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igarette maker PT Gudang Garam booked an 11.7 percent decline in net profit during the first six months of this year, partly driven by a sharp drop in its foreign exchange (forex) gain as export sales declined.

The publicly listed company ended the January-June period of this year with Rp 2.41 trillion (US$177.8 million) in net profit, dropping from Rp 2.73 trillion in the same period last year, according to its financial report published on the Indonesia Stock Exchange (IDX) website on Friday.

The net profit slump was attributed to the firm'€™s rising expenses and falling forex gain that pinched the company'€™s net revenues, which grew by 1.7 percent year-on-year (yoy) to Rp 33.23 trillion in the first half of this year.

The firm'€™s main revenue booster was machine-made cigarettes with a contribution of 90.1 percent, followed by hand-rolled cigarettes with a contribution of 2.71 percent.

'€œWhile the revenue growth was relatively high amid a very challenging market and regulations for the cigarette industry, it could not offset the firm'€™s surging expenses,'€ said Kiswoyo Adi Joe, an analyst with Investa Saran Mandiri.

On a yoy basis, Gudang Garam'€™s cost of sales and operating expenses rose by 0.6 percent and 23.3 percent to Rp 26.36 trillion and Rp 2.96 trillion, respectively, in the first six-month period of this year.

The company also recorded a 77.14 percent slump in forex gain to only Rp 26.88 trillion in the January-June period this year from Rp 117.56 trillion in the same period last year, the financial report has shown.

Kiswoyo said that the huge decline in the forex gain was probably contributed by the firm'€™s gloomy export business.

Gudang Garam recorded a 5.7 percent drop yoy in export value to Rp 1.48 trillion in the first half of this year from Rp 1.57 trillion last year.

It has been previously reported that the company exported part of its products to a number of countries, such as Malaysia and Saudi Arabia.

Kiswoyo argued that exporting products overseas had actually become a key strategy for cigarette companies to deal with the challenging business environment in Indonesia, particularly with pressure from the government and health activists on antismoking campaigns.

'€œHowever, it turns out that respective governments of many export destination countries are also campaigning for healthy lifestyles,'€ he said.

Kiswoyo argued that the outlook for the cigarette industry in the country remained sluggish as the government has imposed a number of regulations limiting the promotional activities of cigarette companies and possibly raising excise tax.

Gudang Garam is among the top three players in the country'€™s cigarette industry, along with Hanjaya Mandala Sampoerna and Djarum.

Gudang Garam'€™s shares, which are traded on the bourse under the code GGRM, rose by 5.32 percent to Rp 49,500 per piece at Friday'€™s close from Rp 47,000 apiece at the previous closing.

'€” JP/Khoirul Amin