2008
2009
Volume (bn sticks)
2010
2011
2012
2013
2014
YoY growth (%)
15
04 January 2016
Figure 25: Industry's market share of SKM LTLN (2005)
Nojorono
14.7%
Figure 26: Industry's market share of SKM LTLN (1H15)
Nojorono
7.8%
Others
5.9%
Others
6.3%
BAT
9.4%
BAT
8.8%
Sampoerna
50.0%
Sampoerna
61.8%
Djarum
8.8%
Djarum
18.8%
GG
7.8%
... but GG leads in SKM FF
SKM FF volumes accounted for 45% of total SKM, or 34% of that of the industry's in 1H15,
a decline from 72% of total SKM, or 40% of that of the industry's in 2005. Its volume saw a
2% CAGR in 2009-14. In the SKM FF segment, GG was leading with a 50% market share
in 1H15, even though it was down from 59% in 2005. GG brands are GG Surya and GG
Filter Internasional Merah (FIM).
GG has a 50% market share
in SKM FF, followed by
Djarum at 23% and
Sampoerna at 8%
Djarum is the second-largest player in SKM FF, with a 23% market share, from 27% in
2005, with Djarum Super brand. Sampoerna's market share is minimal in SKM FF, only
8% with Magnum brand, but it is the third-largest player in the segment. BAT Indonesia
has a 4% market share in 1H15, up from 1% in 2005, with brands such as Tali Jagat Filter,
Bentoel Biru, and Bintang Buana Filter. The smaller players in SKM FF saw their market
share combined to reach 15% in 1H15 compared with 13% in 2005.
Figure 27: SKM FF—volume vs. YoY growth
6
5.3
120%
100%
5
80%
bn sticks
4
60%
3.4
3
40%
1
20%
1.8
2
1.0
0.4
0.5
2005
2006
1.0
0.8
1.0
0%
1.1
-20%
-
-40%
2007
2008
2009
Volume (bn sticks)
2010
2011
2012
2013
2014
YoY growth (%)
16
04 January 2016
Figure 28: Industry's market share of SKM FF (2005)
Figure 29: Industry's market share of SKM FF (1H15)
Sampoerna
7.7%
BAT
1.2%
Others
12.8%
Others
15.4%
BAT
3.8%
Djarum
26.7%
GG
59.3%
Djarum
23.1%
GG
50.0%
SPM: Sampoerna has an 80% market share
SPM is a smaller market in Indonesia, as consumers' preference continues to be kretek
cigarettes. SPM accounted for only 6% of industry volumes in 1H15 compared with 8% in
2005. With the Marlboro brand, Sampoerna is the leader in the SPM segment, with its
market share soaring to 80% in 1H15 compared with 47% in 2005, while BAT Indonesia
brands include Country, Pall Mall, Ardath, and Dunhill.
Sampoerna's market share
in SPM is 80% in 1H15,
being a leader in the
segment
Figure 30: SPM—volume vs. YoY growth
17000
16138
CAGR12-14: 5.3%
16106 CAGR15-17E: 1%
16000
15000
15623
15779
15937
16096
16257
12%
16420
YoY
growth:
-3%
14519
10%
8%
6%
14000
4%
2%
13000
12181
0%
11810
12000
-2%
11000
-4%
2012
2013
2014
2015E
2016E
2017E
Volume (mn sticks)
2018E
2019E
2020E
9M14
9M15
YoY growth (%)
17
04 January 2016
Figure 31: Industry's market share of SPM (2005)
Others
5.9%
BAT
47.1%
Figure 32: Industry's market share of SPM (1H15)
Others
20.0%
Sampoerna
47.1%
Sampoerna
80.0%
18
04 January 2016
Sampoerna has a leadership market share in most of the cigarette segments. We believe
that brand is a key determinant in customers' purchasing decisions, whether as a catalyst
to accelerate the decision-making process, or as an image enhancer. Despite many
brands in the market, the top-ten combined continue to see improvement in market share.
According to Sampoerna and Nielsen Retail Audit, these brands combined had a 65.5%
market share in 1H15, up from 59.6% in 2012. Sampoerna is leading with five brands,
accounting for a 35.1% market share in 1H15. We believe this was due to Sampoerna's
strong brand execution as well as extensive distribution network. As such, we estimate
Sampoerna's volumes will increase 3% and revenue will grow by 10% over the next two
years, resulting in a 12% net profit CAGR in 2015-17E. We run a sensitivity analysis on
the volume and ASP where, assuming other things remain similar, for every change of 1%
in volume, it would impact the company's net profit by 1.1%. Also, for every change of 1%
in the average selling price, it would impact the company's net profit by 4.7%.
Sampoerna was Indonesia's
largest cigarette producer
with a 34.9% market share
in 2014
Five of Sampoerna's brands are leading
We believe that brands play a key role in customers' purchasing decisions, whether as a
catalyst in making a decision, or as an image enhancer (refer to Appendix 6: The power of
brand investing). This, we believe, is one reason for the wide gap in market share between
the three largest and the remaining players. Having strong brands is also a key advantage
for the large players, should the GoI place various restrictions on promotion, marketing,
packaging, labelling, or sponsorship on cigarettes.
Figure 33: Top ten brand families, by three largest cigarette producers
Cigarette type
Sampoerna
Gudang Garam
Djarum
Hand-rolled Kretek (SKT)
Dji Sam Soe
GG Red
Djarum Coklat
Sampoerna Kretek
Djarum 76
Djarum Istimewa
Machine-made Kretek (SKM)
Sampoerna A
GG Surya
Djarum Super
Sampoerna U
GG FIM
Djarum Super MLD
Dji Sam Soe Magnum
GG Surya Pro Mild LA Lights
GG Mild
Djarum Black
GG Signature
White-Cigarettes (SPM)
Marlboro
Source: Company estimates for Sampoerna and Nielsen Retail Audit for other players
Despite many brands in the market, the top ten brands combined continue to see
improvement in market share. The ten brands, according to Sampoerna and Nielsen Retail
Audit, combined had a 65.5% market share in 1H15, up from 59.6% in 2012. In addition,
Sampoerna is leading with five brands, accounting for a 35.1% market share in 1H15,
followed by Gudang Garam with two brands (15%), and one brand each for Djarum (8%),
BAT 3.9%, and Nojorono 3.4%.
The top ten cigarette brands
combined had a 65.5%
market share in 1H15,
according to Sampoerna
and Nielsen Retail Audit
19
04 January 2016
Figure 34: Market share by sales volume of top ten brand family
Brand
Company
Sampoerna A
Sampoerna
2012
2013
2014
1H15
13.9%
14.4%
14.4%
15.0%
GG Surya
Djarum Super
Gudang Garam
9.3%
9.8%
10.8%
10.7%
Djarum
5.2%
5.9%
7.3%
8.0%
Dji Sam Soe
Sampoerna
7.8%
6.8%
6.3%
7.0%
Marlboro
Sampoerna
4.8%
5.2%
5.1%
5.1%
Sampoerna U
Sampoerna
3.3%
4.4%
5.4%
5.0%
GG FIM
Gudang Garam
6.0%
5.2%
4.3%
4.3%
Dunhill
BAT
0.6%
1.9%
2.8%
3.9%
Class Mild
Nojorono
4.3%
3.9%
3.6%
3.4%
Sampoerna Kretek
Sampoerna
4.5%
4.3%
3.4%
3.0%
59.6%
61.8%
63.4%
65.5%
Total
Source: Company estimates for Sampoerna and Nielsen Retail Audit for other players
This is in line with the findings of the Credit Suisse Consumer Survey 2015, where
Sampoerna remains the leader among cigarette manufacturers, followed by GG and
Djarum. Within the brands, Sampoerna A Mild (SKM LTLN) continues to be the leader,
followed by Djarum Super (SKM FF), Dji Sam Soe (SKT), GG Surya (SKM FF) and GG
FIM (SKM FF). Sampoerna A Mild continues to be the most popular cigarette brand for the
past two years, based on our survey (refer to Appendix 5: Credit Suisse Indonesia
Consumer Survey).
Figure 35: Cigarette consumption, by brand—Sampoerna's A-Mild is the most popular cigarette brand
% of respondents
that smoke
Age
Java Non Java
Monthly income
Total
Urban
Rural
18-29 30-45 46-55 56-65 < Rp1.5mn Rp1.5-7.5mn >Rp7.5mn
Sampoerna A Mild
19
21
14
17
24
25
17
8
11
17
18
25
Djarum Super
14
13
14
18
1
14
16
8
8
16
15
11
Dji Sam Soe
14
15
11
15
7
11
14
18
17
10
14
15
Gudang Garam Surya
12
13
11
8
26
11
12
16
13
16
13
4
Other brands
11
8
15
8
20
8
12
13
17
9
10
15
Gudang Garam Filter
7
8
6
10
1
7
8
8
8
6
7
8
Djarum Coklat
5
3
8
6
-
3
4
10
10
4
5
-
U Mild
5
6
4
6
3
5
5
5
2
7
4
8
Marlboro
4
5
2
4
3
5
3
4
2
8
4
6
Clas Mild
4
4
4
1
11
6
3
2
4
3
4
3
Sampoerna Hijau
2
1
4
3
1
1
2
4
6
4
3
-
Dunhill
2
2
3
2
4
3
1
2
-
2
2
3
Djarum 76
1
1
1
1
-
-
1
2
-
-
-
-
Sampoerna A Mild
18
18
15
15
23
20
18
8
11
12
18
34
Gudang Garam Surya
14
13
15
10
25
13
13
19
14
11
14
4
Dji Sam Soe
13
14
9
14
6
7
18
13
8
9
13
23
Djarum Super
11
11
15
15
0
16
8
7
19
15
11
8
Other brands
9
9
11
6
20
7
11
8
11
13
8
21
Gudang Garam Filter
6
7
4
8
2
6
7
6
11
8
6
4
Djarum Coklat
4
3
7
7
-
2
4
11
14
10
4
-
Sampoerna Hijau
5
4
6
6
0
1
5
13
8
5
5
-
Clas Mild
4
3
7
1
12
7
2
1
-
4
4
-
U Mild
4
5
3
5
1
6
4
2
-
5
4
4
Marlboro
4
5
2
5
2
5
4
2
-
2
5
4
Dunhill
2
3
-
1
3
3
1
1
-
-
3
-
Djarum 76
1
1
1
2
-
1
1
4
-
2
1
-
2014
2013
Source: Credit Suisse Indonesia Consumer Survey 2015
20
04 January 2016
Leveraging strong brand equity with a strong
distribution network
With Sampoerna's strong brand equity, we believe that it has an advantage to gain higher
market share going forward. Having a strong brand, we believe, is an important asset for a
company and it is an equally powerful and even more sustainable advantage, but one that
is often ignored by the financial markets because of their intangible nature. Combined with
other competitive advantages, it can deliver attractive returns and long-term growth (refer
to Appendix 6: The power of brand investing).
While we believe that brand is important, as Indonesia is an archipelago, an extensive
distribution network is also key to successfully penetrating into the market. Sampoerna's
best-in-class systems network is available nationwide, and operates through six
distribution centres, 81 area distribution warehouses located at points of sale and 25
smaller distribution point centres with 106 sales offices. The system enables it to have
access to more than 14,000 wholesalers, 33 agents, and around 400,000 general and
modern trade outlets. The network provides the company with around 2.4 mn points of
sale (POS) and thus has strong penetration in Indonesia, supported by more than 3,600
salespersons.
Sampoerna has a best-inclass systems network
Its sales network includes Sampoerna's own salespersons as well as those employed by
the wholesalers that Sampoerna has relationships with under the STAR programme
(STAR Sampoerna Task Force programme). The programme offers certain incentives for
sales personnel.
Figure 36: Sampoerna's extensive distribution network
Source: Sampoerna's presentation
Sampoerna Retail Community (SRC)
The other initiative that Sampoerna has is Sampoerna Retail Community Programme
(SRC), a retail advocacy, whereas its main goal is to build an emotional link with retailers
by providing them with business advisory (offers training on merchandise shelving,
21
04 January 2016
inventory stock management and financial management planning) and refurbishing/
product display solutions service. It had 9,985 stores by end-2014, from 3,938 stores in
2009, or a 21% CAGR. The stores are located trhoughout Sumatra, Java, and east of
Indonesia. In 2014, Sampoerna's market share in SRC stores stood at 60.6%, compared
with its national market share of 34.9%.
Figure 37: Sampoerna Retail Community (SRC)
Source: Company
An extensive distribution
Sampoerna distributes its cigarettes nationwide and by volume, it sold 84% of its
cigarettes to wholesalers, 10% to general and modern trade outlets, and 6% to agents. Its
products reached 2.4 mn points of sale in Indonesia, through the six main distribution
centres and 106 sales offices.
With the strong brands, coupled with the strong extensive distribution network, Sampoerna
has been able to gain market share in each of the regions nationwide and managed to
increase the gap with the second largest player in the region. In Java, for example, its
market share in 1H15 stood at 33.1%, up from 32.9% in 2014, whereas the second largest
player in the region, Djarum, had a market share of 26.2% in 1H15, a 70 bp decline versus
2014, whereas the gap with Sampoerna was at 6.9% in 1H15, or widening from 6% in
2014.
Most of Sampoerna's
products are distributed via
wholesalers, followed by
general and modern trade
outlets and agents
In the western part of Indonesia, Sampoerna's market share stood at 38.3% in 1H15, from
37.8% in 2014, or 13.8% difference with the second largest player in the area, GG which
has market share of 24.5% in 1H15, down from 25.6% in 2014. The gap between the two
players widened from 12.2% in 2014 to 13.8% in 1H15.
22
04 January 2016
A similar case is seen in the east of Indonesia, where the gap had widened to 14.6% in
1H15, from 13.7% in 2014, between Sampoerna and GG, the number-two player in the
area. Sampoerna's market share stood at 36.5% in 2014 and 37.0% in 1H15, whereas
GG's stood at 22.8% and 22.4%, respectively.
Figure 38: Indonesia' cigarette market share, by region
Total industry volume reflects company estimates
Source: Company estimates for Sampoerna and Nielsen Retail Audit for other players.
Leveraging the PMI expertise
Being part of PMI, one of the largest global tobacco companies, provides Sampoerna with
advantages. In the marketing area, it is able to leverage on PMI's world-class marketing
expertise, such as engaging adult smokers on promotional activities. Sampoerna has over
3,000 adult smoker engagement activities annually, which reach over 500,000 potential
adult smokers, allowing it to tabulate preferences which serve as market insights to
develop products.
PMI also has experience in other markets that allow limited promotional activities; as such,
should the GoI continue to limit tobacco advertising, sponsorship, and promotion, PMI can
offer its expertise in dealing with such challenges.
In addtion to that, Sampoerna also benefits from the global relationships with third-party
suppliers, joint purchasing power with PMI, access to PMI's talent, capital, technoIogy,
research and development capabilities, as well as best practices.
Revenue to grow at 10% over the next two years
In all, for companies, brands create financial value, whereas sales growth, margin
expansion and pricing power can all be achieved with brand leadership (refer to Appendix
6: The power of brand investing). We see this in Sampoerna.
23
04 January 2016
Sampoerna's production lines
Sampoerna produces SKM and SKT in seven production facilities in Indonesia. There are
two production facilities for SKM: one in Sukorejo, East Java and another in Karawang,
West Java. It has five production facilities for SKT, of which three are in Surabaya, and
one each in Malang and Kraksaan. The primary production processes are located in the
Sukorejo and Karawang plants. These plants also operate secondary processing which
include owning the printing facilities. The Sukorejo plant has 34 processing lines, and the
Karawang plant has 11 processing lines. Its latest machines are able to produce 600
packs per minute. The machines are primarily imported from Germany and Italy.
Sampoerna owns two
production facilities for SKM
cigarettes located in
Sukorejo and Karawang
with 45 processing lines
For SKT, the five production facilities are located at Surabaya (Taman Sampoerna,
Rungkut I, and Rungkut II), Malang and Kraksaan. A skilled cigarette roller will be able to
produce around 325-420 kretek cigarettes per hour. In 2014, Sampoerna closed two of its
SKT production facilities due to the decline in SKT volumes. Sampoerna also operates 38
TPOs (third-party operations) located throughout Java, where TPO producers combined
employ over 48,000 people. The arrangement is that Sampoerna will provide the raw
materials and supplies, expertise and administrative assistace, while TPOs will provide the
production facilties, production outpout, and storing warehouse for a fee. The TPOs are
paid fees based on the number of units and types of cigarettes produced. Sampoerna
applies strict quality control standards to the SKT that TPOs produce.
For SKT, Sampoerna owned
five production facilities, with
three facilities located in
Surabaya, and others in
Malang and Kraksaan
SPM, on the other hand, is produced by PMID, whereas Sampoerna acts as distributor in
Indonesia and receives a distribution margin.
Figure 39: Sampoerna's manufacturing footprint
Source: Sampoerna's presentation
24
04 January 2016
Figure 40: Sampoerna's production capacity
Type
2012
2013
2014
Capacity
66,343
82,955
83,951
Production volume
58,950
63,156
70,618
88.9%
76.1%
84.1%
Capacity
28399
30322
24500
Production volume
36730
31744
24722
129.3%
104.7%
100.9%
SKM
Utilisation rate
(1)
(2)
SKT
Utilisation rate
Notes: (1) Utilisation rate is the ratio of the total actual output from the total standard production capacity.
(2) SKT figures include capacity and production volume to which the Company has access through its 38
TPOs. Hand-rolled cigarette production capacity for the year is calculated as the product of (i) standard
output per hour, (ii) total number of hand-rollers, (iii) 40 working hours per week and (iv) 52 weeks per year.
Most of its volumes are derived from SKM products
By volume, 62% of Sampoerna's cigarette sales were SKM, 22% SKT, and 15% SPM, and
1% exports in 2014. The company has seen a shift in its product mix: SKT used to be the
majority of its products as Sampoerna historically focused primarily on SKT. In 2012, SKT
accounted for 34%, while SKM accounted for 52% and SPM for 13% and export was 1%
of its total sales volume. With the shift of preference towards SKM products, the company
began producing more of SKM in 2009. As such, we continue to see a larger portion of
SKM versus SKT and SPM. We expect SKM to contribute 65% of the total volume in 2015,
66% in 2016, and 67% in 2017, while SKT's contribution is expected to decline to 19% in
2015, 19% in 2016, and 19% in 2017. In 1H15, SKM contributed 64% of total volume, SKT
20%, and SPM 14%, with exports accounting for around 2%.
SKM is expected to see a 4% CAGR over 2015-17 while we estimate SKT and SPM will
see 2% and 1% CAGRs over 2015-17, respectively.
Today, Sampoerna produces and distributes 18 SKUs, with five brand families: (1)
Sampoerna A (SKM), (2) Dji Sam Soe, or DSS (SKT), (3) Sampoerna U (SKM), (4)
Sampoerna Kretek (SKT), and (5) Marlboro.
The Sampoerna A family is the SKM LTLN product that contributes the largest volume for
the company: 42% in 2014, up from 38% in 2012 and 40% in 2013. In 1H15, it contributed
42% of Sampoerna's total volume. Sampoerna A family volume saw a 4% CAGR in 201214 and had a market share of 15% in 1H15, up from 13.9% in 2012, according to the
company. Within the SKM LTLN, Sampoerna A's market share stood at 36.6% in 1H15—
the largest in the industry. And in terms of net revenue, the Sampoerna A family
accounted for 43% of total sales in 2014. The family brands include (1) A-Mild, which was
launched in 1989, the first such SKM LTLN product launched in Indonesia; (2) Sampoerna
Avolution, a super slim SKM LTLN; (3) A Motion, which was launched in April 2015 and is
offered in four different surprise colours that are revealed only after the outside plastic
wrap is removed; and (4) A Mild Blue, which was also launched in April 2015, an SKM
LTLN with a tar of less than 10mg.
Unrivalled Sampoerna A,
with the brand having a 15%
market share in the industry,
or 36.6% within the SKM
LTLN segment in 1H15
The second-largest brand family contributor is Sampoerna U that contributed 14% of total
volume in 2014. This increased from only 9% in 2012, and 12% in 2013. In 1H15, it
contributed 14% of total volume as U Mild shifted to the highest excise tax tier in 1Q15
with its sales volume increasing to 17 bn sticks in 2014, and 8 bn sticks in 1H15. The U
Mild brand was launched in 2005 as a mid-priced product in the SKM LTLN segment and
saw a 30% CAGR in 2012-14. In 2015, the company introduced U Bold, another SKM
LTLN in the family of Sampoerna U. Sampoerna U had a market share of 5.4% within the
segment in 2014, increasing from 3% in 2012. In 1H15, its market share lowered to 5% as
a result of higher prices. Within the SKM LTLN, Sampoerna U's market share stood at 9%
in 2012, 11% in 2013, and 13% in 2014, and lowered to 12% in 1H15.
