HMSP - Production of Smokeless Cigarettes in RI

HM Sampoerna (HMSP) will operate a tobacco stem production facility for the refill of IQOS e-cigarettes under the HEETS brand in Karawang by the end of this year. Sampoerna built the plant with an investment value of USD166.1mn or equivalent to IDR2.57tn (Source : CNBC Indonesia) Comment: We like HMSP effort to accommodate the latest trend from smokers. However, we expect major revenue driver will remain come from traditional products (SKM and SKT). We view volume growth will continue to be under pressure amidts the consistent excise tax hike that resulting to higher average selling price. We also believe margin contraction will sustain. As such repackaging and product diversification seems the most effective strategy for now, in our view.