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Sampoerna, Gudang Garam see 20% profit drop
The two companies' financial reports show swelling costs as the Finance Ministry continues to periodically raise excise taxes to deter smoking.
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ndonesia’s two biggest cigarette makers saw their net profits drop over 20 percent annually in the January to March period this year after the government raised cigarette excise taxes.
Publicly listed PT Gudang Garam and PT HM Sampoerna saw their net profits decline 28.62 percent year-on-year (yoy) to Rp 1.74 trillion (US$120.6 million) and 22.13 percent yoy to Rp 2.58 trillion, respectively, in the first quarter of the year, their latest financial reports show.
The two companies’ net profits were squeezed by rising excise costs on top of weak cigarette demand. The Finance Ministry raised cigarette excises by around 12.5 percent starting in February after raising them 23 percent last year to deter smoking and raise state revenue.
However, the hike only applied to machine-made cigarettes (SKM) and not to hand-rolled cigarettes. The former accounts for the majority of the revenue of both companies’ but the latter employs more workers.
Read also: Excise hike, weak purchasing power to hit cigarette makers
“They were hit by an over 23 percent excise hike [last year], so their excise costs increased, and they had to raise prices, but by raising prices, demand might fall, so they did not raise prices that much, especially with COVID-19” Samuel Sekuritas Indonesia analyst Yosua Zishoki told kontan.co.id in April.
COVID-19 depressed the companies’ revenue as consumers lost income amid mass layoffs and business closures last year. Both companies booked declines in profit in 2020, even before the latest excise hike came into effect.
In the first quarter of this year, Gudang Garam’s costs for excise duties, value-added tax and cigarette tax surged 20.53 percent yoy to Rp 23.54 trillion, outpacing a 9.2 percent yoy increase in revenue to Rp 29.74 trillion over the same time period.
“We still think that [Gudang Garam’s] 2021 margins will stay in a downward trend, since the company has yet to fully pass on the 2020 excise tax hike, while also facing another significant hike in excise tax for SKM products this year,” Mirae Asset Sekuritas analyst Christine Natasya wrote in a research note on Monday.
Meanwhile, HM Sampoerna’s excise tax stamp costs went up a smaller 4 percent yoy to Rp 14.13 trillion, amid a slight 0.6 percent yoy decline in revenue to Rp 23.55 trillion over the same period.
Christine wrote in a previous note that HM Sampoerna was expected to experience a margin contraction and sales volume decline this year.
Gudang Garam and HM Sampoerna’s shares, listed as GGRM and HMSP on the Indonesia Stock Exchange (IDX), had dipped 0.35 percent and stagnated at 0 percent, respectively, as of Wednesday morning. The benchmark Jakarta Composite Index had risen 0.38 percent.
Read also: Consumers prefer cheaper cigarettes as purchasing power weakens: Sampoerna
The government has been increasing cigarette excise taxes in an effort to reduce the prevalence of smoking in the country. Last year’s 23 percent average excise hike followed 10.4 and 10.5 percent increases in 2018 and 2017, respectively, Statistics Indonesia data shows.
The smoking rate among Indonesians is high, with some 61 million smokers in the country. The government aims to reduce the prevalence of smoking among young people to 8.7 percent by 2024 from 9.1 percent in 2018.
