Coorporate Not Rated Note
Wismilak Inti Makmur (WIIM, NR)
Only Listed Company To Enjoy New Exice Tax Threshold
Wismilak Inti Makmur (WIIM, NR)
Only Listed Company To Enjoy New Exice Tax Threshold
Post meeting with
Wismilak’s management, we note that the company could change its
strategy in 2017 to monetise the higher threshold of Tier II production
volume after changes in the excise tax which will take effect next year. The
company may aggressively grow
its SKM volume by launching new products in 2017. We
also note that Wismilak may save c.IDR10bn pa in costs (vs FY15
earnings of IDR131bn) by relocating its SKT factory to Bojonegoro. We do not
have a rating on the stock, which is trading at a trailing P/E of 8.1x (vs
the Indonesian cigarette sector average FY16F P/E of 29.2x)
¨ Only listed company
that will benefit from the new excise tax threshold. Under the new excise
tax which will take effect in 2017, the production threshold of Tier II kretek
cigarettes (SKM) and white cigarettes (SPM) will be increased to 3bn sticks pa
from 2bn sticks pa. Meanwhile, Tier I SKM cigarette producers may have to pay
excise taxes that are c.45% higher than Tier II producers. Wismilak Inti Makmur
(Wismilak) is the only Indonesian-listed company that would benefit from the
change in excise taxes for the Tier II category. In the last few years, it has
aggressively raised cigarette prices to maintain its production in the Tier II
threshold, ie 2bn sticks pa. Given the changes in the new excise tax for Tier
II producers, it would now be able to grow its cigarette volumes without
falling into the Tier I excise tax bracket.
¨ New strategy to grow
volume aggressively while maintaining margins. Previously, Wismilak
limited its SKM sales volume to below 2bn sticks by increasing its selling
price, in order to prevent from falling into the Tier I bracket. To take
advantage of the new threshold for Tier II producers, it is expected to change
its 2017 strategy to grow its SKM volumes aggressively by launching new
products next year while maintaining current profit margins. The company plans
to launch two new SKM products and one new hand-rolled cigarette (SKT) product
in 2017 (vs no new product launch in 2016).
¨ Cost
savings from the relocation of its SKT factory from
Surabaya to Bojonegoro.Wismilak is expected to save employee
costs of c.IDR10bn pa (vs FY15 net income of IDR131bn) if the relocation
of its SKT factory from Surabaya to Bojonegoro (which is in East Java) is
completed. This would be so, as the minimum wage in Bojonegoro is half that
of Surabaya. It plans to relocate the SKT factory from Surabaya to
Bojonegorogradually over the next three years.
¨ No rating on the stock, which is
trading at an undemanding trailing P/E. We have no rating on the stock,
and do not currently cover the company. Currently, Wismilak is trading at a
trailing FY15 P/E of 8.1x. Historically, Wismilak has traded within a trailing
P/E range of 5.9x-13.4x. Note that the Indonesian cigarette sector is trading
at a simple average FY16F P/E of 29.2x.
Kindly click the following link for the full report: Wismilak Inti Makmur : Only Listed Company To Enjoy New Excise Tax Threshold
Hariyanto Wijaya,
CFA, CFP, CA, CPA
Vice President
Research Analyst – Heavy
Equipment, Plantation
PT. RHB Securities
Indonesia