Rising volume in
Sampoerna U led to higher
excise tax tier thus higher
selling price
25
04 January 2016
Marlboro is the third-largest volume contributor for Sampoerna, with volume contributing
15% of the total in 2014, rising from 13.5% in 2012 and 2013 each. In 1H15, it contributed
14% of total volume. Sampoerna has been an exclusive distributor of Marlboro cigarettes
in Indonesia since 2005, under a long-term distribution agreement with PMID. The
Marlboro brand family products are produced by PMID at its facility in Karawang, West
Java. PMID's facility at Karawang is segregated, and managed independently from
Sampoerna's facilities in the area. In addition to Marlboro, Sampoerna distributes Peter
Jackson Rich Gold cigarettes in Bali. Marlboro had a consistent 5% market share of the
total industry, and an 82% market share within the SPM segment in 1H15.
Consistent market share for
Marlboro at 5%, but it
dominates the SPM
segment
Dji Sam Soe (DSS) is Sampoerna's flagship brand. The DSS brand previously focused
only on SKT, the premium-priced segment. With the shift of consumer preference from
SKT to SKM, Sampoerna is leveraging this well-recognised brand to expand into the SKM
segment. As such, in 2005, Sampoerna extended the brand to SKM FF under Dji Sam
Soe Magnum and in 2014, it introduced Dji Sam Soe Magnum Blue, an SKM LTLN. DSS
contributed 22% of Sampoerna's total volume in 2012, declining to 16% in 2013, 12% in
2014, and 11% in 1H15. Its market share in the industry stood at 8% in 2012, 7% in 2013,
6% in 2014, and 7% in 1H15.
DSS' contribution declining
due to the shift in consumer
preference from SKT to
SKM
Sampoerna also produces Sampoerna Kretek and Panamas Kuning, both are SKTs.
The brands are produced in certain parts of Indonesia, Sampoerna Kretek in Java and
Panamas Kuning in Sumatra. Sampoerna Kretek accounted for 13% of Sampoerna's total
volume in 2012, 12% in 2013, 10% in 2014, and 9% in 1H15. Its market share stood at
17% in 2012 within the SKT segment, 18% in 2013, 17% in 2014, and 16% in 1H15. In the
industry, Sampoerna Kretek market share stood at 5% in 2012 and declining to 3% in
1H15. Panamas Kuning accounts for around 1% of Sampoerna's total volume.
Sampoerna Kretek and
Panamas Kuning
contributed around 10% of
total volume in 1H15
In 2014, Sampoerna discontinued its SKM LTLN brands, Vegas Mild and Trend Mild for
strategic reasons. It will launch new brands or discontinue existing ones based on demand,
market opportunities, brand performance and strategic opportunities.
Discontinued brands in 2014
Figure 41: Sampoerna—volume breakdown by segment
100%
90%
1.1%
13.3%
0.8%
14.4%
1.1%
14.5%
1.3%
14.0%
1.3%
13.8%
1.3%
13.5%
Figure 42: Sampoerna—volume breakdown by brand
100%
14.9%
14.3%
90%
80%
80%
64.9%
65.5%
66.0%
62.4%
65.3%
19.7%
19.4%
19.2%
22.7%
20.4%
2012
2013
2014
2015E
2016E
2017E
9M14
9M15
SKT
SKM
SPM
Others
5.0%
8.7%
15.6%
14.2%
41.0%
42.4%
8.2%
7.8%
10.3%
8.5%
15.8%
7.7%
12.0%
11.3%
10.8%
10.6%
12.1%
11.2%
2012
2013
DSS
Sampoerna A
Other SKM
2014
10%
22.2%
11.1%
9.7%
20%
28.4%
10.5%
43.2%
30%
33.6%
8.6%
14.3%
43.0%
30%
0%
6.1%
15.1%
43.4%
40%
10%
13.1%
41.4%
50%
40%
20%
13.6%
13.8%
60%
62.2%
2.9%
12.1%
14.2%
13.7%
60%
56.4%
1.7%
9.2%
14.7%
13.8%
70%
52.0%
14.5%
15.4%
70%
50%
13.5%
38.9%
12.7%
20.3%
39.9%
11.9%
0%
2015E 2016E
Sampoerna Kretek
Sampoerna U
Marlboro
2017E 1H14 1H15
Panamas Kuning
DSS Magnum
Peter Jackson
Source: Company data for historical data, Credit Suisse estimates for
flavour cigarette, SKM LTLN: Machine-made low tar low nicotine
forecast data
cigarette, SPM: White cigarette, Others: Exports.
forecast data
We estimate Sampoerna's revenue will witness a 10% CAGR over 2015-17 on the back of
3% volume growth and 7% blended ASP. Over the past two years, volume has grown only
by 1% due to the decline in SKT (-18% 2012-14 CAGR), while SKM has grown by 10%.
26
04 January 2016
For 2016, the GoI is increasing excise duty for SKM by 15.7% and SKT by 10.3%, while
we expect a 10% increase, which we assume the company will be able to pass on to
consumers, as it has historically. Sampoerna's majority revenue is derived from the
domestic market (98.5%), while the remaining comes from exports.
The revenue contribution from SKM cigarettes increased 19% YoY on the back of a 10%
higher ASP in 1H15. We expect SKM's revenues to see an 11% CAGR over FY15-17 with
a 7% higher ASP. Sampoerna's net revenues from SKT cigarettes, however, decreased
2% YoY in 1H15, primarily due to adult smoker preferences shifting from SKT to SKM
products, and thus reflecting the overall decline of the total SKT segment in the market.
The ASP of SKT cigarettes increased by 9% YoY in 1H15, and we estimate the revenue of
SKT cigarettes will see a 7% 2015-17 CAGR with a 6% higher ASP.
Net revenues of SPM cigarettes increased 8% YoY in 1H15, primarily due to an 11%
increase in ASP during the same period which was partially offset by a decrease in SPM
sales volume. SPM cigarettes contributed 14.8% to total revenues in 1H15. We estimate
revenues of SPM cigarettes will witness a 6% CAGR FY15-17 and a 5% higher ASP.
Figure 43: Sampoerna—volume vs YoY growth (bn
Figure 44: Sampoerna—revenue breakdown by segment
sticks)
(value)
120
CAGR12-14: 0.9%
CAGR15-17E: 3.0%
115
110
112
109
111
118
114
4%
YoY
growth:
0.1%
111
105
100%
90%
3%
2%
1%
2%
1%
1%
13%
1%
13%
2%
15%
1%
14%
2%
15%
15%
15%
60%
65%
67%
68%
59%
63%
23%
20%
19%
18%
24%
21%
2014
2015E
2016E
2017E
1H14
1H15
80%
70%
60%
100
1%
13%
50%
54%
50%
40%
95
0%
90
85
82
82
9M14
9M15
80
-1%
2013
2014
2015E 2016E 2017E
Vol (bn sticks)
20%
36%
10%
-2%
2012
30%
29%
0%
2012
YoY growth (%)
2013
SKT
SKM
SPM
Others
forecast data
forecast data
27
04 January 2016
Figure 45: Sampoerna—ASP/stick (Rp)
Figure 46: Sampoerna—ASP by product
1000
70%
876
862 855
900
700
600
757 754
689 681
650
619
586
808 816
50%
760
40%
740 734
706
60.4%
59.5%
60%
822
815
815
800
61.0%
60.6%
927
912
898
692
47.5%
46.4%
42.7%
42.6%
41.7%
41.3%
40.6%
40.5% 42.2%
40.5%
40.4%
39.9%
39.6%
39.4%
38.7%
38.7%
38.4%
36.9%
30%
645
20%
59.7%
59.4%
17.8%
19.5%
2012
2013
22.7%
15.4%
16.7%
17.8%
2015E
2016E
2017E
10%
500
0%
2012
2013
2014
2015E
SKT
2016E
SKM
2017E
1H14
1H15
SPM
DSS 12
A Mild 16
2014
U Mild 16
Sampoerna Kretek 12
DSS Magnum 12
forecast data
forecast data
Figure 47: Sampoerna—consolidated revenue
120000
110000
CAGR12-14: 10.0%
CAGR15-17E: 9.6%
100000
90608
90000
75025
80000
70000
80690
Figure 48: Sampoerna's cigarette distribution (2014)
30%
108787
100376
YoY
growth:
9.9%
25%
General &
modern trade
outlets
10%
Agents
6%
20%
66626
59607
60000
65518
15%
50000
40000
Wholesalers
84%
10%
30000
20000
5%
2012
2013
2014
2015E 2016E 2017E 9M14
Revenue (Rp bn)
9M15
YoY growth (%)
forecast data
Excise tax accounts for majority of cost …
The majority of Sampoerna's cost is excise tax: 59% in 2012, 56% in 2013, 58% in 2014,
and 59% in 9M15. The GoI charges excise tax on each pack of cigarettes sold in
Indonesia, based on: (1) type of cigarettes, (2) producers' annual production capacity, and
(3) banderole price which is set by the GoI (refer to Appendix 2: Indonesia's cigarette
regulation).
Excise tax is the largest
component of cost
The newly revised Indonesia State Budget 2016 (APBN 2016) indicates the Government
of Indonesia (GoI) is looking to receive total excise tax revenue of Rp146.4 tn in 2016 (flat
YoY). This is 6% lower than its initial proposed excise tax revenue of Rp155.5 tn. However,
deducting one-off excise revenue of Rp18.5 tn this year, next year's target is a rise of 15%
YoY. Note that around 95.5% is attributable to cigarettes, worth Rp139.8 tn. The excise
28
04 January 2016
tax revenue accounts for 10% of the total tax revenue, or 1.2% of the country's GDP (refer
to Appendix 3: GoI excise target).
The 2016 draft budget assumes that 96% of the excise tax revenue will come from the
sale of cigarettes and the remaining from alcoholic drinks. The GoI assumes 95% of 2015
excise tax revenue is derived from the sale of cigarettes.
Collection of excise tax is important for GoI to fund the budget. The 2016 draft budget
assumes 5.5% GDP growth, with 4.7% inflation (CS estimates at 5.2% GDP growth and
4.7% inflation in 2016E), with a 2.1% budget deficit.
While the government is likely to increase the excise tax on an annual basis, we assume a
10% increase in excise tax from 2017 onwards in our assumptions. Normally, such
increases in excise tax are passed on to consumers gradually through a price increase.
For 2016, the GoI has announced an increase in excise duty of 15.7% for SKM, 10.3% for
SKT, and 16.5% for SPM, for Tier 1 producers (those that are categorised as large,
producing more than 2 bn sticks in a year). In addition, the GoI increased the VAT to 8.7%
of the banderole price, from 8.4%. Banderole price is determined somewhat by the GoI
using the minimum retail price (MRP). For 2016, the MRP for SKM is increased by 25%,
for SKT by 35%, and for SPM by 13%, for premium segment cigarettes. For Sampoerna,
whose products are in the premium segment, the need to further increase in MRP is
notably minimal.
... followed by raw materials
The second-largest cost is production (around 23-25% of total cost), of which raw materials
accounted for 66% in 2012, 68% in 2013 and 2014, and 64% in 1H15. Raw materials
include cloves, tobacco leaf, cigarette paper, flavouring, and filter material (only for SKM). By
weight, kreteks consist of approximately 70% tobacco and 30% cloves. Raw materials are
domestically sourced for cloves and mostly for tobacco as well. Certain types of tobacco are
imported as domestic supply is not sufficient, and when Sampoerna imports its procurement
is arranged through PMI. PMI's global procurement also involves machinery parts, tipping
paper, acetate tow, filters and packaging material boards for Sampoerna.
The second largest is the
production cost, of which
raw materials accounted for
64% in 1H15
Tobacco in Indonesia is grown by small farmers mainly in Java and Lombok. Sampoerna
purchased 90% of tobacco from its top five tobacco leaf suppliers in 2014 and 1H15.
Clove is a key ingredient of kretek cigarettes and is harvested from the flower buds of
clove trees. It is grown by small farmers mainly in Java, Bali, and Sulawesi. Sampoerna
purchases its cloves from its top five suppliers at spot prices. There is no availability of
long-term purchase agreements and commodity swaps or forward contracts for clove.
Clove prices can fluctuate due to supply and demand which was seen in prices more than
doubling from 2010 to 2011.
29
04 January 2016
Figure 49: Tobacco and cloves
Figure 50: Farming base for tobacco and cloves is large
and widely spread
Note: 70% tobacco and 30% clove reflects the general composition of
a kretek by weight. Source: Company data
For paper and packaging, purchases are done through global procurement arrangements
between PMI and suppliers. The cigarette paper is supplied by PT Bukit Muria Jaya and
PT Pusaka Prima Mandiri, and the tipping paper is supplied by Malaysia's Benkert and
Phillippines' Tann. Cigarette packaging material (cardboard and polypropylene) is
purchased from various suppliers.
Sampoerna purchased filters (cellulose acetate) from several companies, such as Japan's
Daciel and Korea's and the US' Eastman, through PMI's global procurement arrangements.
And the flavourings (sauce or casing) are purchased from PMI's flavour production centre
and local supplier.
In 1H15, Sampoerna paid Rp604 bn for the amendments made to the contractual
production volume by the TPOs, driven by declining adult smoker demand for SKT
cigarettes over the past years.
Given lower clove prices and relatively stable tobacco prices, and a minimal exposure of
the USD to the cost, we estimate gross profit will see an 8% CAGR over the next two
years, with gross margin expected to be at around 24% in 2016.
Figure 51: COGS breakdown (2014)
Figure 52: COGS breakdown (2015E)
Production
costs
11%
Production
costs
12%
COGS for
cigarettes
50%
Excise tax
29%
COGS for
cigarettes
50%
Finished goods
9%
Finished goods
9%
Excise tax
30%
30
04 January 2016
Figure 53: Consolidated gross profit (Rp bn)
27000
25000
CAGR12-14: 5.2%
CAGR15-17E: 8.3%
21000
19000
YoY
growth:
4.9%
20500
20071
25%
29%
20%
28%
15%
27%
24420
22299
23000
Figure 54: Consolidated gross margin (%)
26159
18507
15014
15000
15747
13000
2013
2014
2015E 2016E 2017E 9M14
Gross profit (Rp bn)
25.4%
25%
5%
25.2%
24.6%
24.3%
24.0%
24.0%
24%
0%
2012
26.8%
26%
10%
17000
27.8%
9M15
23%
YoY growth (%)
2012
2013
2014
2015E
2016E
2017E
9M14
9M15
2015-17 forecast data
Largest part of opex is in distribution and employees' costs
Sampoerna's opex is largely driven by distribution costs, salaries and employee benefits
for sales personnel and an increase in investments for marketing and advertisements. In
9M15, the company continued to invest in marketing and advertisements for its existing
brands, as well as for the new product, U Bold. We expect Sampoerna's operating profit to
see a 9% CAGR in 2015-17, with operating margin at around 16% in 2016E.
Figure 55: Sampoerna—cost + opex breakdown (2014)
Other overhead
costs
A&P
4%
4%
Salaries,
wages,
employee
benefits
5%
Depreciation
1%
Raw materials
used
14%
Changes in
inventories
17%
Others
3%
Excise tax
stamps
52%
The operating margin is
estimated to be stable at
16%
Figure 56: Sampoerna—cost + opex breakdown (2015E)
Other overhead
Depreciation
costs
1%
4% A&P
4%
Salaries, wages,
employee
benefits
5%
Raw
materials
used
14%
Changes in
inventories
16%
Others
3%
Excise tax
stamps
53%
31
04 January 2016
Figure 57: Sampoerna—consolidated operating profit
Figure 58: Sampoerna—consolidated operating margin
(Rp bn)
18000
17000
CAGR12-14: 1.7%
CAGR15-17E: 8.9%
YoY
growth:
1.2%
16069
16000
14000
25%
15%
13805
13350
21%
20.0%
20%
14623
14601
15000
30%
17343
19.5%
19%
10%
13000
5%
12000
0%
11000
17.3%
17.1%
17%
16.1%
16.0%
15.9%
2015E
2016E
2017E
15.9%
-5%
10305 10426
10000
-10%
9000
15%
-15%
2012
2013
2014
2015E 2016E 2017E 9M14
Operating profit (Rp bn)
9M15
13%
YoY growth (%)
2012
2013
2014
9M14
9M15
Healthy balance sheet
Capex is assumed to be minimal as the company has enough capacity for its production.
We assume an annual capex of Rp1 tn, going forward. As such with EBITDA witnessing a
9% CAGR over the next two years, Sampoerna will continue to be free cash flow positive.
The company also has minimal debt and plenty of cash from the rights issue proceeds.
The rights issue proceeds amounted to Rp20.77 tn, or around US$1.42 bn (at USDIDR of
Rp14,661), whereas we estimate Rp13.8 tn of cash in 2015E, and Rp12.7 tn in 2016E.
We assume a dividend payout ratio of close to 100%, as the company had been
distributing cash dividend with a similar ratio in the past. This, we estimate will provide a
yield of around 3%.
In all, we estimate Sampoerna's net profit will see a 12% CAGR FY15-17, with net margins
stable at around 12%.
Figure 59: Sampoerna—consolidated EBITDA (Rp bn)
20000
18000
CAGR12-14: 2.0%
CAGR15-17E: 8.9%
16000
15103
14000
25%
17923
16599
14807
YoY
growth:
-35.6%
10%
5%
10532
10000
0%
8000
-5%
6782
6000
-10%
2013
2014
2015E 2016E 2017E
EBITDA (Rp bn)
20.5%
19%
9M14
17.7%
17.6%
15%
12000
2012
21%
19.7%
20%
14235
13676
Figure 60: Sampoerna—consolidated EBITDA margin (%)
16.7%
17%
16.5%
16.5%
15%
13%
11%
10.4%
9M15
YoY growth (%)
9%
2012
2013
2014
2015E
2016E
2017E
9M14
9M15
32
04 January 2016
Figure 61: Sampoerna—capex (Rp bn)
Figure 62: Sampoerna—dividend vs DPO
1641
1700
3000
110%
2848
1500
2468
2500
2498
100%
2271
1300
90%
1100
1000
900
1000
2000
1000
80%
1589
800
1500
700
70%
590
500
1000
60%
2012
2013
2014
300
2012
2013
2014
2015E
2016E
DPS (Rp)
2017E
2015E
2016E
2017E
DPO (RHS)
Figure 63: Sampoerna—free cash flow (Rp bn)
12000
10871
9625
10000
Figure 64: Sampoerna—cash balance (Rp bn)
16000
11379
13826
14000
9696
12678
12000
8000
10000
6000
4000
10796
8000
3875
6000
2889
4000
2000
2000
0
2012
2013
2014
2015E
2016E
784
657
2012
2013
65
0
2017E
2014
2015E
2016E
2017E
Figure 65: Sampoerna—debt vs debt-to-equity
Figure 66: Sampoerna—ROE
12000
10470
10000
8000
6000
4000
2388
2496
2889
2695
2794
23%
130%
21%
120%
19%
110%
17%
100%
15%
90%
13%
80%
11%
2745
9%
2000
807
7%
0
5%
2012
2013
2014
2015E 2016E 2017E
Total debt (Rp bn)
9M14
9M15
Debt-to-equity (%)
116.5%
92.8%
74.7%
76.4%
75.4%
70%
60%
50%
40%
32.0%
36.4%
39.9%
30%
2012
2013
2014
2015E
2016E
2017E
9M14
9M15
33
04 January 2016
Figure 67: Sampoerna—consolidated net profit (Rp bn)
15000
14000
25%
CAGR12-14: 1.2%
CAGR15-17E: 11.7%
13000
13670
12483
YoY
growth:
-0.8%
15%
14.9%
14.4%
22%
19%
16%
14%
13%
12000
10%
10951
10819
11000
10000
Figure 68: Sampoerna—consolidated net margin
7%
10181
9945
13%
4%
1%
9000
12.8%
12.6%
12.4%
12.6%
12.1%
12%
11.6%
-2%
7656
8000
7597
7000
-5%
-8%
11%
-11%
2012
2013
2014
2015E 2016E 2017E
Net profit (Rp bn)
9M14
9M15
YoY growth (%)
10%
2012
2013
2014
2015E
2016E
2017E
9M14
9M15
2015 to 2017 forecast data
2015 to 2017 forecast data
Sensitivity analysis
We run a sensitivity analysis on the volume and ASP for Sampoerna. Assuming other
factors remain similar, every change of 1% in volume would impact the company's net
profit by 1.1%. Also, for every change of 1% in the average selling price, this would impact
the company's net profit by 4.7%.
