Cigarette manufacturer PT Gudang Garam (GGRM) pocketed Rp 2.45 trillion of net profit in the first quarter of this year, up by 3.8% year-on-year (YoY). Also, its revenue up by 4.06% YoY to Rp 27.26 trillion. The increase was mainly supported by the higher hand-rolled kretek cigarette (SKT) sales, which surged almost 12% YoY to Rp 2.15 trillion, followed by its machine-made kretek (SKM) cigarettes sales which grew by 3% YoY.
However, higher cigarette excise will put pressure on its 1Q gross margin, which caused a slim operating margin to 11.9% and implies a decrease in operating profit to Rp3.2 trillion. Recently, the government decided to put cigarette excise payment on delay to keep the industry surviving the coronavirus pandemic. According to the Finance Ministerial Regulation (PMK) No. 30/2020, the government will not collect tobacco excise from cigarette manufacturers that order tapes between April 9 - July 9. As many are aware, in January, the government officially increased cigarette excise by 23% that made the minimum price of cigarettes jump by an average of 35%.
According to Giovanni Dustin, Bahana Sekuritas’ analyst, there will be more pressure on GGRM production volume as impacted by price hikes which will exacerbate by the impact of coronavirus pandemic (large-scale social restrictions-PSBB and lower purchasing power). “Although factories still operate normally, GGRM plans to pause production for a month during Ramadan. The company also has reduced delivery frequencies, from twice to once per week, to some regions in Java since the end of March.