CIMB Gudang Garam Company update - Awakening giant

(GGRM IJ / GGRM.JK, OUTPERFORM - Maintained, Rp11,350 - Tgt. Rp17,100, Consumer)

Gudang Garam's 1Q09 revenue grew 10.8% yoy on the back of a 30.6% yoy increase in volume sales. Gross and operating margins were 22% and 15.5%, the highest in more than 10 quarters. Market share climbed to 24% in 4M09 from 23.7% in 1Q09, placing Gudang Garam in the top spot. A rejuvenation programme is underway, involving a broader product mix and a new distribution system which we believe could lift up margins and volume. We are maintaining our Outperform rating with a higher DCF-based target price of Rp17,100 (from Rp7,150), following our earnings upgrade of 25-55% for FY09-11. This implies 10x and 8.4x CY10-11 core earnings vs. our JCI target of 10.8x CY10 earnings. Catalysts could come from another strong quarter, strong cash generation, and a potential recovery in consumer purchasing power, we believe.