JAKARTA – The outlook for Indonesian tobacco stocks throughout 2026 is expected to remain constrained due to weakened purchasing power and the persistent “downtrading” phenomenon, even as the government maintains current tobacco excise (CHT) rates for the year.
The first-quarter performance of 2026 revealed a stark contrast within the industry. While major players like PT Hanjaya Mandala Sampoerna Tbk. (HMSP) and PT Gudang Garam Tbk. (GGRM) experienced sales contractions, their net profits grew—a trend driven by aggressive internal efficiency rather than a genuine recovery in consumer demand.
“Q1 performance showing profit growth amidst contracting sales reflects successful cost management rather than improved fundamental demand,” said Ronny P. Sasmita, Senior Analyst at the Indonesia Strategic and Economics Institution (ISEAI), when contacted on Monday (4/5/2026).
Amidst these pressures, a shift toward more affordable products is reshaping the competitive landscape. PT Wismilak Inti Makmur Tbk. (WIIM), which operates primarily in the economical segment, recorded significant growth in both sales and profit, standing in sharp contrast to the struggles faced by premium brands.
“The downtrading phenomenon will remain dominant, where consumers do not necessarily stop smoking but migrate to lower-priced tiers. This leaves giants like HM Sampoerna and Gudang Garam facing pressure on volumes and pricing power, while more flexible players in the lower segments, such as Wismilak Inti Makmur, prove more adaptive,” Sasmita explained.
Market analysts now categorize the tobacco sector as being in a defensive phase, characterized by limited growth potential and performance sustained by cash flow stability and operational efficiency. Stock price movements reflect this reality: GGRM and WIIM have seen double-digit gains since the beginning of the year, while HMSP has moved within a narrow range and ITIC remained under pressure as of the market close on Monday (4/5).
Muhammad Wafi, Head of Research at KISI Sekuritas, suggested that the valuations for GGRM and HMSP have largely returned to their fair value. He noted that while the market re-rated these stocks following a profit rebound, that increase was fueled by efficiency rather than volume growth. Consequently, fundamental upside remains limited without a significant uptick in demand.
KISI Sekuritas maintains a neutral rating for the tobacco sector, viewing it as a defensive play focused on cash flow and dividend yields rather than a strong growth story. Wafi recommends HMSP for investors seeking a “yield play” strategy due to its stability, while GGRM is viewed as a “recovery play,” albeit one with higher inherent risks.
Regarding the weak growth narrative, Wafi sees a challenging outlook for the tobacco industry, primarily driven by downtrading, the circulation of illegal cigarettes, and potential new CHT layers that could squeeze the sales volumes of existing players. Furthermore, public purchasing power has yet to fully recover.
On the other hand, the sector’s opportunities lie in sustained efficiency, stable excise rates, and the government’s success in curbing illegal trade. “Overall, this sector is more about stability rather than high growth,” he added.
Meanwhile, Nafan Aji Gusta, Senior Market Analyst at Mirae Asset Sekuritas, explained that new CHT layer policies could pose a challenge to existing tobacco firms by intensifying market competition. Additionally, the Ministry of Health’s discourse regarding standardized “plain packaging” risks fueling the illegal cigarette market, as consumers may find it harder to distinguish between legal and illicit products.
Despite these hurdles, the government’s decision to hold excise rates steady this year provides much-needed certainty regarding tax burdens. This, combined with Q1 2026 performance results, offers a glimmer of hope for investors.
Mirae Asset Sekuritas has issued an “Accumulate Buy” recommendation for HMSP with a target price of Rp1,005, a “Hold” for GGRM at Rp17,200, and an “Add” for WIIM with a target price of Rp2,360.
“Currently, tobacco stock prices are not yet overvalued. The primary positive sentiment remains the government’s decision not to raise CHT rates this year, which provides clear cost certainty for these issuers,” Gusta concluded.
Disclaimer: This news article is not intended as an invitation to buy or sell stocks. All investment decisions rest entirely with the reader. Bisnis.com is not responsible for any losses or gains arising from the reader’s investment decisions.
Summary
The Indonesian tobacco sector faces a constrained outlook through 2026, primarily due to persistent “downtrading” and weakened consumer purchasing power, despite stable government excise rates. Major players like PT Hanjaya Mandala Sampoerna (HMSP) and PT Gudang Garam (GGRM) experienced sales contractions but grew net profits through aggressive internal efficiency, not demand recovery. Conversely, PT Wismilak Inti Makmur (WIIM) recorded significant growth by catering to the more affordable market segment, demonstrating adaptability to consumer shifts.
Analysts view the sector as defensive, characterized by limited growth potential and performance sustained by operational efficiency and cash flow stability. Key challenges include continued downtrading, the circulation of illegal cigarettes, and potential new excise policies, though stable excise rates provide cost certainty. KISI Sekuritas maintains a neutral rating, suggesting HMSP for “yield play” investors and GGRM as a “recovery play,” while Mirae Asset Sekuritas recommends “Accumulate Buy” for HMSP and “Add” for WIIM.