34
04 January 2016
Initiate with an OUTPERFORM and
TP of Rp108,500
Sampoerna's recent rights issue resulted in a share float of 7.5% (from 1.8%); thus, the
stock is eligible to be included in the JCI weighting. As of 30 Dec 2015, its weighting in the
JCI was around 9.4%, making it the largest market cap, or the second-largest consumer
stock, after Bank Central Asia (BBCA.JK), which has a 7% weighting in the JCI.
Sampoerna's significant weight in the JCI, while backed by sound fundamentals and
operations, warrants a premium valuation compared to peers.
We initiate coverage on HM Sampoerna (HMSP.JK) with an OUTPERFORM rating and a
target price of Rp108,500, implying a 40x P/E 2016E (37x P/E 2017E) with 12% estimated
earnings growth over the next two years. Our target price is derived based on premium
P/E multiple of Sampoerna over its parent company (PMI) as we benchmark the premium
valuation of Unilever Indonesia and its parent company (ULVR.L) over the past one year.
The willingness of investors (particularly domestic investors) to pay for such a premium
shows the value of a sound corporate governance as well. In addition, with the stock
significant in terms of market cap, backed by sound fundamentals, we view that when
there is a capital inflow to Indonesia, Sampoerna could be viewed as one of the stock
picks.
Figure 69: Sampoerna's share price vs. trading volume YTD
105000
25000000
100000
20000000
95000
90000
15000000
85000
80000
10000000
75000
70000
5000000
65000
60000
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15
0
Jul-15
Aug-15 Sep-15 Oct-15 Nov-15 Dec-15
Share price (Rp/share)
Trading vol
* New shares from rights issuance started to trade on 4 Nov 15
Source: Bloomberg
35
04 January 2016
Comparables valuation
Figure 70: Global tobacco companies' valuation comparables
Company
Ticker
Rtg Mkt cap
US$mn
Phillip Morris
International
British American
Tobacco
Japan Tobacco
PM
ITC.Ltd
Imperial Tobacco
IMT.L
HM Sampoerna
HMSP.JK
O 31,704
KT&G Corp
Price
TP
Target P/E (x)
EPS growth
P/B (x) EV/EBITDA
ROE (%)
PE
(%)
(x)
l.c
2016E 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017
7.2% 5.6 5.6 14.8 14.8
83 18.6 20.0 20.5 2.5%
28
28
l.c
N 138,445
89
n.a. 105,250
3,806
n.a.
2914.T
O 66,490
4,471
5,000
ITC.BO
U 39,318
325
360
n.a. 51,425
3,616
BATS.L
8.4%
7.8%
19.8 17.7 16.9 -4.6%
28.3 25.7 26.0
6.2%
n.a.
9.8 11.2 11.1 11.1
58
61
12.5%
2.2
3.6 11.1 11.1
18
18
13.8%
7.5
7.7 18.5 18.5
29
30
n.a. 15.2 16.6 12.1%
7.7%
4.9
6.0 14.4 14.4
32
37
94,000 108,500
40.4 35.0 39.9 14.0%
36
32
033780.KS
N 12,230 104,500 100,000
14.8 15.4 13.9 -9.9%
9.5% 12.8 12.8 29.6 29.6
4.3% 2.2 2.3 9.1 9.1
13
15
Gudang Garam
GGRM.JK
O
7,671
55,000
61,500
19.6 17.5 19.1
9.2%
15
15
Swedish Match
SWMA.ST
U
7,007
299
230
14.9 19.3 20.0
3.8%
BAT Malaysia
BATO.KL
n.a.
3,692
55
n.a.
n.a. 17.4 17.5
0.7%
328
520
3.8% 63.2 104.0 14.7 14.7
0.1% 27.9 29.1 13.9 13.7 16,565 15,815
22.2 19.8 20.7
4.8%
8.9%
Weighted average
n.a. 17.0 18.4
16.6%
2.6
2.9 11.2 11.2
7.5
8.9 14.5 14.5 170.2 168.1
*Share price as of 30 Dec 2015. Source: Company data, Bloomberg, Credit Suisse estimates
Figure 71: Indonesia consumer companies' valuation comparables
Company
Ticker
Price
Rtg
Mkt
cap
(US$m)
HMSP.JK
16E PE
(x)
at TP
17E
PE (x)
at TP
(Rp)
94,000
O
31,704
108,500
40.4
UNVR.JK
37,000
U
20,465
34,600
GGRM.JK
55,000
O
7,671
(Rp)
HM
Sampoerna
Unilever
Indonesia
Gudang
Garam
Kalbe Farma
TP
EPS growth
(%)
16E
17E
P/E (x)
16E
17E
EV/EBITDA
(x)
16E
17E
DY
(%)
16E
ROE
(%)
16E
36.9
14.0
9.5
35.0
32.0
27.0
25.0
3.0
36.4
38.3
34.1
14.0
12.4
41.0
36.5
29.9
26.7
2.1
117.6
61,500
19.6
16.8
9.2
16.6
17.5
15.0
10.9
9.7
2.0
14.9
KLBF.JK
1,320
U
4,485
1,350
24.5
21.1
16.2
16.3
23.9
20.6
15.6
13.2
1.5
20.8
Indofood
ICBP.JK
CBP
Indofood
INDF.JK
Sukses
Makmur
Weighted average
13,475
O
5,696
15,100
21.9
19.0
21.7
15.6
19.6
16.9
12.0
10.3
2.1
21.8
5,175
O
3,294
10,600
21.2
17.2
9.4
23.4
10.4
9.4
4.1
3.5
4.4
14.7
73,315
34.4
30.8
14.0
12.9
31.5
28.2
22.7
20.5
2.5
55.9
Weighted average (exclude UNVR)
21,146
32.9
29.5
14.0
12.6
28.3
25.5
20.6
18.8
2.7
29.1
Weighted average (exclude UNVR
and HMSP)
Weighted average (exclude
HMSP)
21,146
-
21.5
18
14.1
17.3
18.3
15.8
11.1
9.6
2.3
18.0
41,611
-
29.8
26
14.0
14.9
29.5
26.0
20.4
18.0
2.2
67.0
*Share price as of 30 Dec 2015. Source: Company data, Credit Suisse estimates
36
04 January 2016
Figure 72: Indonesia consumer companies' P/E comparables (2016E)
42
41.0
35.4
37
P/E 2016E (x)
Weighted average: 31.2x
29.9
32
27
23.9
23.3
22.8
19.6
22
21.1
17.5
17
14.8
11.7
12
10.4
6.1
7
Erajaya Swasembada
11.3%
7.8%
Tiphone Mobile
Erajaya Swasembada
Tiphone Mobile
12.2%
12.9%
Ramayana Lestari
13.8%
Ramayana Lestari
Gudang Garam
14.6%
Gudang Garam
Indofood CBP
Ace Hardware
Kalbe Farma
Matahari Dept Store
Mitra Adiperkasa
Unilever Indonesia
HM Sampoerna
2
* Based on share price as of 30 Dec 2015
Figure 73: Indonesia companies' ROIC comparables (2016E)
120%
110.6%
100%
ROIC (%)
80%
Weighted average: 50.3%
60%
35.3%
40%
29.8%
27.3%
23.6%
22.9%
20%
Indofood CBP
Ace Hardware
Kalbe Farma
Mitra Adiperkasa
HM Sampoerna
Unilever Indonesia
0%
* Based on share price as of 30 Dec 2015
Comparables with Unilever Indonesia
We compare valuations of Sampoerna and UNVR as both stocks carry a large weighting
in the JCI. Both are multinational companies in the Indonesia consumer sector, and both
have strong fundamentals. As such, they trade at higher multiples compared to peers,
hence showing the willingness of investors to pay for such a premium. UNVR has been
trading at a 29% premium to JCI and at a 62% premium to the Indonesia consumer sector,
over the last three years.
37
04 January 2016
Figure 74: UNVR—forward P/E band
Figure 75: P/E UNVR vs. ICBP vs GGRM vs. KLBF vs.
HMSP
65
44000
42000
55
40000
38000
45
34000
35
32000
25
30000
28000
15
26000
24000
Jun-13
Price
Dec-13
37 X
Jun-14
Dec-14
40 X
43 X
Jun-15
Dec-15
46 X
UNVR.JK
ICBP.JK
KLBF.JK
HMSP.JK
Dec-15
Jun-15
Dec-14
Jun-14
Dec-13
Jun-13
Dec-12
20000
Dec-12
Jun-12
Jun-11
5
22000
Dec-11
Rp/share
36000
GGRM.JK
Source: Company data for companies mentioned
Meanwhile, over the past five years, Sampoerna's operations have grown faster than
UNVR's. Sampoerna's revenue had a 16% CAGR from 2009-14 with net profit of 15%,
compared to UNVR which showed 14% for both revenue and net profit. That said,
Sampoerna shall trades on higher multiples compared to UNVR.
Figure 76: Sampoerna vs UNVR—2009-14 CAGR revenue, gross profit, op profit and net
profit
16%
15.7%
14.9%
15%
14%
13.6%
13.7%
13.6%
12.8%
13%
13.5%
13.0%
12%
11%
10%
Revenue
Gross profit
HMSP
Operating profit
Net profit
UNVR
Source: Company data for UNVR and HMSP
Comparables with the parent company
UNVR has traded at a 70% premium to its parent company's valuation over the past three
years, and 105% over the past one year, as it has higher growth in its Indonesian
operations (please refer to Appendix 2: Comparables). Sampoerna, on the other hand,
possibly due to its liquidity (which should improve following the completion of the rights
issue) only trades at a 61% premium to its parent company's valuation, and 73% over the
past one year.
38
04 January 2016
Figure 77: Sampoerna vs. PMI—historical P/E
Figure 78: UNVR vs. ULVR LN—historical P/E
45
40
HMSP is trading 60.7%
premium to PMI over the last
3 years
35
30
35
30
P/E (x)
P/E (x)
UNVR is trading 70.4%
premium to ULVR.L over
the last 3 years
40
25
20
25
20
15
15
HMSP is trading 73.4%
premium to PMI over the
last 1 year
10
UNVR is trading 105%
premium to ULVR.L over the
last 1 year
10
5
5
2008
2009
2010
HMSP
2011
2012
2013
2014
PMI
Source: Company data, Bloomberg
2008
2009
2010
UNVR
2011
2012
2013
2014
ULVR.L
Source: Company data, Bloomberg
Significant weighting in the JCI
Sampoerna's recent issuance of rights to the market has resulted in its share float rising to
7.5%, from 1.8%. This follows the Regulatory No. I-A regarding the Listing of Shares &
Equity Securities other than Shares Issued by Listed Companies (Peraturan Nomor I-A
Tentang Pencatatan Saham dan Efek Bersifat Ekuitas yang Diterbitkan oleh Perusahaan
Tercatat). Among other things, a company needs to have a minimum free float of 7.5% of
its total enlarged capital. If listed companies do not meet this new requirement by
30 January 2016 (effective 30 January 2014), they may be asked by the IDX to delist. This
new free float requirement is intended to boost market liquidity.
As such, with its inclusion in the JCI, Sampoerna's weighting has become significant.
Based on its closing price on 30-Dec-2015, Sampoerna's market cap was US$31.7 bn,
comprising 9.4% of the JCI. The second-largest market cap is BCA with 7.0% of the JCI's
total market cap, followed by PT Telkom (TLKM) with 6.7%. Both Unilever Indonesia
(UNVR) and Bank Rakyat Indonesia (BBRI) has a same weighting of 6.1% to the JCI,
becoming the fourth and fifth largest market cap.
39
04 January 2016
Figure 79: Top 30 largest market cap to JCI
No
Stock
Company
#.JKSE
1
HMSP.JK
2
BBCA.JK
3
TLKM.JK
4
UNVR.JK
5
BBRI.JK
6
7
8
GGRM.JK
9
BBNI.JK
10
11
12
Mcap
Mcap
Rpbn
USD
bn
4,218,168
305.78
PreHMSP
%
weight
to JCI
PostHMSP
%
weight
to JCI
337.48
Float
Changes
(%)
Float to
Mcap
(USD
mn)
ADTV
3mos
(USD
mn)
PT Hanjaya Mandala
Sampoerna Tbk
PT Bank Central Asia Tbk
437,356
31.70
0.0
9.4
9.4%
7.5
2,378
6.82
327,912
23.77
7.8
7.0
-0.7%
50.8
12,085
13.63
PT Telkom (Telekomunikasi
Indo.)
Unilever Indonesia
312,984
22.69
7.4
6.7
-0.7%
48.8
11,074
15.11
282,310
20.46
6.7
6.1
-0.6%
15.0
3,072
4.22
281,845
20.43
6.7
6.1
-0.6%
43.3
8,836
21.19
ASII.JK
PT Bank Rakyat Indonesia
(Persero)
Astra International
242,901
17.61
5.8
5.2
-0.5%
45.1
7,943
15.56
BMRI.JK
PT Bank Mandiri (Persero)
213,675
15.49
5.1
4.6
-0.5%
40.0
6,196
13.65
Gudang Garam
105,825
7.67
2.5
2.3
-0.2%
23.5
1,805
4.02
92,126
6.68
2.2
2.0
-0.2%
39.8
2,659
9.95
INTP.JK
PT Bank Negara Indonesia
(Persero)
Indocement
82,183
5.96
1.9
1.8
-0.2%
36.0
2,143
3.48
ICBP.JK
Indofood CBP
78,572
5.70
1.9
1.7
-0.2%
19.5
1,109
1.89
SMGR.JK
Semen Indonesia
67,619
4.90
1.6
1.5
-0.2%
49.0
2,401
4.27
13
PGAS.JK
Perusahaan Gas Negara
66,543
4.82
1.6
1.4
-0.1%
43.0
2,076
7.09
14
UNTR.JK
PT United Tractors Tbk
63,226
4.58
1.5
1.4
-0.1%
40.5
1,854
4.90
15
KLBF.JK
Kalbe Farma
61,875
4.49
1.5
1.3
-0.1%
43.3
1,942
5.22
16
EMTK.JK
Elang Mahkota
58,092
4.21
1.4
1.2
-0.1%
42.9
1,808
0.01
17
LPPF.JK
Matahari Department Store
51,355
3.72
1.2
1.1
-0.1%
65.4
2,433
4.22
18
TOWR.JK
PT Sarana Menara Nusantara
48,464
3.51
1.1
1.0
-0.1%
61.2
2,149
0.04
19
INDF.JK
45,439
3.29
1.1
1.0
-0.1%
49.9
1,644
2.97
20
SCMA.JK
Surya Citra Media
45,327
3.29
1.1
1.0
-0.1%
33.2
1,092
1.49
21
CPIN.JK
Charoen Pokphand
42,635
3.09
1.0
0.9
-0.1%
44.5
1,374
1.33
22
JSMR.JK
Jasa Marga (Persero) TBK PT
35,530
2.58
0.8
0.8
-0.1%
30.0
772
2.55
23
MIKA.JK
PT Mitra Keluarga Karyasehat
34,922
2.53
0.8
0.8
-0.1%
18.0
456
5.24
24
BSDE.JK
PT Bumi Serpong Damai Tbk
34,644
2.51
0.8
0.7
-0.1%
38.1
956
1.99
25
SMMA.JK
Sinar Mas Multi
32,106
2.33
0.8
0.7
-0.1%
47.6
1,108
0.01
26
EXCL.JK
XL Axiata Tbk
31,151
2.26
0.7
0.7
-0.1%
33.6
758
0.73
27
BDMN.JK
PT Bank Danamon Indonesia
30,364
2.20
0.7
0.7
-0.1%
32.5
714
0.68
28
ISAT.JK
PT Indosat Tbk
29,887
2.17
0.7
0.6
-0.1%
20.7
449
0.26
29
AKRA.JK
AKR Corporindo
28,334
2.05
0.7
0.6
-0.1%
41.2%
846
4.63
30
TBIG.JK
Tower Bersama
28,180
2.04
0.7
0.6
-0.1%
44.7
912
1.06
* Based on share prices as of 30 December 2015, with USD/IDR exchange rate of Rp13,790
Source: Bloomberg
Flows indicate capitulation
With the stock significant in terms of market cap and backed by sound fundamentals, we
believe that when there are capital inflows into Indonesia, Sampoerna could be viewed as
one of the stock picks. Our Indonesia strategist, Jahanzeb Naseer, wrote in his strategy
piece 2016 outlook: Gimme some growth on 2 December 2015 that 2015 has been the
year of highest absolute USD selling in Indonesia since the Asian Financial Crisis in 1998.
Even on a percentage of market-cap basis, we are now at the lowest level in ten years.
Our own discussions with investors suggest that investors have been significantly
underweight on Indonesia and despite some recent performance by the market and
improvement in data, we have not seen buyers return. The main concern continues to be a
potential rate rise and how the market and the rupiah may react to that. This means that if
40
04 January 2016
there is an orderly reaction to the rate rise and things do not fall out of kilter, there could be
potential for flows to turn positive.
Figure 80: Indonesia deviation from PPP vs. EM (GDP
Figure 81: Outflows are now close to historical lows
weighted) aggregate
Source: Oxford Economics, Thomson Reuters, Credit Suisse
Source: Bloomberg, Credit Suisse estimates
research
Figure 82: ETF inflows to APAC
Source: Credit Suisse Trading Strategy, Bloomberg, ETF.com
41
04 January 2016
Figure 83: Country breakdown of FII flows—Indonesia saw the second-highest selling
Total foreigners' net purchases (US$ mn)
India
Jan-14
125
192
-107
-415
EM Asia
ex. China & Malaysia
-550
Feb-14
229
656
71
-656
-601
-484
-1,085
-838
Mar-14
3,297
1,267
428
440
6,928
-152
6,776
-5,944
Apr-14
1,595
759
364
491
9,167
215
9,382
4,305
May-14
2,354
701
209
-1,099
5,169
960
6,129
-991
Jun-14
2,363
230
47
-11
6,583
186
6,770
5,623
Jul-14
2,189
1,121
2
429
8,884
-94
8,790
5,374
887
-112
297
75
4,456
63
4,519
-3,751
Sep-14
845
-622
25
656
-1,466
-435
-1,901
5,690
Oct-14
-191
-264
-540
-497
-3,441
-153
-3,594
-3,249
Nov-14
2,234
434
601
337
8,519
-90
8,430
10,830
Dec-14
192
-640
-128
-843
-4,637
-862
-5,499
1,919
Jan-15
2,104
17
530
-131
3,580
-670
2,910
-7,416
Feb-15
1,852
831
371
-212
7,214
-111
7,103
1,485
Mar-15
1,948
-415
168
84
3,169
-136
3,033
4,162
Apr-15
-1,330
-682
-203
4
5,217
55
5,272
16,390
May-15
-904
-263
-201
94
1,635
-694
940
7,998
Jun-15
-521
-307
-258
-311
-4,982
-829
-5,811
-1,443
-2,451
Aug-14
Jul-15
Indonesia Philippines
Thailand
Malaysia EM Asia ex.
China
-1,090
-1,640
Japan
-10,920
840
10
-193
-769
-3,269
-763
-4,031
Aug-15
-2,549
-712
-382
-1,251
-10,207
-984
-11,190
-9,237
Sep-15
-978
-498
-706
-587
-4,428
-533
-4,961
-21,436
Oct-15
1,023
-342
-67
6
2,746
141
2,887
3,846
Nov-15
-1,071
-240
-158
-495
-4,544
-185
-4,730
5,265
Dec-15
-792
-127
-141
-329
-5,025
-2,836
2015 (YTD)
-378
-2,729
-1,240
-3,898
-8,893
-4,709
-13,603
2014
16,119
3,722
1,267
-1,093
39,013
-1,936
37,077
8,048
2013
20,126
-1,824
676
-6,206
26,651
1,229
27,880
149,468
2012
24,372
1,694
2,540
2,502
51,104
4,547
55,651
33,063
2011
-358
1,163
1,326
-196
-16,005
686
-15,319
21,309
2010
29,362
2,312
1,219
2,678
64,650
4,862
69,512
35,665
2009
17,176
1,303
408
1,110
59,994
20,849
2008
-15,674
2,893
-1,060
-4,845
-69,960
-37,897
2007
17,236
3,531
1,243
1,610
-3,609
38,494
2006
8,006
1,823
1,351
1,857
16,991
47,705
2005
10,546
-1,741
355
2,976
32,940
87,933
2004
8,430
2,191
319
119
30,410
69,042
2003
6,595
1,117
-82
-634
36,059
62,353
Source: Company data, Credit Suisse estimates
42
04 January 2016
Key risks
Key risks associated with the company include:
Regulatory risks
The cigarette industry in Indonesia is heavily regulated by the government. There is no
certainty whether the government will introduce new or more stringent restrictions, or
change its policies with respect to cigarettes. In many markets, governmental actions have
led to reduced consumption levels and industry volume. The World Health Organisation's
Framework Convention on Tobacco Control (FCTC), which came into force in 2005, has
continued to prompt regulatory developments in global markets over the years. Although
Indonesia has not ratified the FCTC, such global regulatory initiatives will continue to
potentially influence the Indonesian government's policies relating to the tobacco industry.
