Gudang Garam Quarterly Profit Rises 81% on New Cigarette Brands

Source from:  By Woro Widya Utami and Naila Firdausi July 29 (Bloomberg) 07/30/2008

PT Gudang Garam's second quarter profit jumped 81 percent after Indonesia's second-biggest cigarette maker enticed customers with new brands. Net income rose to 555.2 billion rupiah ($61 million) in the three months ended June, the highest quarterly profit in three years, from 306.3 billion rupiah a year earlier. Sales rose 17.5 percent to 8.14 trillion. The figures were derived by subtracting first-quarter earnings from six-month results released today. Gudang Garam, faced with rising competition from Philip Morris International Inc.'s clove-flavored Marlboro cigarettes, introduced its first thin cigarette a year ago to appeal to younger Indonesians and slow a decline in market share. Rachman Halim, the company's billionaire chairman, died July 27 sparking speculation a stake may be sold to an overseas investor. ``The result is surprising,'' said Ratna Lim, an analyst at PT Mega Capital Indonesia. ``Investors had been concerned about declining market share and stiffer competition, but rising sales is a good sign.'' Expansion by rivals and the lack of new products resulted in Gudang Garam's market share of clove-flavored cigarettes, known as kretek, declining 1 percentage point to 27 percent in 2007. The company lost its top ranking to Philip Morris' PT HM Sampoerna in 2006. Gudang Garam surged 17 percent to 7,250 rupiah at 1:44 p.m. in Jakarta trading, boosting its two-day climb to 39 percent. The gain has trimmed this year's decline to 15 percent. Possible Stake Sale Halim died in Singapore July 27, Vidya Boediyanti, a spokeswoman for the company said yesterday. His death increases the possibility of a stake sale to an overseas investor, according to Mulia Santoso, a fund manager at PT Syailendra Capital, and Stevanus Juanda, an analyst with JPMorgan Chase & Co. Limited restrictions on advertising or sales to young people have helped Philip Morris and Gudang Garam become Asia's second- and third-biggest cigarette producers. About a third of the nation's 230 million people smoke, compared with 21 percent in the U.S., government figures show. Gudang Garam began selling the slim, low-tar, low-nicotine Surya Slims brand, its first thin cigarette version, in 2007. Nine out of 10 smokers in Indonesia smoke kretek, named after the sound of burning cloves. Indonesia, the world's fifth-biggest tobacco producer, is the only Asian nation that hasn't signed or ratified a global anti-tobacco treaty. The global treaty bans tobacco advertisements and prohibits the use of terms such as ``light,'' or ``low-tar,'' cigarettes. Surya Slims contain 14 milligrams of tar and 0.9 milligram of nicotine, compared with 30 milligrams of tar and 1.8 milligrams of nicotine for regular kretek cigarettes. Net income rose in the first half to 891.4 billion rupiah, or 463 rupiah a share, in the six months ended June, from 710.6 billion rupiah, or 369 rupiah a share, a year earlier, the company said in a statement to Indonesia's stock exchange. Sales climbed to 15.06 trillion rupiah from 13.42 trillion rupiah. To contact the reporters on this story: Naila Firdausi in Jakarta at nfirdausi@bloomberg.net; Woro Widya Utami in Jakarta at bbjakarta@bloomberg.net Enditem