Oct 02, 2016 14:34:53

Indonesia Tobacco: 2017 excise tax hike: Bad for health
Real excise hike higher than historical levels: A volume depressant
The government recently announced the 2017 excise tariff hike of 10.5% y-y (Bahana estimate: 10-12%). Given the low inflationary outlook ahead (Bahana: 3.3% inflation in 2016F; 3.8% in 2017F), the hike is considerably high, compared to levels seen in 2010-15 (exhibit 3), and is likely to adversely impact smokers’ purchasing power. Note that, as of 27 September 2016, the government has only received 54% of the FY16 excise revenue target, although this experienced an uptrend in 9M16 relative to 7M16 (exhibit 5).

August 2016 cigarette stick sales: -0.3% y-y
Based on the Nielsen retail survey, we observe a continued drop in August retail sales volume (-0.3% m-m) with a 0.3% m-m ASP growth (exhibit 8). This is attributed to the white cigarette (SPM) which was down 12.3% ytd and hand-rolled clove cigarette (SKT) (-4.9% ytd). On the other hand, we see a demand shift towards the machine-rolled clove cigarettes (SKM) that recorded a 5.5% growth for the full-flavour SKM and a flat growth for the SKM light segment.