Any such ongoing regulatory initiatives could result in a significant decrease in demand for
the company's products, as well as a significant increase in the cost of complying with new
regulatory requirements, which could materially and adversely affect the company's
business, results of operations, financial condition and future prospects.
The company's operations
are dependent on
government regulations
Litigation risks
The company may be involved in lawsuits and regulatory actions relating to the company's
business. Sampoerna cannot accurately predict the ultimate outcome of any such
proceedings should one be commenced. An unfavourable outcome may damage the
company's reputation and its brands, and may have a material adverse effect on its
business, cash flows, results of operations, financial condition and prospects. In addition,
regardless of the outcome of any litigation or regulatory proceedings, such proceedings
are expensive and may involve the expenditure of substantial resources and management
attention by the company.
Any involvement in lawsuits
and other regulatory actions
may affect the company's
reputation and its brands
Sampoerna is also subject to governmental investigations on a range of matters including
the completeness of excise documents, proper reporting, the sufficiency of customs duties
and/or excise tax, payments, the usage of descriptors and lawfulness of advertising,
contraband shipments of cigarettes and pricing activities.
Operational risks
Sampoerna faces a number of operational risks at its production facilities. Mechanical
failure at Sampoerna’s blending, rolling or printing machines, outages, accidents at its
production facilities or extended downtime required to repair its machines could cause it to
be unable to manufacture its products within a certain period or at all, which could lead to
a loss of market share or diminished product quality that in turn could reduce its sales and
increase costs during the affected periods.
Supply of raw materials
Both tobacco leaves and cloves are key raw materials for the production of Sampoerna's
cigarettes. The company relies on domestic third-party suppliers for the timely and
adequate supply of tobacco leaves and cloves. If Sampoerna is not supplied with the
tobacco leaves and cloves that it requires in a timely manner or in sufficient amounts for
any reason, including shortages or variances in the quality of tobacco leaves or cloves due
to a poor harvest or logistical and/or financial difficulties at third-party suppliers, it may
experience disruption to its business operations.
Fluctuations in raw material
prices as well as supply of
raw materials can impact
the company's operations
Since a significant portion of the raw materials that Sampoerna requires comprises natural
raw materials, weather conditions and other natural phenomena affecting crop harvests
can directly affect its procurement of raw materials. The company is vulnerable to adverse
weather conditions, natural disasters, disease, crop pests and other factors that affect
tobacco leaf and clove production and the harvesting of tobacco leaves and cloves that
are outside its control.
43
04 January 2016
The company's tobacco leaf or clove suppliers may also request changes in pricing,
payment or other terms that could result in it having to make substantial additional
payments or incur additional costs.
Competition
Sampoerna's principal competitors are three other major cigarette manufacturers in
Indonesia, namely PT Gudang Garam Tbk (Gudang Garam), PT Djarum (Djarum), and PT
Bentoel Internasional Investama Tbk (BAT).The company's competitive environment and
position can be significantly influenced by weak economic conditions, the erosion of adult
smoker confidence, competitors' introduction of lower-priced or innovative products, higher
tobacco product taxes and higher absolute prices.
Tighter competition either
from new market entrants or
existing players would affect
its overall business
operations
In addition, the company may also encounter significant competition from new market
entrants or existing competitors attempting to penetrate market segments in which it is
present. Industry consolidation could also lead to an overall increase in competitive
pressures.
A labour-intensive industry
The company relies on its workers at various manufacturing facilities, particularly at its
SKT (hand-rolled cigarettes) operations. The company's hand-rolled cigarette operations
are highly labour intensive and labour costs relating to compensation for the company's
employees working at its facilities represent a significant portion of its cost of goods sold.
All of the company's production facility workers are affected by changes in the minimum
wage mandated by regional governments. Over the past ten years, the minimum wage in
Indonesia has increased significantly. While the company pays its hand-rollers more than
the relevant current minimum wage, if the minimum wage is increased significantly,
Sampoerna will incur higher labour costs. In addition, the company may lose its workers to
competitors which pay their workers higher wages.
Changes in minimum wage
regulations by the regional
governments would affect
the company in paying
higher labour costs
Figure 84: Historical number of employees
41000
20%
39400
39000
15%
37000
10%
35000
33000
5%
34500
33514
0%
-5%
31000
31000
29500
29000
28800
29600 29700 29700 29800 29800 29775 -10%
29700
28300
27600
27000
28557
-15%
27000
-20%
No of employees
9M15
6M15
3M15
12M14
9M14
6M14
3M14
2014
2013
2012
2011
2010
2009
2008
2007
2006
-25%
2005
25000
YoY growth (%)
Unable to extend its arrangements with its third-party
operators
Sampoerna contracts with 38 third-party operators to manufacture some of its hand-rolled
(SKT) cigarettes. It may be unable to renew some or all of these arrangements on
satisfactory terms or at all for numerous reasons, including government regulations.
Accordingly, the company's costs may increase significantly if it has to replace such third
44
04 January 2016
parties with its own resources. Furthermore, Sampoerna may renegotiate and amend
contractual production volume arrangements with its TPOs from time to time based on the
projected demand of its cigarettes, which may result in the company providing
consideration to the TPOs for such amendments.
Indonesia macro risks
Since Sampoerna is incorporated in Indonesia and all of its assets and operations are in
Indonesia, it is subject to any geological occurrences or other natural disasters. These
could potentially adversely affect the company's business, results of operations, financial
condition and prospects.
Indonesia's macroeconomic
conditions may adversely
affect Sampoerna's
business and operations
The company is also subject to any unstable and unpredictable political and social
developments in Indonesia. Any political instability in Indonesia, which may adversely
affect the Indonesian economy, could also have a material effect on the overall business.
45
04 January 2016
Financials
Figure 85: HM Sampoerna—breakdown of details
2012
2013
2014
2015E
2016E
2017E
SKT
23,784
21,994
18,646
17,638
18,939
20,255
SKM
33,150
40,839
48,722
58,975
66,609
72,820
SPM
8,984
10,998
12,149
12,728
13,498
14,314
708
1,195
1,174
1,267
1,331
1,397
66,626
75,025
80,690
90,608
100,376
108,787
SKT
36,611
31,926
24,619
21,789
22,007
22,447
SKM
56,588
63,268
68,969
72,220
74,731
77,764
SPM
14,519
16,138
16,106
15,623
15,779
15,937
107,718
111,332
109,694
109,632
112,517
116,148
Net revenues (Rp bn)
Others
Total
Volume (mn sticks)
Total domestic sales
Exports
1,164
933
1,193
1,432
1,503
1,578
108,882
112,265
110,887
111,064
114,020
117,726
SKT
650
689
757
810
861
902
SKM
586
645
706
817
891
936
SPM
619
681
754
815
855
898
Average
612
663
725
815
880
925
SKT
-7.5%
-15.2%
-5.4%
7.4%
6.9%
SKM
23.2%
19.3%
21.0%
12.9%
9.3%
SPM
22.4%
10.5%
4.8%
6.1%
6.1%
Others
68.9%
-1.8%
8.0%
5.0%
5.0%
Total
12.6%
7.6%
12.3%
10.8%
8.4%
SKT
-12.8%
-22.9%
-11.5%
1.0%
2.0%
SKM
11.8%
9.0%
4.7%
3.5%
4.1%
SPM
11.2%
-0.2%
-3.0%
1.0%
1.0%
3.4%
-1.5%
-0.1%
2.6%
3.2%
-19.8%
27.9%
20.0%
5.0%
5.0%
3.1%
-1.2%
0.2%
2.7%
3.3%
SKT
6.0%
9.9%
6.9%
6.3%
4.8%
SKM
10.2%
9.4%
15.6%
9.2%
5.1%
SPM
10.1%
10.7%
8.0%
5.0%
5.0%
8.4%
9.3%
12.4%
8.0%
5.0%
Total
NR/stick (Rp)
YoY growth
Net revenue (Rpbn)
Volume (mn sticks)
Exports
Total
NR/stick (Rp)
Average
% to total:
Net revenue (Rp bn)
SKT
36%
29%
23%
19%
19%
19%
SKM
50%
54%
60%
65%
66%
67%
SPM
13%
15%
15%
14%
13%
13%
1%
2%
1%
1%
1%
1%
100%
100%
100%
100%
100%
100%
SKT
34%
29%
22%
20%
20%
19%
SKM
53%
57%
63%
66%
66%
67%
SPM
13%
14%
15%
14%
14%
14%
100%
100%
100%
100%
100%
100%
1%
1%
1%
1%
1%
1%
Others
Total
Volume (mn sticks)
Exports
46
04 January 2016
Figure 86: HM Sampoerna—profit & loss statement
Rpbn
Net sales
COGS
2012
2013
2014
2015E
2016E
66,626
75,025
80,690
90,608
100,376
2017E CAGR 12- CAGR1514
17E
108,787
10.0%
9.6%
(48,119)
(54,954)
(60,190)
(68,309)
(75,956)
(82,628)
11.8%
10.0%
9M14
9M15
59,607
65,518
(44,593)
(49,771)
Gross profit
18,507
20,071
20,500
22,299
24,420
26,159
5.2%
8.3%
15,014
15,747
Selling expenses
(3,732)
(4,028)
(5,295)
(6,009)
(6,513)
(6,878)
19.1%
7.0%
(3,881)
(4,184)
G&A expenses
(1,425)
(1,443)
(1,399)
(1,667)
(1,838)
(1,938)
-0.9%
7.8%
(829)
(1,137)
Total opex
(5,157)
(5,471)
(6,695)
(7,676)
(8,351)
(8,816)
13.9%
7.2%
10,305
10,426
Operating profit
13,350
14,601
13,805
14,623
16,069
17,343
1.7%
8.9%
10,305
10,426
EBITDA
13,676
14,807
14,235
15,103
16,599
17,923
2.0%
8.9%
10,532
6,782
326
207
430
480
530
580
227
(3,643)
Depreciation & amortisation
Finance income
120
49
57
250
576
808
42
25
Finance expenses
(35)
(69)
(47)
(223)
(192)
(194)
(26)
(135)
Other income (expenses)
(55)
(80)
(111)
(147)
-
-
(35)
(147)
3
9
14
14
-
-
5
14
Share of net results of
associate
Pre-tax profit
13,383
14,510
13,718
14,517
16,452
17,957
Tax
(3,438)
(3,691)
(3,537)
(3,567)
(3,969)
(4,287)
Minority interest
1.2%
11.2%
10,290
10,183
(2,634)
(2,587)
-
-
-
-
-
-
9,945
10,819
10,181
10,951
12,483
13,670
Revenue
26.1%
12.6%
7.6%
12.3%
10.8%
8.4%
9.9%
Gross profit
21.8%
8.5%
2.1%
8.8%
9.5%
7.1%
4.9%
Operating profit
25.7%
9.4%
-5.4%
5.9%
9.9%
7.9%
1.2%
EBITDA
24.4%
8.3%
-3.9%
6.1%
9.9%
8.0%
-35.6%
Pre-tax profit
22.7%
8.4%
-5.5%
5.8%
13.3%
9.1%
-1.0%
Net profit
23.3%
8.8%
-5.9%
7.6%
14.0%
9.5%
-0.8%
Net profit
1.2%
11.7%
-
4
7,656
7,597
YoY growth:
Figure 87: HM Sampoerna—balance sheet
Rpbn
Cash & equivalents
Accounts receivable
Inventories
2012
2013
2014
2015E
2016E
2017E
9M14
784
657
65
13,826
12,678
10,796
102
9M15
170
1,077
1,393
1,010
1,415
1,568
1,680
1,367
1,603
18,456
15,670
17,333
17,432
19,116
20,746
23,026
15,050
Other current assets
3,598
1,865
2,271
2,377
2,575
2,767
2,300
3,372
Total current assets
21,128
21,248
20,778
36,734
37,567
38,269
18,819
23,602
Fixed assets - net
4,115
4,709
5,920
6,440
6,910
7,330
5,604
6,223
Other
1,004
1,448
1,684
1,733
1,758
1,778
1,630
1,745
26,248
27,405
28,381
44,907
46,235
47,377
26,052
31,570
S/T debts
2,306
2,442
2,835
2,639
2,737
2,688
761
10,413
Accounts payable
2,404
2,194
2,761
2,755
3,161
3,466
2,599
2,762
Current maturities
26
20
20
20
20
20
18
20
-
44
5
-
-
-
37
524
21,340
Total assets
Other current liabilities
Total current liabilities
11,898
12,124
13,600
9,093
10,055
10,739
13,861
Other liabilities
1,041
1,126
1,282
1,547
1,913
2,371
1,190
1,533
Total liabilities
12,939
13,250
14,883
10,640
11,969
13,110
15,051
22,872
Total equity
13,308
14,155
13,498
34,267
34,267
34,267
11,002
8,697
Total liabilities & equity
26,248
27,405
28,381
44,907
46,235
47,377
26,052
31,570
47
04 January 2016
Figure 88: HM Sampoerna—cash flow statement
Rp bn
2012
2013
2014
2015E
2016E
2017E
13,350
14,601
13,805
14,623
16,069
17,343
326
207
430
480
530
580
85
(20)
10
27
384
614
Tax paid
(3,438)
(3,691)
(3,537)
(3,567)
(3,969)
(4,287)
Chg in working capital
(6,462)
(156)
961
(6,506)
(1,117)
(1,851)
(53)
(70)
(97)
(133)
-
-
CF from operations
3,810
10,870
11,572
4,924
11,896
12,399
Capital expenditures
(590)
(800)
(1,641)
(1,000)
(1,000)
(1,000)
Others
(330)
(444)
(235)
(50)
(25)
(20)
Free cash flow
2,889
9,625
9,696
3,875
10,871
11,379
Operating profit
Depr. and amort.
Net interest
Other operating cash flow
Capital issuance
Dividends paid
Change in loans
Others
Net change in cash
Cash at the beginning of the period
Cash at the end of the period
95
(16)
(21)
20,769
-
-
(6,964)
(9,955)
(10,817)
(10,951)
(12,483)
(13,670)
2,306
136
393
(197)
98
(49)
387
84
157
264
367
458
(1,287)
(126)
(592)
13,761
(1,147)
(1,882)
2,070
784
657
65
13,826
12,678
784
657
65
13,826
12,678
10,796
Figure 89: HM Sampoerna—key ratios
2012
2013
2014
2015E
2016E
2017E
9M14
9M15
ROA
37.9%
39.5%
35.9%
24.4%
27.0%
28.9%
39.2%
32.1%
ROE
74.7%
76.4%
75.4%
32.0%
36.4%
39.9%
92.8%
116.5%
Gross margin
27.8%
26.8%
25.4%
24.6%
24.3%
24.0%
25.2%
24.0%
Operating margin
20.0%
19.5%
17.1%
16.1%
16.0%
15.9%
17.3%
15.9%
EBITDA margin
20.5%
19.7%
17.6%
16.7%
16.5%
16.5%
17.7%
10.4%
Pre-tax margin
20.1%
19.3%
17.0%
16.0%
16.4%
16.5%
17.3%
15.5%
Net margin
14.9%
14.4%
12.6%
12.1%
12.4%
12.6%
12.8%
11.6%
Net debt/equity
17.9%
17.6%
21.4%
7.9%
8.2%
8.0%
7.3%
120.4%
Total debt/EBITDA (x)
17.5%
16.9%
20.3%
17.8%
16.8%
15.3%
7.7%
154.4%
Accounts receivable
collection period (days)
Inventory period (days)
5.4
6.0
5.4
5.7
5.7
5.6
6.3
5.4
93.2
109.6
105.4
102.1
99.7
101.7
98.0
97.3
16.5
15.3
15.0
14.7
15.2
15.3
14.5
15.0
82.2
100.3
95.8
93.1
90.2
92.0
89.8
87.7
Trade payables period
(days)
Working capital period
(days)
48
04 January 2016
Appendix 1: Comparables
Case #1: Sampoerna vs Gudang Garam
Sampoerna's closest competitor is Gudang Garam (GG), which has the second-highest
market share in Indonesia's cigarette industry.
