GGRM’s margin expanded by 588bp in 1H23, driving a 243.9% yoy growth in 1H23 NPAT. Volume could be down by more than 25% in 1H23 but we expect a rebound in 2H23. Middle to low segment’s purchasing power was still soft in 1H23. Historical data indicates that election spending tends to drive sales growth as more money will be distributed to the middle and low segments. We have forecasted 2023/24 NPAT to rise by 134%/17.7% yoy respectively. Maintain BUY. Target price: Rp33,000.
GREATER CHINA Results BYD Company (1211 HK/BUY/HK$237.80/Target: HK$590.00): 2Q23: Earnings up 145% yoy and 65% qoq, in line. Maintain BUY. Target price: HK$590.00. China Feihe (6186 HK/HOLD/HK$4.81/Target: HK$5.18): 1H23: Results in line; growing asset-light digitalised stores. COSCO SHIPPING Ports (1199 HK/BUY/HK$4.72/Target: HK$6.00): 1H23: Results slightly beat our expectation; showing robustness amid slow macro environment. Country Garden Services (6098 HK/HOLD/HK$9.45/Target: HK$9.16): 1H2...
1Q23 gross margin expansion of 348bp and 82% NPAT growth are strong signs that recovery is underway. 2022 gross margin of 8.9% is the lowest in the past 18 years. Sales volume is expected to rise 2% for both machine- and hand-rolled cigarettes in 2023. Machine-rolled cigarettes’ ASP is forecasted to jump 7.5% and hand-rolled cigarettes’ ASP to increase 5%. For 2023, we expect NPAT to surge 151% yoy from Rp2,780b to Rp7,009b. Maintain BUY. Target price: Rp33,000.
GREATER CHINA Sector Industrial Automation: Component names may outperform heading into results period. INDONESIA Update Gudang Garam (GGRM IJ/BUY/Rp27,600/Target: Rp33,000): Margins to recover in 2023; maintain BUY. MALAYSIA Sector Banking: The sector’s fundamental growth drivers remain fairly muted. However, downside is capped by relatively attractive valuations and dividend yields. Maintain MARKET WEIGHT. Update IHH Healthcare (IHH MK/BUY/RM5.87/Target: RM6.80): IHH hosted a roundtable on i...
GREATER CHINA Economics Economic Activity: Looking beyond the soft patch in October. Sector Healthcare: Effective Omicron-targeting vaccines expected to pave the way for China’s gradual reopening. Initiate Coverage Baidu Inc (9888 HK/BUY/HK$78.30/Target: HK$151.00); Search giant transforming to leader in AI+Smart driving. Results Kingsoft Corp (3888 HK/BUY/HK$26.25/Target: HK$31.00): 3Q22: Results in line; solid WPS supports revenue growth. INDONESIA Update Gudang Garam (GGRM IJ/BUY/Rp21,750/Ta...
Excise tax increases in 2023-24 will average 10% with clove machine-rolled cigarettes tax to be raised by 11.75%. Excise tax for hand-rolled cigarettes will be raised by 5%. The magnitude of increase is mild and GGRM should be able to pass on the price increases. We think GGRM could catch up in terms of price increases as HMSP is now more aggressive. Gross and net margins for 2022 are the lowest over the past 15 years and could expand in 2023. Upgrade to BUY. Target price: Rp24,500.
GGRM reported an Rp121b loss in 2Q22 and Rp956b profit in 1H22. The quarterly loss is the first quarterly loss in 10 years. This is a very disappointing performance as HMSP did manage to record profit in 2Q22. GGRM is unable to pass through the excise tax increase as sales rose at a smaller magnitude than the excise tax. Gross margin in 2Q22 compressed 233bp yoy and 542bp qoq. We reduce our 2022/23 NPAT by 78.4%/49.3%. We downgrade to HOLD with a lower target price of Rp26,000.
GREATER CHINA Strategy Alpha Picks: August Conviction Calls: We see further risks of a market pullback from growing macro uncertainties and switch to a defensive bias in August. Add AIA, CTGDF, CR Land, and Kweichow Moutai to our BUY list, Ganfeng Lithium, Tinci Materials, Henlius and Sinopharm to our SELL list. This Is Only The Beginning: Hong Kong’s aggregate balance will soon fall below HK$100b, and we expect the prime lending rate to rise 75bp by year-end. Results Kweichow Moutai (600519 CH/...
