You Have Notification Your Stock Alert
The system will delete alerts within 3 days from now
AORD 6,005.3 (
^DJI 0.00 (- 0.00)
Dow Jones Industrial Average
S&P 500 2,578.94 (
HSI 28,594.1 (
HANG SENG INDEX
NASDAQ 6,715.85 (
IHSG 6,038.15 (
N225 22,420.1 (
STI 3,391.61 (
Apr 04, 2016 14:44:22
Gudang Garam - An unfiltered experience
Our BUY thesis on Gudang Garam (
) has been based on two assumptions: strong earnings and a slowing capex cycle. The strong 4Q15 results last week only reinforces analyst Robert Pranata’s BUY conviction on the stock. This morning he upgrades earnings by 2%-3%, already ahead previously, this brings our GGRM numbers to 15% ahead of FY16 consensus.
Margin expansion. GGRM posted Rp6.4trn of net profit in 2015, 107% of 15CL and 115% of consensus. While sales came inline with our expectations, gross and Ebit margin came 2% above ours and 10% above consensus estimates. GGRM’s strong margin in 4Q15 was driven by its aggressive price increase in 4Q15 and strong performance of its higher margin products (machine-made full flavours and hand-rolled)
Capex cycle has peaked. Capex as % to sales also dropped from 4.1% in 3Q15 to 3% in 4Q15. This is in-line with our forecast and we estimate that GGRM’s capex will decline to Rp1.8tn (US$136mn) in 16CL and Rp1.5tn (US$114mn).
What about taxes? Robert assumes higher excise tax rate for 17CL as we believe the government is more likely to have a higher increase for excise next year, rather than increase this year’s excise tax further.
Taking all of this into account, Robert upgrades GGRM’s earnings 2%/3% for 16/17CL and increase our target price from Rp78,000 to Rp80,000. GGRM remains one of our key BUYs.