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Cigarette makers' profits grew last year but 2014 will be tough
Cigarette producers reported positive performance throughout 2013 on the back of higher sales, but analysts have warned of a potential slowdown in business growth this year as the business climate gets tough
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Cigarette producers reported positive performance throughout 2013 on the back of higher sales, but analysts have warned of a potential slowdown in business growth this year as the business climate gets tough.
Akhmad Nurcahyadi, an analyst at Recapital Securities, forecasts that the cigarette industry will face a tougher business climate this year with rising challenges, including a government plan to enforce a regulation requiring pictorial health warnings on all cigarette packages from June.
'And then the climate will become even fiercer in 2015 with the proposed road map by the government that aims at curbing cigarette consumption,' he said.
He urged the companies to pay close attention to price fluctuations of raw materials and use hedging tools to cope with foreign exchange (forex) volatility.
Separately, Reza Priyambada of Trust Securities said that higher excise would be one aspect that the firms should look out for. 'Growth will not be as high as in previous years,' he said.
Clove cigarette manufacturer PT Gudang Garam (GGRM), the largest publicly listed cigarette producer by assets, booked a 7.8 percent increase in net profits last year to Rp 4.33 trillion (US$381 million) supported by higher revenues, according to the company's latest financial report.
Gudang Garam's revenues rose 13.1 percent to Rp 55.44 trillion in 2013 thanks to higher sales in both its exports and domestic segments. While exports grew 13.3 percent to Rp 2.32 trillion, domestic sales rose 13.1 percent to Rp 53.12 trillion.
As sales grew, Gudang Garam also saw its expenses increase, such as operating expenses, interest expenses and cost of goods sold, in which excise made up the largest component. The company continued to suffer from Rp 12.96 billion in forex losses, even though the amount of losses declined from the Rp 17.66 billion in 2012.
Gudang Garam continued to rely on its machine-made cigarettes as its growth driver. Sales of machine-made cigarettes increased almost 20 percent to Rp 48.89 trillion and made up for more than 80 percent of total sales.
Another cigarette producer, PT Hanjaya Mandala Sampoerna (HMSP), which is the biggest cigarette company by market value, saw an 8.8 percent increase in net profits last year to Rp 10.82 trillion, as sales grew. Sampoerna's revenues increased by 12.6 percent to Rp 75.02 trillion, but were lower than the 26 percent revenue growth it booked in 2012.
Similar to Gudang Garam, rising costs put pressure on Sampoerna's net profit. Its cost of goods sold increased 14.2 percent to Rp 54.95 trillion, while production costs rose 12.5 percent and excise tax borne by the company surged 7.8 percent.
Sampoerna, which is 98.2 percent controlled by PT Philip Morris Indonesia, said in its financial report that 100 percent of its sales were made domestically. In May last year, it announced that it would begin operating a new factory for producing hand-rolled cigarettes in Jember, East Java, in the middle of 2013 to step up production.
Meanwhile, PT Wismilak Inti Makmur (WIIM), the latest cigarette manufacturer to go public, announced that its net profits nearly doubled to Rp 132.15 billion, despite a 37.3 percent increase in cost of goods sold to Rp 1.12 trillion, as revenues increased 41.9 percent to Rp 1.59 trillion last year thanks to higher cigarette sales.
PT Bentoel Internasional Investama (RMBA), on the other hand, posted Rp 1.04 trillion in net losses last year, plunging even further from its Rp 323.35 billion in losses in 2012, triggered by soaring expenses and rupiah depreciation, according to the company's latest financial statement.
Bentoel corporate secretary Jusuf Salman said in a statement that its bottom line remained under pressure as the firm continued with its investment and marketing as well.
Bentoel's revenues, however, remained in the green as they grew 24.6 percent to Rp 12.27 trillion last year, but a 28.3 percent increase in the cost of goods sold to Rp 10.49 trillion affected its bottom line.
The cigarette makers have also seen their stock prices fall in the past year, with Gudang Garam trading at Rp 49,400 on Friday, or a 5 percent drop over the past year. Sampoerna's stock price of Rp 69,000 on Friday was a 18.8 percent slump from last year. Bentoel and Wismilak's shares were 13.1 percent and 26 percent lower than last year at Rp 530 and Rp 740 each, respectively.