Figure 90: Sampoerna vs. GG—CAGR 2009-14 revenue, gross profit, operating profit, net
profit and volume
18%
16%
15.7%
14.9%
14.6%
14%
12.8%
13.7%
13.3%
12%
10.5%
9.2%
10%
7.7%
8%
6%
4.0%
4%
2%
Revenue
Gross profit
Operating profit
HMSP
Net profit
Volume
GG
Source: Sampoerna's and GG's company data
Figure 91: Sampoerna—SKT vs SKM breakdown by
Figure 92: GG—SKT vs SKM breakdown by volume (2005)
volume (2005)
SKM LTLN
0%
SKT
14%
SKM LTLN
43%
SKT
56%
SKM FF
86%
SKM FF
1%
Source: Sampoerna company data
49
04 January 2016
Figure 93: Sampoerna—SKT vs. SKM breakdown by
Figure 94: GG—SKT vs. SKM breakdown by volume
volume (1H15)
(1H15)
SKT
24%
SKM LTLN
13%
SKM FF
8%
SKM LTLN
68%
SKT
14%
SKM FF
73%
Figure 95: Sampoerna vs. GG—market share
Figure 96: Sampoerna vs. GG—YoY revenue growth
40%
35%
30.1% 30.9%
32.8%
35.6% 36.2% 34.9%35.20%
29.6%
28.3% 27.9%
30% 27.3%
26.4%
25.2%
23.2%23.20%
23.1% 22.0% 23.8% 23.2%
25%
21.6% 22.1% 22.3%
20%
30%
26.1%
25%
20%
21.8%
19.8%
14.3%
12.4%
11.3%
11.1%
10.5%
9.0%
15%
15%
10%
10%
17.6%
17.1%
16.4%
13.1%
12.6%
9.9%
7.6%
5.9%
6.0%
5%
4.0%
5%
0.8%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sep15
GG
0%
2006
2007
2008
2009
HMSP
2010
GG
2011
2012
2013
HMSP
Source: Sampoernas and GG's company data
Figure 97: Sampoerna vs. GG—volume growth
Figure 98: Sampoerna vs. GG—gross margin
20%
15%
31%
16.6% 17.1%
28.6%
29.4%
28.8% 28.8% 29.2% 28.7%
27.8%
13.1%
26.8%
27%
10.4%
10.1% 9.9%
10%
25.4% 25.2%
25%
6.1%
5%
3.3%
2.5%
4.3%
3.7%
2.9%
2.2%
2006
2007
-2.6%
2008
-1.2%
2009
2010
-1.0%
2011
2012
-4.7%
2013
2014
-1.7%
23.5%
23%
21%
0%
-5%
29.6%
29%
19%
17%
2014 9M15
24.2%
24.0%
21.7%
20.7%
18.7%
17.9%
19.6%
20.5% 20.1% 20.7%
17.0%
15.8%
15%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 9M14 9M15
-10%
GG
HMSP
GG
HMSP
50
04 January 2016
Figure 99: Sampoerna vs. GG—operating margin
Figure 100: Sampoerna vs. GG—net margin
24%
17%
20% 20% 20%
21%
19%
18%
18%
18%
16%
19%
19%
16% 16%
11%
12% 12%
13% 13% 13%
9%
10%
8%
9%
9.7%
14.4%
12.6% 12.8%
11.2%
11.0%
10.5%
11.7%
11.6%
8.2% 7.8% 8.2% 8.4% 8.1%
7.6%
6.2%
7%
9%
5.3%
5%
3.8%
3%
6%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 9M14 9M15
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 9M14 9M15
GG
GG
HMSP
Figure 102: Sampoerna vs. GG—ROIC
87.3%
90%
79.0%
80%
70%
74.7% 76.4% 75.4%
99%
69.6%
76.2%
79%
69%
52.1%
50%
44.9%
48.4% 48.6%
49%
30%
18.9% 19.6% 20.1%
20% 14.4%
7.7%
10.2% 12.1%
73.9%
78.2% 77.6%
71.9%
61.9%
54.2%
59%
40%
10%
90.4%
89%
62.9%
62.0%
HMSP
Figure 101: Sampoerna vs. GG—ROE
60%
11.9% 12.2%
13%
16%
13%
15.3% 14.9%
13.1%
17% 17%
16%
15%
12%
14.8%
15%
51.9%
43.4%
41.0%
48.6%
39%
15.2% 14.8% 16.2%
29%
12.7% 11.5%
19% 16.2%
0%
19.8%19.8% 20.2%
10.0% 11.1%
13.9%
16.1%16.2%
18.8%
14.7% 13.6%
9%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 9M14 9M15
GG
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 9M14 9M15
HMSP
GG
HMSP
Case #2: Sampoerna vs Unilever Indonesia (UNVR)
Figure 103: Sampoerna vs. UNVR—CAGR 2009-14 revenue, gross profit, op. profit and
net profit
16%
15.7%
14.9%
15%
14%
13.6%
13.7%
13.6%
12.8%
13%
13.5%
13.0%
12%
11%
10%
Revenue
Gross profit
HMSP
Operating profit
Net profit
UNVR
Source: Sampoerna and UNVR's company data
51
04 January 2016
Figure 104: Sampoerna vs. UNVR—YoY revenue growth
Figure 105: Sampoerna vs. UNVR—gross margin
55%
30%
26.1%
24.2%
25%
20%
50%
50.2%
49.0% 49.6%
51.8% 51.2%
50.9% 51.3%
49.5% 48.8%
50.7%
21.8%
19.8%
45%
19.2%
17.1%
16.4%
15%
49.3% 49.7%
13.4%
12.4%
10.7%
16.3%
11.3%
10%
40%
12.7% 12.2%
12.6%
9.9%
35%
7.6%
30%
7.9%
5.6%
5%
29.6%
28.6% 29.4% 28.8%28.8% 29.2% 28.7% 27.8%
26.8%
25.4% 25.2%
25%
24.0%
0.8%
20%
0%
2006
2007
2008
2009
2010
HMSP
2011
2012
2013
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 9M14 9M15
2014 9M15
HMSP
UNVR
UNVR
Figure 106: Sampoerna vs. UNVR—operating margin
Figure 107: Sampoerna vs. UNVR—net margin
24%
23.1%23.1% 23.2%
23%
21.5%
22%
21%
22.1% 22.0%
20.1% 20.1% 20.0%
18.7%
17.5%
17%
16%
16.7%
17%
21.0%
20%
18%
18%
23.3%
22.5%
20.3%
19%
23.6%
16%
20.5%
19.5%
15%
15.2%
15.6% 15.5%
14.8%
14.4%
14%
18.6%
16.0%
15.9%
15%
17.4%
16.6%
15.3%
15.5%
14.9%
15.2%
14.4%
12.6% 12.8%
11.9% 12.2%
12%
17.1% 17.3%
17.7% 17.7%
13.1%
13%
18.0%
17.2%
11.6%
11.2%
11%
10% 9.7%
9%
14%
8%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 9M14 9M15
HMSP
UNVR
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 9M14 9M15
HMSP
UNVR
52
04 January 2016
Case #3: Sampoerna vs. parent company (PMI)
Figure 108: Sampoerna vs. PMI—2009-14 revenue, gross profit, op profit, net profit CAGR
18%
15.7%
16%
14.9%
14%
13.7%
12.8%
12%
10%
8%
5.2%
6%
3.8%
4%
3.4%
3.1%
2%
0%
Revenue
Gross profit
Operating profit
HMSP
Net profit
PMI
Source: Sampoerna and PMI's company data
Figure 109: Sampoerna vs. PMI—revenue growth
Figure 110: Sampoerna vs. PMI—gross margin
30%
30%
26.1%
25%
29%
21.8%
12.4%
10%
12.7%
29.2%
28.7%
27.8%
11.3%
9.1%
7.6%
2011
2012
2013
25.7%
26.0%
25.8%
25.4%
2014
24%
23%
2008
HMSP
25.8%
26.8%
24.1%
0.1%
0%
2010
26%
27.1%
25%
3.4%
1.4%
2009
-2.5%
26.7%
27%
12.6%
5%
-5%
28.8%
28%
20%
15%
28.8%
2009
2010
PMI
2011
HMSP
2012
2013
PMI
Figure 111: Sampoerna vs. PMI—operating margin
Figure 112: Sampoerna vs. PMI—net margin
21%
20.1%
20.1%
20%
19.5%
17%
18.0%
16.4%
17.5%
16.2%
14.9%
14.4%
14%
17.9%
13.1%
16.9% 17.1%
16.5%
15.3%
14.8%
15%
18.6%
19%
18%
16%
20.0%
2014
12%
16%
14.6%
15%
12.6%
13%
11.6%
11.2%
11.2%
11.4%
10.7%
11%
10.7%
10.2%
10%
14%
9.4%
9%
13%
12%
8%
2008
2009
2010
2011
HMSP
2012
2013
PMI
2014
2008
2009
2010
2011
HMSP
2012
2013
2014
PMI
53
04 January 2016
Case #4: Unilever Indonesia vs. parent company
(ULVR L)
Figure 113: UNVR vs. ULVR L—2009-14 revenue, gross profit, op profit, net profit CAGR
16%
13.6%
14%
13.6%
13.5%
13.0%
12%
9.7%
10%
8.6%
8%
6%
4.0%
4%
2%
0.8%
0%
Revenue
Gross profit
Operating profit
UNVR
Net profit
ULVR L
Source: UNVR and ULVR.LN's company data
Figure 114: UNVR vs. ULVR L—revenue growth
25%
53%
19.2%
20%
17.1%
16.3%
15% 13.4%
12.7% 12.2%
10.5%
11.1%
10.7%
10%
5%
Figure 115: UNVR vs. ULVR L—gross margin
24.2%
7.9%
3.2%
49.5%
41.5%
1.4%
0.8%
39%
37%
-1.7%
-5%
2008
41.3% 41.4%
39.9% 40.2%
41%
0%
2007
51.2% 50.9% 51.3%
45%
43%
5.0%
2006
51.8%
51% 49.3% 49.7% 50.2%
49.6%
49.0% 49.3%
49.0%
48.3%
48.8%
49%
47.3%
47%
2009
2010
UNVR
2011
2012
-3.0% -2.7%
2013
2014
35%
2005
2006
2007
2008
ULVR L
2009
UNVR
2010
2011
2012
Figure 116: UNVR vs. ULVR L—operating margin
Figure 117: UNVR vs. ULVR L—net margin
23.1% 23.1% 23.2%
22% 20.3%
23.6% 23.3%
21.5% 22.1% 22.0%
18%
22.5%
16.7%
14.4%
17.7%
18%
14.7%
16.5%
14.3%
14%
14.3%
15.1%
13.8% 13.6%
12.6%
13.1%
17.2%
17.7% 17.7% 17.4%
16.6%
15.2% 15.6% 15.5%
14%
20%
16%
16%
2014
ULVR L
24%
2013
13.0%
11.4%
12%
10.4%
10%
8.7%
9.3%
10.1%
9.2%
9.9%
10.6%
9.4%
8%
12%
6%
10%
2005
2006
2007
2008
2009
UNVR
2010
2011
2012
ULVR L
2013
2014
2005
2006
2007
2008
2009
UNVR
2010
2011
2012
2013
2014
ULVR L
54
04 January 2016
Appendix 2: Indonesia cigarette
regulations
Excise and cigarette tax regulations
Excisable Goods Entrepreneurs Identification Number (Nomor Pokok Pengusaha
Barang Kena Cukai/ NPPBKC)
Pursuant to Government Regulation No. 72 of 2008 regarding Excisable Goods
Entrepreneurs Identification Number, any manufacturer or importer of cigarettes must
obtain a licence from the MOF, known as an Excisable Goods Entrepreneurs Identification
Number (NPPBKC), which is valid for as long as the relevant company is still in operation.
Regarding the Procedure for the Granting and Suspension of Excisable Goods
Identification Number for a Manufacturer and Importer of Tobacco Products (as amended
most recently by Ministry of Finance Regulation No. 131/PMK.011/2013), the Excise Law
and the Ministry of Finance Regulation No. 200/PMK.04/2008 requires NPPBKC holders
to comply with the following provisions, among others:
A manufacturer or importer
of cigarettes must obtain a
licence from the MOF
A holder must maintain a record of the cigarettes produced in its factory and those coming
into or out of its factory. The holder is responsible for excise tax payments on all cigarettes
recorded in its books.
A holder must report the movement of cigarettes to or from a factory or storage facility to
the relevant Head of the Inspection Office of the Directorate General of Customs and
Excise and the movement must be accompanied by an appropriate excise document.
A holder's factory producing machine-made kretek cigarettes is prohibited from also
producing filtered hand-rolled cigarettes (SKTF).
The failure by a company to have an NPPBKC, to maintain a record of and to periodically
report the types and volumes of cigarettes produced in its factory, or to report the
movement of cigarette products to or from its factories or storage facilities may subject it to
an administrative sanction in the form of a fine of up to a maximum of Rp200 mn and/or a
criminal sanction up to a maximum of five years' imprisonment and/or a fine ranging from
two to ten times the amount of the payable excise tax value.
Determination of retail selling price of tobacco products
The retail selling price or banderol price (Harga Jual Eceran, or HJE) of cigarettes is
specifically regulated in MOF Regulation No. 179/PMK.011/2012 regarding Excise Tax
Tariff of Tobacco Products, as mostly recently amended by MOF Regulation No.
205/PMK.011/2014 ("MOF Regulation 179/2012", as amended) and Directorate General
Customs and Excise Regulation No. PER-40/BC/2014 regarding the Procedure to
Determine Excise Tariff for Tobacco Products. The HJE is set by a decree of the Director
General of Customs and Excise (DGCE) for each brand, based on a proposal from the
cigarette manufacturer (HJE Determination). The HJE is determined by considering the
category of manufacturer, the minimum per unit selling price, the excise tax tariff, the VAT
and the regional cigarette tax, plus any additional amount the manufacturer requests and
then basing it on the number of cigarettes per pack. If the actual retail selling price of the
cigarettes is more than 5% above the HJE, the manufacturer is obliged to submit a request
to the DGCE for an adjustment of the HJE.
The retail selling price or
banderol price is regulated
by the MOF and Directorate
General Customs and
Excise
An HJE Determination allows cigarette manufacturing companies to purchase an excise
stamp for a specific product. If the manufacturer does not purchase an excise stamp for the
relevant product for more than six months, the relevant HJE Determination is no longer valid.
55
04 January 2016
Excise Tax
A 2007 amendment of the Excise Law sets the maximum excise tax tariff that can be
imposed on cigarettes at 57% of the HJE, although where the actual retail price is less
than the HJE the effective excise tariff can be higher.
For the purposes of determining excise taxes on cigarettes, MOF Regulation 205/2014
classifies cigarette manufacturers based on the type of cigarettes they produce and their
annual aggregate production volumes, as shown in the following table:
Figure 118: Classification of cigarettes in Indonesia, based on the type of cigarettes produce and annual aggregate
amount of production
Types of cigarettes
Classification of cigarette manufacturer
Amount of cigarette annual production (units)
SKM
I
More than 2 bn
(Machine-made, kretek cig)
II
Up to 2 bn
SPM
I
More than 2 bn
(Machine-made, white cig)
II
Up to 2 bn
SKT
I
More than 2 bn
(Hand-rolled, kretek cig)
II
More than 350 mn and up to 2 bn
IIIA
More than 50 mn and up to 350 mn
IIIB
Up to 50 mn
Source: Ministry of Finance
A company‘s aggregate amount of production is based on its documented order for excise
stamps in the previous year. Therefore, for example, if company A orders more than 2 bn
excise stamps in the previous year for machine-made white cigarettes (SKM) and fewer
than 2 bn hand-rolled kretek cigarettes (SKT), company A will be categorised as a Type I
Manufacturer for its SKM products and Type II for its SKT products manufactured in the
current year. Company A must make an adjustment if its production for the current year
exceeds the amount for the previous year.
MOF Regulation 198/2015, as amended, also determines the excise tax tariff per cigarette
unit for cigarettes manufactured in Indonesia as follows:
Figure 119: Indonesia excise tax tariff regulation
Types of cigarettes
SKM
Classification of cigarette
Retail selling price (HJE limits) per cigarette
manufacturer
I
Above Rp1,000
II
Excise tax tariff
(Rp/cigarette)
480
Above Rp744
340
Below Rp740 min at Rp590
300
SPM
I
Below at Rp930
495
II
Above Rp800
305
Below Rp800, min at Rp505
255
Above Rp1,115
320
Below Rp1,115, min at Rp775
245
Above Rp605
155
Rp430-Rp605
140
IIIA
Min price at Rp400
90
IIIB
Min price at Rp370
80
SKT
I
II
Value Added Tax/VAT
The 2016 VAT scheme will be effective starting 1 January 2016 and regulated under the
Ministry of Finance Decree No. 174/PMK.03/2015. Cigarettes made and distributed in
Indonesia are subject to 8.7% VAT as determined by the MOF Decree regarding the Base
Calculation for the VAT Collection and Payment upon the Tobacco Products Delivery. The
VAT tariff is calculated based on the HJE of each cigarette brand. A company must pay
VAT to the State Treasury Office together with its excise tax payment.
Cigarette manufacturers and
distributors in Indonesia are
subject to 8.4% VAT
56
04 January 2016
Excise tax payment
Pursuant to MOF Regulation 108/PMK.04/2008 regarding the Settlement of Excise as last
amended by MOF Regulation 15/PMK.04/2015, in principle, a manufacturer or importer of
cigarettes must pay excise tax in cash. A manufacturer or importer may request the MOF
to grant a postponement of the payment of the excise tax pursuant to MOF Regulation No.
69/PMK.04/2009 regarding the Postponement of Excise Tax Payment for a Producer or
Importer of Excisable Goods as amended by MOF Regulation No. 20/PMK.04/2015 (MOF
Regulation 69/2009). The relevant manufacturer or importer will have to provide the
DGCE with a guarantee in the form of a bank guarantee, insurance guarantee or corporate
guarantee upon the submission of the order for the excise stamps.
MOF Regulation 69/2009, as amended, further provides that:
(1) A manufacturer can postpone payment of excise tax for a maximum of two months as
of the date of the order of the excise stamps by the manufacturer.
(2) A manufacturer can postpone payment of excise tax for up to 90 days, as of the date
of the order of the excise stamps by the manufacturer, if the total number of exported
cigarettes is higher than the number of cigarettes distributed in the domestic market.
(3) A manufacturer can postpone payment of excise tax for imported cigarettes, for up to
one month as of the date of the order of the excise stamps for the imported cigarettes.
(4) If the postponement period exceeds 31 December of the current year, a manufacturer
must nevertheless pay excise tax at the latest by 31 December of the current year.
Failure by a manufacturer to pay the outstanding excise tax when it is due will subject it to
an administrative sanction equal to 10% of the outstanding excise tax, in addition to the
obligation for it to pay the outstanding amount of the excise tax.
Regional cigarette tax
Pursuant to Law No. 28 of 2009 regarding Regional Tax and Retribution, cigarettes are
subject to an additional regional cigarette tax of 10%. The regional cigarette tax became
effective 1 January 2014 and is calculated based on the determined excise tax tariff
applied to the relevant brand. A manufacturer must pay regional cigarette tax to the MOF
together with the excise tax payment. The MOF will then distribute the regional cigarette
tax to the relevant regional governments.
Cigarettes are also subject
to an additional regional
cigarette tax of 10%
Content of cigarette pack
DGCE Decree No. P-31/BC/2010 regarding the Procedure for Trading and Retail
Packaging of Excisable Goods in the Form of Tobacco Products regulates the number of
cigarette units permitted in a cigarette pack, as described below:
Figure 120: Procedure for trading and retail packaging of excisable goods in the form of
tobacco products
Types of cigarettes
SKM=machine-made kretek cigarettes
Classification of cigarette
manufacturer
I
SPM=machine-made white cigarettes
SKT=hand-rolled kretek cigarettes and
SPT=hand-rolled white cigarettes
SKTF=hand-rolled kretek cigarette filtered and
SPTF=hand-rolled white cigarettes filtered
Number of permitted units
per cigarette pack
12, 16, 20, and 50
II
10, 12, 16, 20, and 50
I
20
II
20
I
10, 12, 16, 20, and 50
II
10, 12, 16, 20, and 50
III
10, 12, 16, 20, and 50
I
10, 12, 16, 20, and 50
II
10, 12, 16, 20, and 50
57
04 January 2016
Health measures
Health warnings
Pursuant to the Health Law and GR 109/2012, a cigarette pack must display a health
warning. Prior to the issuance of GR 109/2012, a manufacturer had to place a health
warning in text form on the cigarette pack (for both small and large pack cigarettes) for all
cigarettes sold domestically in Indonesia and on all advertising materials. Pursuant to GR
109/2012 and its implementation, as of June 2014, in addition to a textual health warning,
a manufacturer must display a graphic health warning on cigarette packs (both textual and
graphic health warnings are referred to as 'Health Warnings').
Cigarette packs must
display a health warning
By virtue of the MOH Regulation No. 28 of 2013 regarding the Placement of Health
Warnings and Health Information on Cigarette Packs (MOH Regulation 28/2013), the
Government determines five different types of textual and graphic health warnings which a
manufacturer must display on cigarette packs. Each brand of cigarette product must use
all five types of Health Warnings proportionately (so that each type of Health Warning
appears on 20% of products of the same brand).
The five types of text health warnings are:
(1) "Smoking causes mouth cancer."
(2) "Smoking kills."
(3) "Smoking causes throat cancer."
(4) "Smoking close to a child harms its health."
(5) "Smoking causes lung cancer and chronic bronchitis."
The five types of graphic health warnings need to illustrate the following:
(1) oral cancer;
(2) a man smoking with skulls in the background;
(3) throat cancer;
(4) a man smoking while carrying a child; and
(5) lung cancer.
A manufacturer must place Health Warnings on a cigarette pack in accordance with the
requirements provided under GR 109/2012 and MOH Regulation 28/2013, which are,
among others, as follows:
(1) for a rectangular pack, the Health Warnings must be placed on top of the wide side of
the cigarette pack (at front and back sides), each equal to 40% of the respective total
surface;
(2) for a cylinder cigarette pack, the Health Warnings must be placed on 40% of the total
body side of the cigarette pack starting from the top of the cover side of the pack;
(3) the word "WARNING" must be placed on the top side of the graphic health warning;
(4) the graphic health warning must be printed in four color combinations (cyan, magenta,
yellow and black); and
(5) Health Warnings may not be covered by any other material except by the excise tax
stamp placed at the back of the cigarette pack.
Nicotine and tar content
There is no restriction on the maximum amount of tar and nicotine in a cigarette. However,
a Minister of Industry Decree No. 62/MPP/Kep/2004 regarding Guidelines on the Testing
Procedure for Nicotine and Tar Level in Cigarettes provides that the level of nicotine
tolerance for kretek cigarettes is approximately 20% and for white cigarettes is
approximately 15%.
58
04 January 2016
GR 109/2012 requires that an accredited laboratory must assess the content of tar and
nicotine in a cigarette unit and a manufacturer must place the result clearly on the
cigarette pack label. GR 109/2012 provides specific requirements on the form and location
of the placement of nicotine and tar information.
Other information on cigarette packs
In addition to the above Health Warnings and nicotine and tar content information, GR
109/2012 also requires additional heath information that a manufacturer must place on a
cigarette pack as described below.
A cigarette pack must also contain:
(1) a prohibition of selling cigarettes to minors (below 18 years old) and pregnant women;
and
(2) a production code, a production date and the manufacturer‘s name and address.
The form and location of the placement of the above information on a cigarette pack must
be in accordance with the requirements set forth in GR 109/2012 and MOH Regulation
28/2013.
Cigarette-free areas
The Health Law in conjunction with GR 109/2012, defines and regulates cigarette-free
areas. The Health Law specifically provides that cigarette-free areas include health facilities,
educational spaces, children‘s playgrounds, religious facilities, public transportation, working
spaces and certain public spaces. The Health Law further provides that it is permitted to
have designated areas for smoking within these cigarette-free areas. In a cigarette-free area,
smoking, producing, selling, advertising and/or promoting tobacco products are prohibited.
Notwithstanding this, selling activities, advertising and promoting cigarettes are permitted in
places designated for selling cigarettes located in cigarette-free areas. A manufacturer can
also produce cigarettes at production facilities in cigarette free areas.
The Health Law also requires regional governments to designate cigarette-free areas in
their respective jurisdictions.
Sanctions
The Health Law provides that a manufacturer who violates the Health Warning
requirements is subject to criminal sanctions of imprisonment for a maximum of five years
and/or a fine of up to a maximum of Rp500 mn. An entity that violates the cigarette-free
area restrictions is subject to a fine of up to a maximum of Rp50 mn.
