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No longer smoking hot, tobacco stocks’ latest dip points to industry shake-up: Analysts
The recent drop in the valuation of two major cigarette producers casts a shadow over Indonesia's tobacco industry, which has remained stagnant in at least five years, as demand is expected to weaken.
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A worker arranges hand-rolled cigarettes at a factory of PT HM Sampoerna at Surabaya’s Rungkut Industrial Estate. JP/Wahyoe Boediwardhana. (JP/Wahyoe Boediwardhana)
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ignificant declines in share prices of Indonesia’s two major cigarette producers, PT Gudang Garam (GGRM) and PT Hanjaya Mandala Sampoerna (HMSP) following the government’s announcement of a steep hike in the tobacco excise has prompted analysts to anticipate an imminent industry shake-up as they downgraded tobacco stocks.
The recent drop in the two companies’ stocks on Monday, the first trading day after the announcement on Friday, has cast a shadow over the tobacco industry in general, which has remained stagnant in at least the last five years, as demand is expected to weaken.
Shares of Gudang Garam nosedived by 20.64 percent to Rp 54,600 (US$3.89) per share and Sampoerna plummeted by 18.21 percent to Rp 2,290 per share. The companies are two of the heavyweights at Indonesia Stock Exchange (IDX). With a combined market value of Rp 382.31 trillion, they account for a significant share of the valuation of all firms included in the Jakarta Composite Index (JCI) totaling Rp 7,151 trillion.
Finance Minister Sri Mulyani Indrawati announced on Friday that the government had decided to increase the tobacco excise by an average 23 percent and the retail price by 35 percent next year to reduce the prevalence of smoking in the country, among other objectives.
On Wednesday, both stocks got back on their feet to finish the trading day in positive territory. Gudang Garam strengthened by 1.46 percent while Sampoerna jumped 1.72 percent.
“The steep excise hike is especially worrying to the two leading tobacco companies, since the policy will directly contribute to a rise in cigarette prices,” said Jasa Utama Capital Sekuritas analyst Chris Apriliony.
