Prabowo Subianto, Indonesia's president-elect, has reached out to various individuals to join his upcoming cabinet, including Sri Mulyani Indrawati, the current Minister of Finance.
Mulyani’s strong background, including her tenure at the World Bank, will be crucial in supporting Prabowo’s ambitious economic goals, such as increased government spending and maintaining fiscal stability amid concerns over rising debt.
During Sri Mulyani's tenure as Indonesia’s Finance Minister, the tobacco excise tax has seen regular increases as part of the government’s broader fiscal strategy to reduce smoking rates and boost state revenues.
She implemented significant hikes, including a 23% increase in 2020, and further raised the tax in subsequent years. Her policies aim to balance public health concerns with the economic contributions of the tobacco industry.
Some investors who invested in cigarette companies may have cold feet when first heard the news that Sri Mulyani will continue her role as the finance minister. However, cigarette stocks showed no significant decline following the news. Although the stock price hasn't rally significantly, we believe the downside is very limited.
Even with Sri Mulyani's historical policy of regularly increasing tobacco excise taxes, the recent 2024 State Budget announcement indicates no new hike. This decision stems from reaching the "Laffer Curve" point, where higher tax rates lead to diminishing returns.
The nominal revenue from tobacco excise declined compared to the previous year, signaling that further tax increases could decrease overall revenue, rather than boost it.
Therefore we reiterate our buy rating for HMSP with TP of IDR 1,565 which implies 21.3x PE and 15.4x EV/EBITDA.
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