Distribution, advertisement and promotional
activities
Distribution
GR 109/2012 prohibits the sale of cigarettes in automatic vending machines, to minors
below 18 years old and to pregnant women.
Advertisements
The government controls cigarette advertisements pursuant to GR 109/2012 by allowing
companies to place cigarette advertisements in printed media, broadcast media, online
media and outdoor media, subject to the following requirements:
(1) an advertisement must carry a Health Warning of at least 10% of the total
duration of an electronic advertisement and/or 15% of a print advertisement;
(2) an advertisement must include signage/written information that the products are
only for "18+";
59
04 January 2016
(3) an advertisement may not illustrate, use and/or show cigarettes or any other
names which may be associated with a brand of cigarette;
(4) an advertisement may not state that the product is a cigarette;
(5) an advertisement may not show an image or suggestion that smoking gives a
health benefit;
(6) an advertisement may not use misleading words or sentences;
(7) an advertisement may not encourage or advise people to smoke;
(8) an advertisement may not show an image and/or written depiction of a child,
teenager, or pregnant woman;
(9) an advertisement may not be addressed to children, teenagers, or pregnant
women;
(10) an advertisement may not use a cartoon character as a model for the
advertisement; and
(11) an advertisement may not be contrary to public norms.
GR 109/2012 also provides specific restrictions for advertisements in each medium:
(1) In printed media, a cigarette advertisement is prohibited from covering the entire page,
may not be placed at the front and/or back cover of printed media or the front page of
a newspaper, and may not appear in media for children, teenagers and women, or
near food or beverage advertisements.
(2) Advertisements using broadcast media may only be broadcast from 9.30 PM to 5.00
AM local time.
(3) Advertisements using digital information and technology, must have an age verification
process in place allowing access only to people 18 years old and above.
(4) Advertisements using outdoor media, must not be placed in cigarette-free areas or
along a main road or access road. The advertisement must be placed horizontally,
cannot be placed across the road, and its size may not exceed 72 sq m.
(5) Regional governments further regulate advertising using outdoor media. The
regulations may include more stringent requirements. For example, the Regional
Government of DKI Jakarta recently issued Regulation No. 1 of 2015 regarding
Restrictions on Showing Cigarette Advertisements and Tobacco Products in Outdoor
Media, which prohibits any cigarette advertisement from using outdoor media in the
entire DKI Jakarta area.
Promotion
GR 109/2012 and BPOM Regulation No. 41 of 2013 regarding Supervision of Distributed
Tobacco Products, Health Warning Placement in the Advertisement and Tobacco
Products Packaging and Promotion regulates cigarette promotions as follows:
(1) cigarette promoters may not give free cigarettes or other products relating to
cigarettes;
(2) cigarette promoters may not use the logo and/or brand of cigarettes for non-cigarette
products;
(3) cigarette promoters may not use a logo and/or brand of cigarette products, including a
brand image, at any event held by an institution and/or individual;
(4) a manufacturer or importer of cigarettes that sponsors a third party event may not do
so using a cigarette logo, including the brand image of a cigarette product, and such
sponsorship may not be for promotional purposes. Such restrictions also apply to CSR
sponsorships; a manufacturer/importer may not sponsor any media covered activity;
60
04 January 2016
(5) a manufacturer is prohibited (i) from using any misleading description, signage, or
promotional words and (ii) from using words which under GR 109/2012 are considered
misleading, such as "Light", "Ultra Light", "Mild", "Extra Mild", "Low Tar", "Slim",
"Special", "Full Flavour", "Premium" or other words indicating quality, superiority,
safety, good image, or personality. The prohibition does not apply to products that are
registered trademarks and have a trademark registration certificate.
Sanctions
A party that violates any of the advertising and promotion restrictions or the packaging
requirements is subject to administrative sanctions that include the obligation to withdraw
and/or revise the advertisement, written warnings, the withdrawal of the product, a
recommendation to suspend the activity or the temporary prohibition of all advertising of
the products.
61
04 January 2016
Appendix 3: GoI excise target
The newly revised Indonesia State Budget 2016 (APBN 2016) is indicating that the
Government of Indonesia (GoI) is looking to receive total excise tax revenue of Rp146.4 tn
in 2016 (flat YoY). This is 6% lower than its initial proposed excise tax revenue of
Rp155.5 tn. However, deducting one-off excise revenue of Rp18.5 tn this year, next year's
target is a rise of 15% YoY. Note that around 95.5% is attributable to cigarettes, worth
Rp139.8 tn. The excise tax revenue accounts for 10% of the total tax revenue, or 1.2% of
the country's GDP.
Excluding the one-off
Rp18.5 tn of the 60-day
credit term, the GoI is
looking for a 15% increase
YoY in the excise duty
revenue target in 2016
As of 23 November 2015, the GoI has collected Rp104.2 tn in excise tax revenue, or 72%
of the FY15 target of Rp145.7 tn. However, including the one-off revenue from the change
in the payment scheme of an estimated Rp18.5 tn, this equates to 82% of FY15E. This
includes excise from cigarettes and alcoholic drinks, of which alcoholic drinks account for
around 5% of the total amount. Excise tax accounts for around 10% of total tax revenue,
or 1.3% of GDP.
The Directorate General of Customs and Excise predicts that total customs and excise tax
realisations reach 95% of the total target this year. Various efforts will be done to achieve
its total receipts by the end of the year, including audits for importer taxpayers as well as
recalculating total receipts.
The 2016 draft budget assumes that 96% of the excise tax revenue is from the sale of
cigarettes and the remaining 4% from alcoholic drinks. In 2015, the GoI is assuming 95%
of excise tax revenue is derived from the sale of cigarettes.
Excise duty collection is important for the GoI to fund the budget. The 2016 draft budget is
assuming 5.5% GDP growth, with 4.7% inflation (CS estimates 5.4% GDP growth and
4.8% inflation in 2016E), with a 2.1% budget deficit. The excise tax revenue accounts for
10% of total tax revenue, or 1.3% of the country's GDP.
The GoI has been able to
collect 72% of the FY15E
target for excise tax revenue
as of end of Nov-15
While the GoI does not indicate the volume growth assumption in its budget, it does
elaborate on the technical systems to be implemented with regard to customs and excise
to achieve the excise tax revenue 2016 target. First, it will enforce the law with regard to
the excise sector, particularly in relation to the illegal drink, ethyl alcohol, and cigarettes.
Second, it will increase excise tax by drawing attention to the welfare of the clove and
tobacco farmers as well as the overall industry.
Figure 121: GoI excise tax target (tobacco + alcoholic drinks + ethyl alcohol)
Year
Excise tax (Rp bn)
YoY chg.
Total tax rev (Rp bn)
% excise to total
GDP (Rp bn)
% excise to GDP
2000
11,287
8.7%
115,913
9.7%
971,503
1.2%
2001
17,394
54.1%
185,541
9.4%
1,467,655
1.2%
2002
23,189
33.3%
210,088
11.0%
1,610,565
1.4%
2003
26,277
13.3%
242,048
10.9%
1,786,691
1.5%
2004
29,173
11.0%
280,898
10.4%
2,303,031
1.3%
2005
33,256
14.0%
347,031
9.6%
2,774,281
1.2%
2006
37,772
13.6%
409,203
9.2%
3,339,217
1.1%
2007
44,680
18.3%
490,989
9.1%
3,950,893
1.1%
2008
51,252
14.7%
658,701
7.8%
4,951,357
1.0%
2009
56,718
10.7%
619,922
9.1%
5,613,442
1.0%
2010
66,166
16.7%
723,307
9.1%
6,253,790
1.1%
2011
77,010
16.4%
873,874
8.8%
7,427,236
1.0%
2012
95,028
23.4%
980,518
9.7%
8,119,800
1.2%
2013
108,452
14.1%
1,077,307
10.1%
9,249,927
1.2%
2014
118,086
8.9%
1,146,866
10.3%
10,065,485
1.2%
2015E
145,740
23.4%
1,489,300
9.8%
11,126,844
1.3%
2016E
146,430
0.5%
1,546,700
9.5%
12,759,270.4
1.1%
62
04 January 2016
Figure 122: Excise tax to total tax revenue
160000
145740
146430
140000
120000
108452
127240
118086
95028
100000
60000
33256 37772
44680
51252
56718
20%
15%
77010
80000
40000
25%
66166
10%
5%
20000
2016E
2015E
2014
2013
YoY growth (%)
2015E excl. one-off
Excise tax revenue (Rp bn)
2012
2011
2010
2009
2008
2007
2006
0%
2005
0
Source: Ministry of Finance, Credit Suisse estimates
Figure 123: Excise tax composition (2015)
Alcoholic drinks
5%
Figure 124: Excise tax composition (proposed 2016E)
Alcoholic drinks
4%
Cigarettes
95%
Cigarettes
96%
63
04 January 2016
Figure 125: Historical Minimum Retail Price (MRP)
Type
Tier Annual output
(sticks)
Minimum Retail Price (MRP)
1-Feb-09
2010
1-Jul-10
2011
2012
2013
2015
2016
SKM
I
> 2 bn
660
660
660
660
660
669
800
1000
II
< 2 bn
430
430
430
430
430
549
588
740
374-380
374-380
374-380
374-380
374-430
440-549
511-588
590-740
930
SPM
I
> 2 bn
600
600
600
600
375
680
820
II
< 2 bn
300
300
300
300
300
444
520
800
254-300
254-300
254-300
254-300
254-300
345-444
425-520
505-800
825
1115
SKT
I
> 2 bn
II
590
590
590
590
590
749
520-550
520-550
520-550
520-550
520-590
550-749
350 mn - 2 bn
IIIA
50 mn - 350 mn
IIIB
< 50 mn
606-825 775-1115
379
379
379
379
379
379
417
605
349-379
349-379
349-379
349-379
349-379
349-379
385-417
430-605
234
234
234
234
234
250
286
400
286
370
YoY growth:
SKM
I
> 2 bn
0.0%
0.0%
0.0%
0.0%
1.4%
19.6%
25.0%
II
< 2 bn
0.0%
0.0%
0.0%
0.0%
27.7%
7.1%
25.9%
0.0%
0.0%
0.0%
0-13.2%
17.6- 7.1-16.1%
27.7%
15.525.9%
SPM
I
> 2 bn
0.0%
0.0%
0.0%
-37.5%
81.3%
20.6%
13.4%
II
< 2 bn
0.0%
0.0%
0.0%
0.0%
48.0%
17.1%
53.8%
0.0%
0.0%
0.0%
0.0% 35.8-48%
17.123.2%
18.853.8%
0.0%
0.0%
0.0%
0.0%
26.9%
10.1%
35.2%
0.0%
0.0%
0.0%
0-7.3% 5.8-26.9%
0.0%
0.0%
0.0%
0.0%
0.0%
10.110.2%
10.0%
27.935.2%
45.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
6.8%
10.010.3%
14.4%
11.745.1%
39.9%
SKT
I
> 2 bn
II
350 mn - 2 bn
IIIA
50 mn - 350 mn
IIIB
< 50 mn
29.4%
64
04 January 2016
Figure 126: Historical excise tax duty
Type
Tier Annual output
(sticks)
Tax (Rp/stick)
1-Feb-09
2010
1-Jul-10
2011
2012
2013
2015
2016
SKM
I
> 2 bn
290
310
310
325
355
375
415
480
II
< 2 bn
210
230
230
245
270
285
305
340
175
195
195
210
235
245
265
300
SPM
I
> 2 bn
290
310
310
325
365
380
425
495
II
< 2 bn
170
200
200
215
235
245
270
305
135
165
165
175
190
195
220
255
SKT
I
> 2 bn
II
200
215
215
235
255
275
290
320
130-150
145-165
145-165
155-180
195
205
220
245
90
105
105
110
125
130
140
155
80
95
95
100
115
120
125
140
40
65
50
65
75
80
85
90
80
80
350 mn - 2 bn
IIIA
50 mn - 350 mn
IIIB
< 50 mn
YoY growth:
SKM
I
> 2 bn
6.9%
0.0%
4.8%
9.2%
5.6%
10.7%
15.7%
II
< 2 bn
9.5%
0.0%
6.5%
10.2%
5.6%
7.0%
11.5%
11.4%
0.0%
7.7%
11.9%
4.3%
8.2%
13.2%
SPM
I
> 2 bn
6.9%
0.0%
4.8%
12.3%
4.1%
11.8%
16.5%
II
< 2 bn
17.6%
0.0%
7.5%
9.3%
4.3%
10.2%
13.0%
22.2%
0.0%
6.1%
8.6%
2.6%
12.8%
15.9%
9.3%
8.5%
7.8%
5.5%
10.3%
6.9-9.1% 8.3-25.8%
5.1%
7.3%
11.4%
SKT
I
> 2 bn
II
350 mn - 2 bn
IIIA
50 mn - 350 mn
IIIB
< 50 mn
7.5%
0.0%
10-11.5%
0.0%
16.7%
0.0%
4.8%
13.6%
4.0%
7.7%
10.7%
18.8%
0.0%
5.3%
15.0%
4.3%
4.2%
12.0%
62.5%
-23.1%
30.0%
15.4%
6.7%
6.3%
5.9%
Indonesia vs. India: Why is it different?
India's cigarette sector has been underperforming the Indian market by 26% in the past
one year, as the government has implemented stricter measures by increasing cigarette
taxes by over 35% within ten months and considering putting restrictions on the sale of
loose cigarette sticks. The Indian government has been looking to promote public health
by cutting down on smokers. The fear of the happenings in India being replicated in
Indonesia could have been behind the weakness in Gudang Garam's shares. Investors
might have shied away as the GoI is targeting a higher revenue from excise tax.
Nonetheless, in our view, the difference is that in India, excise tax revenue only accounts
for ~1% of total tax revenue, whereas in Indonesia, it accounts for about 10%. The GoI is
looking to increase tax, and not limit, the cigarette volume. Cigarette sales in India are
around 100 bn sticks, a third of what is sold in Indonesia.
65
04 January 2016
Appendix 4: Cigarette production
process
Figure 127: Cigarette production process
Primary production process
The primary production process of cigarettes consists of combining and blending tobacco
leaves and, in the case of kretek cigarettes, cloves, into the finished cut filler.
Primary processing
Sampoerna has two fully automated primary processing facilities in Karawang and
Sukorejo; each has the capacity to process 15 tons of tobacco per hour. The primary
processing facilities are used to process the tobacco into cut tobacco with additional
casing that is ready to be blended with other materials (expanded tobacco leaves and
cloves) in the mixing line.
Clove processing
Clove is used in kretek cigarettes for the distinctive aroma and taste that its essential oils
provide. Sampoerna has two advanced clove processing lines from Italy in Karawang and
66
04 January 2016
Sukorejo; each of them has the capacity to process six tons of cloves per hour. During this
stage, cloves are processed into dried-up cloves to make them compatible in size and
shape with tobacco ingredients for the cigarette blend.
Mixing process
The mixing process is the last part of the primary production process. During this stage,
the tobacco, flavour, and dried cut cloves are blended together to produce a homogenised
cut filler. Sampoerna uses automated equipment to ensure that the ingredients are
blended in the correct proportion and are consistently homogenised to produce the
intended taste and aroma.
Secondary production process
The secondary production process of cigarettes consists of making cigarettes from the cut
filler and packaging the cigarettes for distribution.
Machine-made cigarettes
Sampoerna has automated production facilities in Karawang and Sukorejo. Its cigarettemaking machines combine cut filler with other materials such as filters and tipping paper.
The cigarettes are then placed into individual packs, affixed with the government excise
tax stamp and wrapped in pack film to preserve the taste and aroma. Ten packs of
cigarettes are then bundled with outer film and packed into boxes.
Sampoerna prints the cartons and boxes used for packaging at its own printing facilities
both in Karawang in Sukorejo. It employs Rotogravure and offset machines which enable it
to produce multi-colour printing, including the graphic health warnings required by the
government, embossing and micro debossing for the packaging of its Sampoerna A Mild
Menthol and Dji Sam Soe Super Premium products.
Hand-rolled cigarettes
Sampoerna has five hand-rolling facilities for its hand-rolled cigarettes (SKT) in Surabaya
(Taman Sampoerna, Rungkut I and Rungkut II), Malang, and Kraksaan. Hand rollers' work
starts with the cigarette rolling process and the cutting process. After the rollers make the
cigarettes, cutters clip excess tobacco from the ends of each cigarette and then bundle the
cigarettes into groups of 50. The cigarettes are then put into packs and the government
excise tax stamp is affixed on each pack. Individual packs are then packed by hand into
cartons and boxes.
Under the cooperation arrangements with 38 TPOs throughout Java, Sampoerna provides
the raw materials and supplies such as the cut filler, tipping paper, packaging, and other
materials, the rolling machines and tools, expertise and administrative assistance. The
TPOs provide the production facilities, production output, and storing warehouses for a fee.
The TPOs are paid fees based on the number of units and type of product produced.
67
04 January 2016
Appendix 5: Credit Suisse
Indonesia Consumer Survey 2015
This note is excerpted from Indonesia Consumer Survey 2015: "Welcome to the fast
lane…" dated 9 February 2015.
Our fifth Credit Suisse Indonesia Consumer Survey is part of the survey that Credit Suisse
Research Institute conducted in nine emerging countries (Brazil, China, India, Indonesia,
Russia, Saudi Arabia, South Africa, Turkey, and Mexico). Credit Suisse Research Institute
engaged The Nielsen Company, a leader in data measurement and information across a
wide range of industries and regions, to conduct face-to-face interviews with nearly 16,000
participants. The survey is a comprehensive and exclusive study of the consumption
patterns in each country as well as individuals' outlook about the future.
For Indonesia, we conducted the survey on 1,531 participants from ten exclusive areas,
similar to our previous years' surveys. This includes six areas in Java (Jakarta, Botabek,
Surabaya, Gresik/Lamongan/Sidoarjo, Bandung, and Kab Bandung) and four outside Java
(Medan, Deli Serdang, Makassar, and Gowa). We believe that the areas sit well with
Indonesia's economy and population given that around 65% of GDP is derived from Java
and the remaining 35% from outside Java, according to BPS (Indonesia Bureau Statistics).
Survey was conducted in
October 2014, in six areas
of Java and four areas of
outside Java regions
Similar to our previous five years' survey, 66% of our survey's participants live in urban
areas and the remaining 34% in rural areas, with 51% being female and 49% male. The
majority of the respondents (72%) are below 45 years of age, in keeping with Indonesia's
young demographic profile.
66% in urban,51% female,
and 72% are below 45 years
of age
Cigarettes
Consumption of cigarettes in Indonesia is relatively stable (54% in 2013 versus 56% in
2014), with consumption in rural areas rising compared to the previous year's survey.
Nonetheless, contrary to 2013, this year more respondents are going to consume more
cigarettes in the next three months (26% in 2013 versus 34% in 2014).
Figure 128: Consumption of cigarettes
2014
% of respondents
2013
Total
Urban
Rural
Java
Non Java
Total
Urban
Rural
Java
Non Java
Consumed in the past 3M
56
55
59
55
60
54
57
47
54
52
Consuming more in the next 3M
34
31
39
30
42
26
26
26
22
37
SKM full-flavoured continues to be the favourite among smokers
Based on data from the American Cancer Society, around 35% of Indonesia's 249 mn
people are smokers, or equivalent to 86.6mn people. Of that figure, approximately 97%
are male. Our Indonesia Consumer Survey 2015 indicated a similar thing: 33% of the
respondents smoke SKM FF (machine-made cigarettes, full-flavoured), up from 32% in the
previous year.
35% of Indonesians are
smokers—97% of which are
male
Indonesians continue to prefer kretek cigarettes (94% of smokers), compared to white
cigarettes, which has been stable at around 6% of respondents. Kretek cigarettes are
made with a blend of clove, tobacco, and other flavouring, and have been an Indonesian
favourite from the late 19th century.
Our Indonesia Consumer Survey 2015 continues to see smokers prefer SKM, or machinemade kretek cigarettes, of which the full-flavored variety continues to be the lead choice as
compared to the low-tar, low-nicotine version. Of the total, 33% of smokers preferred SKM
full flavoured (32% in last year's survey). Those that favoured SKM low-tar, low-nicotine
were down to 28%, from 30%, and SKT smokers are now at 22% (versus 24% in the 2013
Smokers continue to prefer
SKM FF products….
68
04 January 2016
survey)—the lowest in the five years we have done the survey. This was underpinned by
higher clove prices, which led to higher price increases in SKT. White cigarettes continue
to be the least popular type, only favoured by 6% of respondents—relatively stable from
our previous survey. Interestingly, higher and lower income earners prefer SKM FF more
compared to other types, while middle income earners prefer SKM LTLN and SKT.
