Impact of Excise Tax Hike to Stock Value (A Case Study of PT. Hanjaya Mandala Sampoerna, Tbk.)

Abstract

Cigarette industry in Indonesia had contributed around 8% to the state revenue in 2018, and this number are expected to increase in 2020 due to higher excise tax rate for cigarette industry which believed can boost the state revenue. However, the cigarette’s excise tax hike that will be effective in January 1st, 2020 will have significant impact to all of the cigarette companies in Indonesia. The biggest cost of goods sold component of cigarette companies were the excise tax expense, thus, a significant increase on excise tax will reduce the company’s profitability. The significant decrease in company’s profitability could affect the company’s stock performance. In order to help the investors how to react to this situation, the intrinsic valuation of the company is required. Evaluating the company’s financial performance in the past five years and conducting absolute or often called intrinsic valuation of HMSP are believed to be important in order to help the investors how to act while the cigarette companies’ stock was all tumbled since the beginning of the year. This study examined absolute valuation of HMSP using the FCFE model. Absolute valuation models were calculated and had suggested that the current stock price of IDR 1,900 of HMSP is undervalued. The intrinsic value calculated from absolute valuation models was IDR 2,242.71. FCFE models show significantly high intrinsic value for HMSP, with potential return above 15%, it should attract the prospective investors to buy the company’s stock.