Strategy: Alpha Picks: Add ENAK To Our Selection: Our picks: ENAK, UNVR, BMRI, BBNI, SMGR, TLKM, KLBF and MAPI. Bekasi Fajar Industrial Estate (BEST IJ/BUY/Rp138/Target: Rp196): 2Q22: NPAT jumped 780% qoq, above expectation. Gudang Garam (GGRM IJ/HOLD/Rp25,550/Target: Rp26,000): 2Q22: First quarterly loss since 1Q13; below expectation. Downgrade to HOLD. Mayora Indah (MYOR IJ/HOLD/Rp1,840/ Target: Rp1,700): 2Q22: Below expectations but a yoy improvement. TRADERS’ CORNER Dayamitra Telekomun...
Consensus forecasts of an 11.0% gross margin and 4.6% net margin for 2022 might be too conservative. Pre-pandemic, gross and net margin came in at 19-20% and 8-10% respectively. We have forecasted a partial recovery to 15.2% and 6.7% in gross and net margin in 2022. This translates to a potential 70% yoy growth in 2022 NPAT to Rp9.5t. 2021 NPAT is in line with both our and consensus expectations. GGRM trades near -2SD PE. We maintain BUY with a lower target price of Rp42,000.
GREATER CHINA Strategy Alpha Picks: April Conviction Calls: Although Chinese equity markets may remain volatile, we expect the uptrend to be intact, as reflationary policies kick in. Add CEG, CIFI Holding and Ganfeng Lithium to our BUY list. INDONESIA Results Gudang Garam (GGRM IJ/BUY/Rp32,175/Target: Rp42,000): 4Q21: In line. Consensus margin forecasts for 2022 might be too low. MALAYSIA Update Axiata (AXIATA MK/BUY/RM3.73/Target: RM4.45): Chasing growth in Indonesia, tower and digital busine...
We think GGRM could record a 70% NPAT growth in 2022. After the price increase in Jan 22, 2M22 sales volume rose, which is a strong sign of a recovery in purchasing power. 2021 gross and net margin of 11.2% and 4.6% are the lowest ever recorded in the last 15 years. 2022 gross margin and net margin could recover to 15.3% and 6.8%. GGRM has minimal exposure to the rising soft commodity prices. The stock trades at an attractive -2SD PE. Maintain BUY. Target price: Rp45,000 (46.7% upside).
GREATER CHINA Results Goldwind Science & Technology (2208 HK/BUY/HK$11.10/Target: HK$13.20): 2021: Net profit up 16.7% yoy; margin pressure in 2022. PICC Property and Casualty (2328 HK/BUY/HK$7.60/Target: HK$10.60): 2021: Results in line. Expecting improvement in 2022. Tsingtao Brewery (168 HK/BUY/HK$59.20/Target: HK$81.00): 2021: Results in line; price hikes and upmarket push would continue. Weimob (2013 HK/HOLD/HK$4.45/Target: HK$4.30): 2021: Earnings miss on heavy investment; losses guided to...
Many consumer companies raised their prices in 4Q21. Commodities prices such as wheat, CPO, polyethylene, skim milk powder and sugar are softening from their peaks. We think further price increases and lower raw material prices could persist in 2022. The consumer sector could deliver a 31.7% NPAT growth in 2022. Valuation wise, most of them are trading below their respected average five-year PEs. Our picks: UNVR, MYOR, ROTI and MAPI. Maintain OVERWEIGHT.
Excise tax on cigarettes will be raised by an average of 12% in 2022; the tax will be raised by 13.9% for machine-rolled cigarettes, while that on hand-rolled cigarettes will increase 3.5% for the largest manufacturers. This is milder than the >15% increase in 2021 for machine-rolled cigarettes. We raise our 2022F NPAT for GGRM and HMSP by 12.7% and 8.7% respectively. With both trading below -1SD 2022F PE and having more than 40% upside, we maintain BUY on GGRM and HMSP. Maintain OVERWEIGHT.
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