By age group, the younger generations preferred SKM LTLN or white cigarettes, while the
older generations preferred SKT, and SKM FF is favoured by all age groups. Of our
respondents in the age group below 30, 36% are fans of SKM LTLN, as compared to 32%
preferring SKM FF and 14% preferring SKT products.
…but not the younger
generations
Figure 129: Cigarette consumption by cigarette types
Age
% of respondents
Total Urban Rural
Java Non Java
Monthly income
18-29
30-45
46-55
56-65 <Rp1.5mn
Rp1.5-7.5mn
>Rp7.5mn
72
2014
SKM FF
33
34
32
36
27
32
36
32
29
37
12
SKM LTLN
28
31
22
24
38
36
25
15
17
18
30
5
SKT
22
20
24
25
8
14
21
33
33
27
35
13
White
6
7
5
7
7
9
4
5
4
10
8
3
Others
12
8
17
7
20
9
13
15
17
8
15
7
SKM FF
32
31
36
34
28
35
28
33
43
35
21
87
SKM LTLN
30
28
30
29
7
37
25
13
13
28
26
4
SKT
24
23
24
24
40
11
28
41
33
23
34
6
White
6
8
2
7
5
9
6
4
0
2
9
1
Others
7
9
7
6
19
9
13
9
11
12
9
3
SKM FF
31
28
34
34
28
30
32
34
25
33
18
85
SKM LTLN
23
28
17
30
16
32
24
8
3
29
31
4
SKT
26
26
25
22
27
17
29
36
51
19
28
6
White
7
9
6
10
7
13
8
3
3
3
11
3
Others
14
8
18
5
22
8
7
18
19
16
11
2
SKM FF
31
32
30
34
27
27
33
35
38
31
25
92
SKM LTLN
25
27
19
36
12
35
22
7
8
33
32
3
SKT
30
24
36
19
35
22
31
41
30
17
29
2
White
5
7
1
4
7
6
6
3
4
3
6
1
Others
10
10
13
6
19
10
9
14
20
15
8
2
SKM FF
39
38
41
41
34
37
40
41
29
42
27
96
SKM LTLN
23
26
13
33
14
33
18
6
10
29
34
1
SKT
27
28
30
17
37
20
32
33
45
17
29
2
White
4
5
2
4
3
4
5
6
0
3
6
1
Others
7
4
14
5
11
6
5
14
15
9
4
1
2013
2012
2011
2010
* Note: SKM FF is machine-made full-flavored kretek cigarettes, SKM LTLN is machine-made low-tar, low-nicotine kretek cigarettes, and SKT is
hand-rolled kretek cigarettes.
HM Sampoerna is still the leader among cigarette manufacturer
HM Sampoerna (HMSP JK), owned by Phillip Morris International, remains the leader
amongst cigarette manufacturers. Based on our survey, HM Sampoerna products are
favoured by 43% of our respondents, slightly lower than last year's survey of 44%.
Sampoerna cigarettes are favoured by those respondents living in urban areas, among the
younger generation, and mostly those within the higher income group.
Sampoerna remains the
most favoured cigarette
manufacturer followed by
GGRM, and Djarum,
according to the survey
Gudang Garam (GGRM.JK) is the second-most favoured cigarette manufacturer.
According to the survey, 19% of the respondents favour GG products, slightly lower than
69
04 January 2016
last year's 21%, yet it still ranked second. GG products are more popular with respondents
who live in urban areas, among the older generation, and within the lower income group.
The unlisted Djarum remains in third place, with 1% higher preference among 19% of our
respondents compared with 18% in the previous year. Djarum cigarettes are favoured by
those respondents who live in rural areas, are located in Java, across all ages, and mostly
within the lower income group.
These three large cigarette manufacturers combined are favoured by the majority of our
respondents (81%), while the remaining 19% favour cigarettes manufactured by smaller
cigarette manufacturers. Within the smaller cigarette players, both Bentoel and Wismilak
are the largest ones. Bentoel (RMBA.JK) is favoured by 2% of our respondents, lower than
our previous survey of 4%. We view this might be because of the shift in consumer
preference from one of Bentoel's product, Dunhill Mild (SKM LTLN) to other SKM FF
products. Nevertheless, Bentoel cigarettes are favoured among the younger generation,
across all income group, and those respondents mostly residing in rural areas.
Figure 130: Cigarette consumption by age and income—by cigarette manufacturer
By cigarette
Manufacturer
Age
Total Urban Rural
Java Non Java
Monthly income
18-29
30-45
46-55
56-65 <Rp1.5mn
Rp1.5-7.5mn
>Rp7.5mn
2014
HM Sampoerna
43
48
36
36
20
47
41
39
38
45
42
53
Gudang Garam
19
21
17
14
14
18
20
23
21
22
20
13
Djarum
19
17
23
20
0
16
21
20
18
19
20
13
Bentoel
2
2
3
2
2
4
1
2
0
2
2
3
Wismilak
0
0
0
0
0
0
0
0
0
0
0
0
16
13
20
29
64
15
16
17
23
12
15
18
HM Sampoerna
44
47
36
33
13
39
49
37
27
34
46
49
Gudang Garam
21
22
21
14
11
20
20
27
27
19
23
3
Djarum
18
16
24
18
0
20
12
23
33
28
14
4
Bentoel
4
3
2
2
2
5
2
1
0
1
4
0
Wismilak
1
0
2
0
0
0
1
0
2
1
0
0
12
13
15
33
74
16
16
11
11
17
13
44
HM Sampoerna
44
51
30
26
14
45
48
37
31
31
50
60
Gudang Garam
23
22
26
13
10
20
26
27
17
25
22
17
Djarum
11
8
13
8
0
11
7
12
22
19
8
6
Bentoel
2
4
3
2
1
6
4
1
0
1
4
8
Wismilak
2
1
4
1
1
1
2
3
9
4
1
0
19
14
24
50
74
16
14
21
21
19
15
10
Others
2013
Others
2012
Others
Sampoerna A Mild continues to be the leader…
According to our survey, the five most popular cigarette brands (in terms of their
popularity) are Sampoerna A Mild (SKM LTLN), Djarum Super (SKM FF), Dji Sam Soe
(SKT), GG Surya (SKM FF), and GG FIM (SKM FF). This is similar to our previous year's
survey where these brands continued to be the top-five most popular. In addition, other
smaller cigarette brands also continued to gain in popularity, given that they are more
affordable in terms of pricing and there continues to be new upcoming brands in the
market.
Sampoerna A Mild
continues to be the most
popular cigarette brand
based on the survey
Sampoerna A Mild continues to be the most popular cigarette brand for the past two years,
based on our survey. Its products are favoured by 19% of our respondents that smoke,
slightly up from the previous year's survey. Djarum Super became the second most
favoured cigarette brand, gaining popularity by 3% this year among respondents (11% in
2013 versus 14% in 2014), overtaking GG Surya which was in the second position last
year.
70
04 January 2016
Dji Sam Soe continues to maintain its position as the third favoured cigarette brand, with
relatively stable popularity. Around 14% of our respondents favoured the brand this year,
up from 13% in last year's survey.
On the other hand, GG Surya, the second most favoured brand last year, dropped to the
fourth most favoured brand in this year's survey. It was favoured by 12% of our
respondents, a decline from 14% in the previous survey.
After the change of packaging on GG FIM last year that received negative feedback from
consumers, the popularity of GG FIM remained relatively stable, with 7% of respondents
favouring the brand (6% in 2013).
Figure 131: Cigarette consumption, by brand—Sampoerna's A-Mild is the most popular cigarette brand
% of respondents
that smoke
Age
Java Non Java
Monthly income
Total
Urban
Rural
18-29 30-45 46-55 56-65 < Rp1.5mn Rp1.5-7.5mn >Rp7.5mn
Sampoerna A Mild
19
21
14
17
24
25
17
8
11
17
18
25
Djarum Super
14
13
14
18
1
14
16
8
8
16
15
11
Dji Sam Soe
14
15
11
15
7
11
14
18
17
10
14
15
Gudang Garam Surya
12
13
11
8
26
11
12
16
13
16
13
4
Other brands
11
8
15
8
20
8
12
13
17
9
10
15
Gudang Garam Filter
7
8
6
10
1
7
8
8
8
6
7
8
Djarum Coklat
5
3
8
6
-
3
4
10
10
4
5
-
U Mild
5
6
4
6
3
5
5
5
2
7
4
8
Marlboro
4
5
2
4
3
5
3
4
2
8
4
6
Clas Mild
4
4
4
1
11
6
3
2
4
3
4
3
Sampoerna Hijau
2
1
4
3
1
1
2
4
6
4
3
-
Dunhill
2
2
3
2
4
3
1
2
-
2
2
3
Djarum 76
1
1
1
1
-
-
1
2
-
-
-
-
Sampoerna A Mild
18
18
15
15
23
20
18
8
11
12
18
34
Gudang Garam Surya
14
13
15
10
25
13
13
19
14
11
14
4
Dji Sam Soe
13
14
9
14
6
7
18
13
8
9
13
23
Djarum Super
11
11
15
15
0
16
8
7
19
15
11
8
Other brands
9
9
11
6
20
7
11
8
11
13
8
21
Gudang Garam Filter
6
7
4
8
2
6
7
6
11
8
6
4
Djarum Coklat
4
3
7
7
-
2
4
11
14
10
4
-
Sampoerna Hijau
5
4
6
6
0
1
5
13
8
5
5
-
Clas Mild
4
3
7
1
12
7
2
1
-
4
4
-
U Mild
4
5
3
5
1
6
4
2
-
5
4
4
Marlboro
4
5
2
5
2
5
4
2
-
2
5
4
Dunhill
2
3
-
1
3
3
1
1
-
-
3
-
Djarum 76
1
1
1
2
-
1
1
4
-
2
1
-
A Mild
1
1
1
1
1
1
2
-
2
1
1
-
Pro Mild
1
1
1
1
-
1
-
2
-
0
1
-
Minak Djinggo
1
-
2
0
-
-
1
-
2
1
0
-
GG Mild
1
1
1
0
1
1
-
-
2
-
1
-
Star Mild
1
1
1
1
-
1
1
-
-
0
1
-
LA Lights
1
1
1
0
1
1
1
-
-
0
1
-
X Mild
1
-
2
0
1
1
-
-
-
1
1
-
Djarum Black
1
-
1
1
-
1
-
1
-
-
1
-
2014
2013
71
04 January 2016
Appendix 6: The power of brand
investing
This note is excerpted from Credit Suisse's report: "The power of brand investing" dated
February 2010.
Brands have a crucial function in today’s markets of abundance and overwhelming choice
as they guide consumers towards expected quality, while allowing them to make a
statement about themselves, arguably one of the most important features of brands in
today’s society. For this service, brands can charge their clients a sometimes very
substantial premium.
A strong brand is often the most important asset for a company, and in this report we aim
to provide an understanding of what drives brand value over the lifecycle of brands and
what it means for investors. There are precious few true competitive advantages in
modern industry: scale, proprietary technology, monopolies, and network externalities
often come to mind. However, we believe brand is an equally powerful and even more
sustainable advantage, but one that is often ignored by the financial markets because of
their “fluffy” and intangible nature. Based on our research, we find companies with strong
brands consistently generate outsized long-term growth, profitability and returns.
We believe the future for brands and brand stocks is very bright given their universal
appeal and reach in virtually every corner of the earth. Brand companies are particularly
well positioned in a global environment that is poised to elevate hundreds of millions of
new individuals into the modern consumer economy across Asia, India, Eastern Europe,
and Latin America over the next decade. Whether it will be already well-recognised brands
expanding their reach to new markets or new brands emerging to take advantage of
product or geographic opportunities, we believe there will be many chances to invest in
exciting brands in the coming years.
The search for brands
Companies that combine a strong brand with other competitive advantages can look
forward to attractive returns and long-term growth. In our view, identifying great brand
companies presents a significant opportunity for investors.
Brands play a key role in customers’ purchasing decisions, whether as a shortcut or as an
image enhancer. By implying a certain level of product or service quality and/or price
expectations, brands serve as a way of simplifying routine purchase decisions. For
industries such as consumer products, retailers, airlines, media, and even search engines
and express delivery businesses, brands play a key role in helping consumers sort
through the available options. Brands can also embody the image that the customer wants
to project. These brands tend to fall into industry categories such as fashion, jewellery and
watches, athletic footwear, automobiles, consumer electronics, hotels, cosmetics, retailers
and even high-end coffee. Companies can leverage one or both of these customer
benefits in building their brands. Because of the role that brands play in customers’
purchase decisions, keeping a brand consistent, focused—but also current—is critical to
building and reinforcing the customer’s perceptions of the brand over multiple years.
What does a brand do?
For companies, brands create financial value as well as softer benefits. Clearly, sales
growth, margin expansion and pricing power can all be achieved with brand leadership.
Other benefits can include distributor/channel power, supplier power and even employee
recruitment and retention advantages. Together, these benefits far outweigh the costs
involved in establishing and maintaining a leading brand. There are precious few
sustainable competitive advantages in the modern industrial world: scale, proprietary
technology, monopolistic competition, network externalities often come to mind. While we
72
04 January 2016
certainly agree with this list, we believe branding is one of the most potent, leveragable
and sustainable competitive advantages, though one that is often ignored by the
investment community. Our research tells us that companies that combine a strong brand
with other competitive advantages and competencies consistently generate out-sized longterm growth and returns. Over the last twelve years, companies which spent at least 2% of
sales on marketing (brand index) have seen 67 percentage points of cumulative
outperformance against the S&P 1500. And though this may be an overly simplistic
analysis, it does at least tell us that companies focusing on brand-building (regardless of
whether they are good at it or not) tend to outperform significantly.
The Credit Suisse brand framework
While we are all familiar with the great brand stories of the last generation, identifying
great brands of the next generation is an extremely tricky task. Not only is it hard to
identify which of today’s up-and-coming brands will be the great brands of tomorrow, but it
is also important to know at which stage of the brand lifecycle these businesses are, and
when is the right time to invest in them. Our brand investment platform relies on two key
frameworks: (1) identifying the industry and company specific conditions and
characteristics necessary for brand success; and (2) understanding the brand lifecycle and
the relative investability of brands at various stages. In this report, we explore these issues
with case studies of brands that are young and old, big and small, little known or famous.
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04 January 2016
Appendix 7: Company background
HM Sampoerna was acquired by Philip Morris International (PMI) in 2005. Today, PMI
owns a 98.18% stake in the company. Sampoerna was started in 1913 by Liem Seeng
Tee in Surabaya. He was among the first to manufacture and market hand-rolled kreteks.
In 1959, the business was handed over to the family's second generation and focused on
premium hand-rolled kreteks. In 1978, the business was handed over to the family's third
generation, and in 1989, it launched the A-Mild brand—machine-made, low-tar, lownicotine kreteks. The company was listed in IDX in 1990 and in 2001, and the business
was handed over to the family's fourth generation.
HM Sampoerna was
acquired by PMI in 2005. It
currently produces and
distributes 18 different SKUs
of kretek cigarettes, grouped
into five brand families
Today, Sampoerna produces and distributes 18 different SKUs of kretek cigarettes, and is
grouped into five brand families. Its market share in 2014 is estimated at 35%.
(1)
Dji Sam Soe (SKT): DSS 12, DSS 16, DSS Super Premium 12 Snapbox.
(2)
Sampoerna Kretek (SKT): Sampoerna A Hijau 12, Sampoerna Hijau PAS 12.
(3)
Panamas Kuning (SKT): Panamas 12.
(4)
Sampoerna A (SKM LTLN): Sampoerna A Mild 16, Sampoerna A Mild Menthol 16,
Sampoerna A Mild 12, Avolution 16, Avolution Menthol 16, Sampoerna A Motion 16,
Sampoerna A Mild Blue 16.
(5)
Sampoerna U (SKM LTLN): U Mild 16, U Mild Cool 16, Sampoerna U Bold 12.
(6)
Dji Sam Soe (SKM FF): DSS Magnum Filter 12, DSS Magnum Blue 16.
In addition to kretek cigarettes, Sampoerna is also an exclusive distributor of white
cigarettes "Marlboro" in Indonesia since 2005, under a long-term distribution agreement
with PMID. This includes the brands Marlboro Red, Marlboro Gold Lights, Marlboro Black
Menthol, Marlboro Menthol Lights, and Marlboro Ice Blast. These products are
manufactured by PMID in Karawang, West Java. The PMID production facility is
segregated, and managed independently, from Sampoerna's production facility in
Karawang. Its market share in 2014 is estimated at 80%. The company also distributes
Peter Jackson Rich Gold cigarettes in Bali.
Figure 132: Sampoerna's cigarettes display
Figure 133: Sampoerna A Mild
Source: Credit Suisse
Source: Company
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04 January 2016
Figure 134: U Mild
Figure 135: Dji Sam Soe
Figure 136: Dji Sam Soe Magnum Blue
Figure 137: Marlboro
Source: Company
Source: Company
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04 January 2016
Figure 138: Current banderole price vs. tar vs. nicotine
Current banderole price (Rp/pack)
Tar (mg)
Nicotine (mg)
SKT
Sampoerna A Hijau
8,425
38
2.2
DSS 12
13,075
39
2.3
DSS 16
14,550
39
2.3
9,250
33
1.7
15,125
18
1.1
9,775
14
1
Sampoerna U Mild
12,800
15
1
Sampoerna U Bold
10,000
32
2.1
Sampoerna U Mild Cool
12,800
14
1
DSS Magnum Blue 16
15,200
18
1
DSS Magnum Filter 12
11,900
33
2.3
Sampoerna A Volution
15,100
14
1
Marlboro Red
16,850
13
1
Marlboro Ice Blast
16,900
8
0.6
Marlboro Menthol
16,400
9
0.7
Marlboro Black Menthol
16,400
8
0.6
Marlboro Lights
16,400
9
0.8
Sampoerna Kretek
SKM
Sampoerna A Mild 16 Menthol
Sampoerna A Mild 12
SPM
* SKT: Hand-rolled kretek cigarette, SKM FF: Machine-made full-flavour cigarette, SKM LTLN: Machine-made, low-tar, low-nicotine cigarette,
SPM: White cigarette; Source: Various channel checks, Company data
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04 January 2016
Figure 139: Sampoerna—company structure
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04 January 2016
Appendix 8: Taman Dayu
Sampoerna owns PT Taman Dayu, a property development company at Pandaan,
Pasuruan regency, through a joint operation with PT Ciputra Surya Tbk. The company
stands on a total of 600 ha land area. It also indirectly owns PT Golf Taman Dayu, a golf
resort, and PT Sampoerna Printpack, a metal packaging company. These other
businesses contributed Rp158.0 bn, or approximately 0.2%, to Sampoerna's consolidated
net revenues in 2014.
The other business of
Sampoerna, PT Taman
Dayu, contributed
approximately 0.2% to total
revenues in 2014
Taman Dayu's area is located approximately 40 km away from Surabaya (the second
largest city in Indonesia) via a newly-operating toll road (since 12 June 2015), namely the
Gempol-Pandaan toll-road. The completion of the road has been delayed due to the
recent lapindo mud tragedy. A one way trip from Surabaya to Taman Dayu could take up
to 4-5 hours without the toll-road and only 1.5-2 hours via the toll-road (during rush hours),
similar to the average house-workplace transportation time locally in Surabaya (due to
high level of congestion). We believe that the new access will attract both investors and
even end-users.
The company has developed ± 70% of the total area, hence, it currently has 180 ha of
land area available to be developed in the future.
Figure 140: Pandaan exit-toll-gate placed…
Figure 141: …just 500 m from Taman Dayu's main
entrance
Taman Dayu has had six landed residential housing projects amounting to nearly 500
units of landed houses with ASP ranging from Rp5-6 mn per sq m, which has doubled
since the opening of the toll-road but still lower than average housing prices in Surabaya.
Roughly one-third of that amount is still available for sale.
Figure 142: Taman Dayu golf course
Figure 143: Sagamore project stage one
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04 January 2016
Appendix 9: Management profile
Figure 144: HM Sampoerna—Board of Commissioners and Board of Directors
Name
Position
Name
Position
Board of Directors
John Gledhill
President Commissioner
Paul Norman Janelle
President Director
Charles Herve Bendotti
Vice President Commissioner
Andre Dahan
Director
Niken Kristiawan Rachmad
Commissioner
Wayan Mertasana Tantra
Independent Director
Raden Basus Permana Agung Dradjattun
Independent Commissioner
Peter Alfred Kurt Haase
Director
Goh Kok Ho
Independent Commissioner
Michael Sandritter
Director
Yos Adiguna Ginting
Nikolaos Papathanasiou
* Note:
(1)
Director
(1)
Director
Submitted resignation letter on 31 July 2015.
