Finance Minister Purbaya Yudhi Sadewa recently announced plans to introduce a special excise scheme for illegal cigarette producers starting December 2025. The goal is to bring underground manufacturers into the formal system through the Tobacco Industry Zone (KIHT). If implemented, illegal cigarette prices could rise, narrowing the price gap with legal products. This could encourage smokers to return to legal brands and support demand recovery for established players.
 

This could be a positive catalyst for the tobacco sector, especially HMSP, which just delivered a strong 3Q25 performance. Net profit rose 25% YoY and 1,034% QoQ, supported by excise relief and lower raw material costs. With no excise hike planned for 2026, HMSP should be able to sustain its margin strength without additional tax expenses, creating a rare moment of stability in an industry that has faced years of regulatory pressure.

At the same time, HMSP remains attractive in terms of valuation and yield. The stock is trading at around 10x forward P/E, while our analyst projects a 9% dividend yield for FY26F, assuming a 100 percent payout ratio since HMSP no longer requires significant capex spending. For investors seeking steady cash returns and defensive exposure, HMSP stands out as a compelling choice.

With earnings momentum, policy support, and attractive yield, our analyst maintains a BUY rating on HMSP with a target price of Rp1,260. The government’s new approach could be the beginning of a fairer playing field for the industry, and HMSP looks ready to benefit from it.