CIMB Gudang Garam Company update - Four steps up

(GGRM IJ / GGRM.JK, OUTPERFORM - Maintained, Rp31,400 - Tgt. Rp41,600, Consumer)

Maintain Outperform on GGRM. GGRM has raised its selling prices four times this year, by a total of 6-7%, mainly for its machine-rolled cigarettes (SKM). This is in line with our full-year ASP growth assumptions for SKM. Price increases for hand-rolled cigarettes (SKT), however, have been minimal, at 1% YTD. With the help of these increases, GGRM has partially offset the hike in excise tax on SKM. We raise our earnings forecasts by 2-4% for FY10-12, adjusting for higher margins for the rest of the year. In addition, we raise our target price to Rp41,600, now set at 15.5x CY11 P/E (15% premium to our JCI target), from Rp35,000 (13.4x CY11 P/E, parity with index target), in view of GGRM's faster earnings growth vs. the index. Further margin expansion and consensus upgrades should provide stock catalysts, in our view.