John Gledhill, President Commissioner
John Gledhill has served as the President Commissioner since 28 July 2012. He joined
PMI in 1983 and has progressed in various senior roles in sales, marketing and general
management at a number of PMI affiliates, including serving as President Director of
Sampoerna from 2009 to 2012. On 27 April 2015, the annual general meeting of
shareholders approved his re-appointment as its President Commissioner.
Charles Herve Bendotti, Vice President Commissioner
Charles Herve Bendotti has served as the Vice President Commissioner since 18
December 2012. He began his career at PMI in 1999. In addition to his current position at
HM Sampoerna, he also serves as Vice President Human Resources Asia (working for
Philip Morris Asia Ltd), based in Philip Morris Asia Limited's regional headquarters in Hong
Kong. On 27 April 2015, the annual general meeting of shareholders approved his reappointment as HM Sampoerna's Vice President Commissioner.
Niken Kristiawan Rachmad, Commissioner
Niken Kristiawan Rachmad has served as Commissioner since 1 January 2011. She
joined Sampoerna in 1998 as Head of Corporate Communications and then served as
Communications Director and Corporate Affairs Advisor. On 27 April 2015, the annual
general meeting of shareholders approved her re-appointment as Commissioner. She
holds a Bachelor of Science degree from Universitas Gadjah Mada.
Raden Basus Permana Agung Dradjattun, Independent Commissioner
Raden Basus Permana Agung Dradjattun has served as Independent Commissioner since
18 November 2013. On 27 April 2015, the annual general meeting of shareholders approved
his reappointment as an Independent Commissioner. His prior experience include holding a
number of key positions with Indonesia's Ministry of Finance, with his last position being
Expert Staff for International Relations and Economic Cooperation under the Ministry. He
holds a doctorate degree in public policy and a master's degree in public finance from the
University of Notre Dame, Indiana, USA, and a master's degree in international trade and
public finance from the University of Illinois at Urbana-Champaign, Illinois, USA.
Goh Kok Ho, Independent Commissioner
Goh Kok Ho has served as Independent Commissioner of Sampoerna since 27 April 2012. He
has served in several senior positions in PMI affiliates until 2001. He has a Bachelor of Arts
degree majoring in economics from the University of Malaya. The annual general meeting of
shareholders on 27 April 2015 approved his re-appointment as Independent Commissioner.
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04 January 2016
Board of Directors
Paul Norman Janelle, President Director
Paul Norman Janelle has served as the President Director since 18 July 2012. He joined
PMI in 1991 and served in increasingly senior roles at several PMI affiliates around the
world, including the Czech Republic, Russia, Indonesia and Hong Kong, building his 24
years of experience in the industry. His re-appointment as the President Director was
approved at the annual general meeting of shareholders on 27 April 2015. He has a
Masters in Business Administration and Finance from Webster University in Geneva,
Switzerland and a Bachelor of Business Administration, as well as a Bachelor of Science
degree from the University of Ottawa, Ontario, Canada.
Andre Dahan, Director
Andre Dahan has served as Director since 18 April 18 2013. He joined Philip Morris
Switzerland in 2003. His career progressed through several senior marketing positions at
PMI affiliates in Poland, Hungary, the Czech Republic and Russia, building his 16 years of
experience in the industry. He has a Masters in Business Administration from Institut
d'Etudes Politiques de Paris, Paris, France, and a Bachelor of Arts in international
economics from L'université Paris-Sorbonne, Paris, France. He was re-appointed as
Director at the annual general meeting of shareholders on 27 April 2015 and is in charge
of marketing.
Wayan Mertasana Tantra, Independent Director
Wayan Mertasana Tantra has served as Director since 27 May 2008 and was appointed
Independent Director on 9 May 2014. He has been with HM Sampoerna for more than 20
years and has a total of 28 years of experience, starting as sales supervisor at one of
Sampoerna's affiliates and progressing through positions of increasing responsibility in
sales. He is currently in charge of the sales department and was re-appointed
Independent Director at the annual general meeting of shareholders on 27 April 2015. He
hold a masters degree in management from Universitas Airlangga, Surabaya, Indonesia.
Peter Alfred Kurt Haase, Director
Peter Alfred Kurt Haase has served as Director since 18 December 2012. He joined PMI in
1997 in Germany and became the PMI factory manager of its factory in Munich and Berlin
before serving in senior management positions in PMI affiliates in Poland and the Netherlands.
He has 18 years of experience in the industry. He was re-appointed as Director at the annual
general meeting of shareholders on 27 April 2015 and is in charge of operations. He has a
Diplom-Ingenieur from the University of Hannover, Hannover, Germany.
Michael Sandritter, Director
Michael Sandritter has served as Director of Sampoerna since 9 May 2014. He joined PMI
in 1994 and served in various senior roles in finance at the PMI's operations centre in
Lausanne, Switzerland and at PMI's affiliates in Hungary and Germany. He was reappointed Director at the annual general meeting of shareholders on 27 April 2015 and is
in charge of finance. He holds a Diploma in Business Administration from the University of
Cooperative Education, Mannheim, Germany.
Yos Adiguna Ginting, Director
Yos Adiguna Ginting has served as Director since 18 December 2012. He joined HM
Sampoerna in 2002 as an organization development specialist, and progressed through
several important positions in Sampoerna and PMI affiliates and has 13 years of
experience in the industry. He was re-appointed Director at the annual general meeting of
shareholders on 27 April 2015 and is in charge of external affairs. He has a Bachelor of
Science degree in chemistry and a PhD in theoretical chemistry from the University of
Tasmania, Tasmania, Australia.
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04 January 2016
Troy J. Modlin, Director
Troy J. Modlin served as Director of Sampoerna since 18 September 2015. Troy J. Modlin
joined PMI in 2005 in Switzerland as a manager and later served as Director of
Government Affairs before serving as Director of Corporate Affairs in Hong Kong and
Bangkok. He has extensive experience in the industry for 10 years. He was appointed as
Director of Sampoerna in General Meeting Extraordinary Shareholders on 18 September
2015 and in charge of Corporate Affairs. He holds a Bachelor of Science Degree in
Business Administration from the University of Colorado at Boulder Denver, USA and a
Master of International Management from the University of Denver, Daniels College of
Business, Denver, USA.
Senior management
Figure 145: HM Sampoerna—senior management
Name
Position
Name
Position
Paul Norman Janelle
President Director
Michael Sandritter
Director, Finance
Andre Dahan
Director, Marketing
Yos Adiguna Ginting
Director, External Affairs
Wayan Mertasana Tantra
Independent Director, Sales
Mimi Kurniawan
Director, Human Resources
Peter Alfred Kurt Haase
Director, Operations
Adiyanto Sumardjono
General Counsel
Troy J. Modlin
Director, Corporate Affairs
Sugiharto Hartono
Head of Planning and Business Development
Wayne Michael Bana
General Manager of Information Services
Mimi Kurniawan, Director of Human Resources
Mimi Kurniawan currently serves as the Director of Human Resources and has over 18
years of experience. She started with Sampoerna as a management trainee and
progressed her career through several strategic positions of increasing responsibility in
many different departments in operations within the company. She was the supply chain
director for the Indonesian market before moving to a role as manufacturing director. She
did her Bachelor of Science degree in industrial engineering from Petra Christian
University, Surabaya, Indonesia.
Adiyanto Sumardjono, General Counsel
Adiyanto Sumardjono joined HM Sampoerna as senior counsel in September 2001.
Having studied at the Faculty of Law, Gadjah Mada University and the University of
California, Berkeley, Boalt Hall School of Law, where he received his Master of Law
degree, he then worked for two US law firms and a leading Indonesian law firm. He was
appointed as HM Sampoerna's General Counsel in 2007 and is in charge of the law
department.
Sugiharto Hartono, Head of Planning and Business Development
Sugiharto Hartono began his career with HM Sampoerna in 2000 as a graduate intake
management trainee. He progressed his career through a number of senior positions within
the areas of sales, operations, and business development. He held the position of head of
clove before being appointed to his current position as Sampoerna's Head of Planning and
Business Development for Indonesia. He holds a Bachelor of Science degree in industrial
engineering from Sepuluh Nopember Technology Institute, Surabaya, Indonesia.
Wayne Michael Bana, General Manager of Information Services
Wayne Michael Bana has served as the Head of Planning Information Services since May
2012 and has 17 years of experience within the PMI and network since joining in August
1998. He holds a Bachelor of Science degree majoring in computer science from The
University of Western Australia. He has progressed through different positions in
information services of increasing responsibility in PMI Operations Centre, PM Hungary,
PM Holland and Philip Morris Russia.
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04 January 2016
Appendix 10: Indonesia cigarette
prices
Figure 146: Indonesia cigarettes' retail price/pack by brands
20500
Marboro Ice Blast 20
18500
Marlboro Red 20
Dunhill Filter 20
DSS Super Premium 12
GG Surya 16
Retail price/ pack
16500
Avolution 16
Dunhill Mild 20
Djarum Super 16
Lucky Strike 20
Sampoerna Mild 16
14500
Djarum Black 16
DSS 12
Clas Mild 16
LA Lights 16
Wismilak Diplomat 12
Djarum Super 12
GG FIM 12
GG Surya Exclusive 12
GG Filter Signature 12
12500
Camel 20
Djarum Black Mild 16
GG Mild 16
U Mild 16
10500
DSS Magnum Blue 16
Sampoerna Mild 12
GG Pro Mild 16
Diplomat Mild 16
A Hijau 12
8500
SKT
SKM FF
SKM LTLN
SPM
*as of 23 November 2015
Source: Various channel checks, Credit Suisse
Figure 147: Cigarettes' retail price/stick by brands
1500
1400
1300
Retail price/ stick
1200
DSS 12
1100
Wismilak Diplomat 12
GG Surya 16
1000
900
GG Filter Signature 12
Djarum Black 16
A Hijau 12
800
Avolution 16
Djarum Super 12
GG FIM 12
Djarum Super 16
Dunhill Filter 20
Clas Mild 16
Dunhill Mild 16
Dunhill Mild 20
Djarum Black Mild 16
U Mild 16
700
Diplomat Mild 16
LA Lights 16
Sampoerna Mild 12
Marboro Ice Blast 20
Marlboro Red 20
Lucky Strike 20
DSS Magnum Blue 16
GG Pro Mild 16
Camel 20
Djarum Super MLD 20
600
SKT
SKM FF
SKM LTLN
SPM
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04 January 2016
Figure 148: Cigarettes' banderole price/pack by brands
20000
18000
Marlboro Red 20
Sampoerna Mild 16
Djarum
Super
Avolution
16 MLD 20
Dunhill Mild 20
Clas Mild 16
Banderole price/ pack
16000
GG Surya 16
14000
DSS 12
12000
10000
GG Pro Mild 16
GG
16
LA
Dunhill
Lights
Mild
1616
U Mild
Mild 16
Djarum Super 12
Dunhill Filter 20
Sampoerna Mild 12
A Hijau 12
GG Merah 12
8000
SKT
SKM FF
SKM LTLN
SPM
Figure 149: Cigarettes' banderole price/stick by brands
1300
1200
Banderole price/ stick
1100
DSS 12
Sampoerna Mild 16
1000
Djarum Super 12
GG Surya 16
DSS Magnum Blue 16
900
800
GG Pro Mild 16
GG Mild 16
A Hijau 12
Avolution 16
Marlboro Ice Blast 20
Clas Mild 16
Djarum Super MLD 20
LA Lights 16
Sampoerna Mild 12
U Mild 16 Dunhill Mild 20
Marlboro Red 20
700
Dunhill Filter 20
600
SKT
SKM FF
SKM LTLN
SPM
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04 January 2016
Companies Mentioned (Price as of 30-Dec-2015)
Ace Hardware Indonesia (ACES.JK, Rp825)
Astra International (ASII.JK, Rp6,000)
BAT Malaysia (BATO.KL, RM55.44)
Bayan Resources (BYAN.JK, Rp7,875)
Bentoel Internas (RMBA.JK, Rp510)
British American Tobacco (BATS.L, 3789.5p)
Elang Mahkota (EMTK.JK, Rp10,300)
Erajaya Swasembada (ERAA.JK, Rp545)
Gudang Garam (GGRM.JK, Rp55,000)
ITC Ltd (ITC.BO, Rs326.55)
Imperial Tobacco (IMT.L, 3588.5p)
Indocement (INTP.JK, Rp22,325)
Indofood CBP (ICBP.JK, Rp13,475)
Indofood Sukses Makmur (INDF.JK, Rp5,175)
Japan Tobacco (2914.T, ¥4,471)
Jasa Marga (Persero) TBK PT (JSMR.JK, Rp5,225)
KT&G Corp (033780.KS, W104,500)
Kalbe Farma (KLBF.JK, Rp1,320)
Matahari Department Store (LPPF.JK, Rp17,600)
Matahari Putra Prima (MPPA.JK, Rp1,825)
Mitra Adiperkasa (MAPI.JK, Rp3,795)
PT Bank Central Asia Tbk (BBCA.JK, Rp13,300)
PT Bank Danamon Indonesia Tbk (BDMN.JK, Rp3,200)
PT Bank Mandiri (Persero) Tbk (BMRI.JK, Rp9,250)
PT Bank Negara Indonesia (Persero) Tbk (BBNI.JK, Rp4,990)
PT Bank Rakyat Indonesia (Persero) Tbk (BBRI.JK, Rp11,425)
PT Bumi Serpong Damai Tbk (BSDE.JK, Rp1,800)
PT Charoen Pokphand Indonesia (CPIN.JK, Rp2,600)
PT Hanjaya Mandala Sampoerna Tbk (HMSP.JK, Rp94,000, OUTPERFORM, TP Rp108,500)
PT Indosat Tbk (ISAT.JK, Rp5,500)
PT Mitra Keluarga Karyasehat Tbk (MIKA.JK, Rp2,400)
PT Sarana Menara Nusantara (TOWR.JK, Rp4,750)
PT Telkom (Telekomunikasi Indo.) (TLKM.JK, Rp3,105)
PT United Tractors Tbk (UNTR.JK, Rp16,950)
Perusahaan Gas Negara (PGAS.JK, Rp2,745)
Philip Morris International (PM.N, $88.98)
Ramayana Lestari Sentosa (RALS.JK, Rp645)
Semen Indonesia (SMGR.JK, Rp11,400)
Sinar Mas Multi (SMMA.JK, Rp5,050)
Surya Citra Media (SCMA.JK, Rp3,100)
Swedish Match (SWMA.ST, Skr300.2)
Tiphone Mobile Indonesia (TELE.JK, Rp770)
Tower Bersama (TBIG.JK, Rp5,875)
Unilever Indonesia (UNVR.JK, Rp37,000)
XL Axiata Tbk (EXCL.JK, Rp3,650)
Disclosure Appendix
Important Global Disclosures
I, Ella Nusantoro, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and
securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in
this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings
are based on a stock’s total return relative to the average total return of the relevant country or regiona l benchmark; prior to 2nd October 2012 U.S. and Canadian
ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within
an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12 -month rolling dividend yield. An
Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned
where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18
84
04 January 2016
May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July
2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or
valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating
Versus universe (%)
Of which banking clients (%)
Outperform/Buy*
58%
(29% banking clients)
Neutral/Hold*
29%
Underperform/Sell*
12%
Restricted
1%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Out perform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
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to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-andanalytics/disclaimer/managing_conflicts_disclaimer.html
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Target Price and Rating
Valuation Methodology and Risks: (12 months) for PT Hanjaya Mandala Sampoerna Tbk (HMSP.JK)
Method: Our target price of Rp108,500/share for HM Sampoerna implies 40x P/E 2016E (37x P/E 2017E) with 12% earnings growth over the next
two years. Our target price is derived based on P/E comparables between UNVR and its parent company, ULVR.L, where it provides
higher growth in Indonesia operations. We have also seen that UNVR has been trading at a 105% premium to its parent over the past one
year. We assigned a premium to HM Sampoerna as we have seen the willingness of investors (particularly domestic investors) to pay for
such a premium shows the value of a sound corporate governance as well. In addition, with the stock significant in terms of market cap,
backed by sound fundamentals, we view that when there is a capital inflow to Indonesia, Sampoerna could be viewed as one of the stock
picks, and thus we assign an Outperform rating.
Risk:
The following risks could impede the achievement of our Rp108,500/share target price and Outperform rating for HM Sampoerna: (1)
Regulatory risk, (2) Litigation risk, (3) Operational risks, (4) Supply of raw materials, (5) Competition risk, (6) Labor-intensive industry, (7)
Unable to extend its arrangements with its third-party operators, (8) Indonesia macro risks. Our target price is derived based on P/E
comparables between UNVR and its parent company, ULVR.L, where it provides higher growth in Indonesia operations.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the
target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (HMSP.JK, ICBP.JK, INDF.JK, ERAA.JK, MAPI.JK, UNVR.JK, UNTR.JK, BMRI.JK, JSMR.JK, BBNI.JK, BDMN.JK, SMGR.JK,
ISAT.JK, BSDE.JK, EXCL.JK, BBCA.JK, PGAS.JK, TBIG.JK, INTP.JK, PM.N, BATS.L, 2914.T, IMT.L, SWMA.ST) currently is, or was during the 12month period preceding the date of distribution of this report, a client of Credit Suisse.
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04 January 2016
Credit Suisse provided investment banking services to the subject company (HMSP.JK, ICBP.JK, INDF.JK, UNVR.JK, BMRI.JK, JSMR.JK, BBNI.JK,
BDMN.JK, SMGR.JK, BSDE.JK, PGAS.JK, INTP.JK, PM.N, BATS.L, 2914.T, IMT.L) within the past 12 months.
Credit Suisse has managed or co-managed a public offering of securities for the subject company (HMSP.JK, BDMN.JK, PM.N, 2914.T) within the
past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (HMSP.JK, ICBP.JK, INDF.JK, UNVR.JK, BMRI.JK,
JSMR.JK, BBNI.JK, BDMN.JK, SMGR.JK, BSDE.JK, PGAS.JK, INTP.JK, PM.N, BATS.L, 2914.T, IMT.L) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (HMSP.JK, LPPF.JK,
ICBP.JK, INDF.JK, ERAA.JK, MAPI.JK, TELE.JK, UNVR.JK, UNTR.JK, BMRI.JK, JSMR.JK, BBNI.JK, BDMN.JK, SMGR.JK, ISAT.JK, BSDE.JK,
EXCL.JK, BBRI.JK, BBCA.JK, PGAS.JK, TBIG.JK, INTP.JK, PM.N, BATS.L, 2914.T, IMT.L, 033780.KS, SWMA.ST) within the next 3 months.
As of the date of this report, Credit Suisse makes a market in the following subject companies (PM.N).
Credit Suisse may have interest in (HMSP.JK, LPPF.JK, ACES.JK, ICBP.JK, MPPA.JK, INDF.JK, ERAA.JK, RALS.JK, GGRM.JK, KLBF.JK,
MAPI.JK, TELE.JK, UNVR.JK, UNTR.JK, BMRI.JK, JSMR.JK, BBNI.JK, BDMN.JK, TOWR.JK, SMGR.JK, SCMA.JK, ISAT.JK, BSDE.JK, EXCL.JK,
ASII.JK, TLKM.JK, MIKA.JK, BBRI.JK, BBCA.JK, PGAS.JK, TBIG.JK, INTP.JK)
Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India
(Research Analysts) Regulations, 2014
Credit Suisse may have interest in (ITC.BO)
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (IMT.L, 033780.KS).
Credit Suisse has a material conflict of interest with the subject company (BDMN.JK) . Credit Suisse is one of the joint financial advisors to DBS
Group Holdings Limited in relation to the proposed acquisition of PT Bank Danamon Indonesia Tbk.
Credit Suisse has a material conflict of interest with the subject company (TOWR.JK) . Credit Suisse is financial advisor to iForte Solusi Infotek
(private) relating to the acquisition by PT Profesional Telekomunikasi Indonesia, a 99.999% owned subsidiary of PT Sarana Menara Nunsatara Tbk.
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse
does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares;
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Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not
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Credit Suisse Securities (Europe) Limited (Credit Suisse) acts as broker to (IMT.L).
The following disclosed European company/ies have estimates that comply with IFRS: (BATS.L, IMT.L, SWMA.ST).
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (HMSP.JK, BMRI.JK,
BDMN.JK, SMGR.JK, TLKM.JK, BBCA.JK, PM.N, BATS.L, 2914.T, IMT.L) within the past 3 years.
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research analyst account.
PT Credit Suisse Securities Indonesia .............................................................................................................................................. Ella Nusantoro
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.
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04 January 2016
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PT Hanjaya Mandala Sampoerna Tbk HMSP.JK / HMSP IJ

Transcription

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