Wismilak Inti Makmur
Attempting a high jump
tax hurdle: Indonesia’s tobacco industry is in the process of converging
its excise tax across every type of cigarettes (exhibit 7). The
implication of this event is that smaller producers’ excise tax is
increasing at a faster rate than larger producers’ excise tax. Wismilak
Inti Makmur (WIIM), with 1% market share in 2011, is one of those small
producers which are attempting to jump the tier “hurdle” in order to
minimize the excise duty hike effect.
The company started its
operation in 1963 through its current subsidiary, Gelora Djaja, which
handles the production side of the business. In 1983, WIIM incorporated
Gawih Jaya to distribute a part of the business before restructuring
both Gelora and Gawih under Wismilak Inti Makmur (WIIM) in 1994 (exhibit
6). Run by 3 families: Walla, Widjajadi and Winarko, WIIM derives most
of its revenue from machine rolled cigarettes (SKM), which accounted for
80% of 2011 total revenue.
§ 10% higher than expected
2012 net profit due to Mild Diplomat: In 2012, WIIM has indicated net
profit of IDR74-75b, some 10% higher than its estimate at the IPO of
This is helped by higher than expected price increase
and volume growth of Mild Diplomat, newly launched in mid-2012, mainly
in Central and East Java.
In 2013, WIIM, betting on the
continued success of Mild Diplomat, plans to jump over the 2b total
production mark, partly also supported by distribution network
The company targets 2013 total production of 2.5b
sticks, up from around 2b sticks in 2012, translating to top line level
of IDR1.5-1.6t (2012: more than IDR1.1t) helped by blended ASP increase
of about 8%.
On 2013 bottom line, WIIM expects to book IDR120b,
up more than 60% y-y, propelled by operating leverage from G&A cost
and lower net interest expense from its IDR409b (USD43m) IPO proceeds.
Further growth from added distribution network & capacity:
WIIM currently operates 17 branches, 5 stock points and 29 agents to
cover the whole nation. North Sumatra, East Java and Central Java are
WIIM’s major markets, although there are plans to further expand its
distribution network outside these areas.
On capacity, the
company separates the lines into SKM (machine rolled) and SKT (hand
rolled) with each divided again into regular and mild products (exhibit
9-10). WIIM operates production capacity of 2.5b sticks in 2011 with
434m sticks for SKT and 2b sticks for SKM. In 2012, the company added
its SKM capacity to 2.5b sticks, before adding 1.2b capacity in 2013
(equipment to arrive in mid-2013).
Outlook & valuation:
growth driven counter – cheap on PEG: Given WIIM’s better than expected
2012 results, we see potential share price upside, particularly if the
company can continue to surpass its targets in 2013.
valuation, WIIM is on 2013 PE of 12.6x (20% discount to the market),
reflecting cheap PEG of 0.2x. Thus, we expect WIIM’s out-performance
since IPO (exhibit 5) to persist, backed by subdued inflation this year
coupled with increased smokers’ purchasing power stemming from higher
Bottom line growth, however, is subject to the strength
of WIIM’s brand equity when raising its products prices in tandem with
its higher-up excise tax tier.
WIIM’s other challenges will be
the government’s tighter limitation on cigarette marketing as well as
competition from its peers.
me @ LOTS Trading Club (LTC)
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