20 January 2022 (closed)
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Indonesia's slowing economic growth, weaker purchasing power and an 8.7 percent increase in excise on tobacco products (in early 2015) had a relatively small impact on the financial performance of Indonesia's listed tobacco companies HM Sampoerna, Gudang Garam, Bentoel Internasional Investama and Wismilak Inti Makmur. Whereas companies active in various other sectors of the Indonesian economy were plagued by falling revenue and profit figures, these tobacco firms still posted solid gains in revenue and - to a lesser degree - net profit growth. This shows that Indonesian smokers are faithful to their "death stick".
Indonesia has a large population (around 255 million people) and awareness about health or the benefits of a healthy lifestyle is low. This is the "right" environment for tobacco companies. Based on data from the World Health Organization (WHO), there were 95 million smokers, or 37 percent of the total population, in Indonesia in 2015. More alarmingly, 20 percent of the Indonesian youth are smokers and research indicates that the country's youth start smoking younger and younger. An interesting characteristic of Indonesia is that the majority of smokers are men. It is estimated that only five percent of Indonesian women consume tobacco products (this is related to cultural and social factors, such as the negative image of female smokers that exists in the country), while between 65 and 67 percent of Indonesian men are smokers.
The size of the Indonesian tobacco industry is apparent considering the two largest listed tobacco producers (HM Sampoerna and Gudang Garam) are among the top ten of largest Indonesian companies (in terms of market capitalization) on the Indonesia Stock Exchange.
The Indonesian government has raised efforts over the past years to combat rising tobacco consumption in Indonesia. For example, scope for tobacco advertisement has been limited (but not prohibited), graphic warnings on cigarette packages have become mandatory, and the government raised excises on tobacco products more than once in recent years.
Although these efforts of the government will not be enough to clear tobacco consumption altogether, it does somewhat curtail revenue and profit growth of Indonesian tobacco companies. However, the impact differs per tobacco company. The bigger tobacco manufacturers, that control a large portion of the market, are expected to cope more easily with tougher anti-smoking policies than the smaller ones. With their established brands, better liquidity, cash reserves, capacity to offer new innovative products and successful efforts to cut operational costs HM Sampoerna and Gudang Garam are expected to be in a better position to record solid revenue and net profit growth in 2016, while the smaller players - Bentoel Internasional Investama and Wismilak Inti Makmur - will face more pressure. Overall, revenue and profit in Indonesia's tobacco industry is expected to grow around 8 percent year-on-year in 2016. For investors, HM Sampoerna and Gudang Garam are stock picks that should result in solid gains. Bentoel Internasional Investama and Wismilak Inti Makmur, on the other hand, are a bit more volatile and risky but may outperform its bigger brothers.
Revenue Indonesia's Listed Tobacco Companies (in IDR billion):
|Bentoel Internasional Investama||14,489.5||16,814.3||+16.1%|
|Wismilak Inti Makmur¹||1,184.9||1,355.3||+14.4%|
¹ up to third quarter of the year
Net Profit Indonesia's Listed Tobacco Companies (in IDR billion):
|Bentoel Internasional Investama||(2,251.3)||(1,638.5)||+27.2%|
|Wismilak Inti Makmur¹||80.1||91.4||+14.1%|
¹ up to third quarter of the year