(Bloomberg) -- PT Hanjaya Mandala Sampoerna, a unit of Philip Morris International Inc., led a decline among Indonesian cigarette makers after the government announced a plan to raise excise tariffs that will increase retail prices by more than a third next year.
Sampoerna slumped 22%, the most since 1991, while PT Gudang Garam tumbled by the same magnitude, the biggest decline since May 1998. The sell-off in cigarette producers dragged the benchmark Jakarta Composite Index of stocks down by as much as 2.2%, the most since Aug. 6. The index was the worst performer in Asia on Monday.
The excise duty on cigarettes will be hiked by 23% from Jan. 1, with retail prices lifted by 35%, Finance Minister Sri Mulyani Indrawati said on Friday.
Here's how analysts view the excise hike:
- RHB Sekuritas (Michael Wilson Setjoadi, Jessica Pratiwi, Marco Antonius)
- RHB Sekuritas downgrades the tobacco sector to underweight. Brokerage maintains a preference for Sampoerna as it is seen as more defensive given its earnings are less sensitive to excise duty than Gudang Garam, and it offers more premium products
- Lowers Gudang Garam's 2020 earnings forecast by 33% and cuts rating to sell from buy; Lowers Sampoerna's 2020 earnings forecast by 21% and downgrades rating to neutral from buy
- Maybank Kim Eng Sekuritas (Janni Asman)
- Excise duty will have significant negative impact on volume as second liner brands will no longer be a support for the companies
- Negative sentiment may persist and put downward pressure on Gudang Garam and Sampoerna share prices
- Citigroup (Vivi Lie, Ferry Wong)
- Higher excise tariff does not mean weak earnings
- With the increase in retail prices, a rise in average selling prices would vary based on brands. Cheaper brands will have to raise prices more than the premium brands due to the excise tax hike.
- The down-trading trend among smokers has been preventing big players from hiking average selling prices for fear of losing market share
--With assistance from Harry Suhartono.
To contact the reporter on this story: Tassia Sipahutar in Jakarta at ssipahutar@bloomberg.net
To contact the editors responsible for this story: Thomas Kutty Abraham at tabraham4@bloomberg.net, Rachel Chang, Tom Redmond
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