Semen Indonesia (Persero)(SMGR IJ)

Transcription

1 Equity Research Company Update Thursday,25 January 2018 SELL Maintain Last price (IDR) 10,750 Target Price (IDR) 8,600 Upside/Downside -20.0% Previous Target Price (IDR) 8,600 Stock Statistics Sector Bloomberg Ticker Cement SMGR IJ No of Shrs (mn) 5,932 Mkt. Cap (IDRbn/USDmn) 63,764/4,791 Avg. daily T/O (IDRbn/USDmn) 49.1/3.7 Major shareholders (%) Republic of Indonesia 51.0 Lazard LTD 2.4 Estimated free float 49.0 EPS Consensus (IDR) 2017F 2018F 2019F Danareksa Consensus Danareksa/Cons (20.6) (29.8) (30.3) SMGR relative to JCI Index Source : Bloomberg Semen Indonesia (Persero)(SMGR IJ) Too pricey We reiterate our SELL call on SMGR. While the company has prepared several efficiency measures in 2018 that are expected to result in more than IDR1tn of cost savings whilst also increasing its selling prices, we believe that SMGR s current valuation cannot be justified. SMGR currently trades at 30.2x 2018F P/E, or above its historical +2SD forward trailing PE of 29.2x. Our target price implies 24.2x 2018F P/E, or near to its +1SD of 24.1x. Selective price increases. Based on our channel checks with cement distributors, since early this week, SMGR has slightly increased its bagged cement price by IDR1,000/sack (+2%mom), while the other cement players have kept their prices steady, with the price of Tigaroda even reduced by IDR1,000-2,000/sack in several regions. We have spoken to the management of SMGR and they told us prices were increased in selective areas only. Encouragingly, SMGR claimed that despite the higher prices, its market share in January 2018 remained stable at 41%. Going forward, the company will continue to closely monitor the market dynamics for further price adjustments. New 2018 strategies. The company expects its financial performance to improve in Besides expecting sales volume growth which is inline with the industry at 5-7%yoy, the company plans to conduct several efficiency measures, including: (i) cross-bagging products, and (ii) the centralized procurement of items. Together with other efficiency measures, the company foresees cost savings of more than IDR1tn. We have taken these efficiency measures into account. Thus, even though we expect prices to fall 1.0%yoy considering the V-shaped price trend, we expect SMGR to record 8.4%yoy net profits growth in Allocating IDR4tn of capex in The company plans to allocate capex of IDR4tn this year, which will mainly be spent on: (i) debottlenecking its existing production plant, (ii) completing 2 packing plants in Sumatera (Bengkulu) and Sulawesi, (iii) completing the construction of the last unit of the Waste Heat Power Generator (WPHRG) in its Tuban plant, (iv) its war chest for potential acquisitions. We believe the company will not need to draw down external financing for this capex. Unjustified valuation, we reiterate our SELL recommendation. We reiterate our SELL recommendation on SMGR with an unchanged target price of IDR8,600 (DCF based valuation with WACC of 12.1% and Terminal Growth of 4.0%). Our target price implies 24.2x 2018F P/E, or near to its historical +1SD forward trailing PE of 24.1x. SMGR currently trades at 30.2x 2018F P/E, or above its historical +2SD forward trailing PE of 29.2x, which we don t think can be justified. x Antonia Febe Hartono, CFA (62-21) ext.3504 Key Financials antonia.hartono@danareksa.com Year to 31 Dec 2015A 2016A 2017F 2018F 2019F x Stefanus Darmagiri Revenue (IDRbn) 26,948 26,134 27,479 29,084 31,890 EBITDA (IDRbn) 7,326 6,611 4,975 5,345 6,420 (62-21) EBITDA Growth (%) (10.8) (9.8) (24.7) stefanus.darmagiri@danareksa.com Net profit (IDRbn) 4,521 4,522 1,945 2,109 2,678 EPS (IDR) EPS growth (%) (18.7) 0.0 (57.0) BVPS (IDR) 4, , , , ,448.5 DPS (IDR) PER (x) PBV (x) Dividend yield (%) EV/EBITDA (x) See important 8.7 disclosure 10.1 at the back 13.8 of this report Source : SMGR, Danareksa Estimates

2 Exhibit 1. REVENUE AND GROWTH Exhibit 2. NET PROFIT AND GROWTH Exhibit 3. MARGINS Exhibit 4. GEARING LEVEL Exhibit 5. SMGR s forward trailing PE (x ) sd sd 22.0 Average: sd sd 7.0 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 1 Exhibit 6. Cement sector s forward trailing PE (x ) sd sd 30.0 Average: sd sd 0.0 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 1 Efficiency on the point: 1. Cross-bagging products For its cross-bagging products, the company will map its current distribution network on an area basis on a centralized basis in order to: (i) minimize the overlapping brand sales in the area (choosing to sell products with the best premium price), (ii) supply products from the nearest production facilities in order to minimize logistics costs. See important disclosure at the back of this report 2

3 2. Procure coal of a more stable quality to minimize downtime For its major raw materials, the company plans to centralize its procurement system. This will increase its bargaining power with suppliers so that it can obtain more favourable terms of trade. For coal in particular, the company also plans to renegotiate its coal supply contracts as the company will focus on obtaining coal of a more stable quality. With stable quality coal, production downtime can be minimised. The Rembang plant: Ministry of Energy has completed the environmental study Even though SMGR has obtained all the necessary environmental licenses, the company has still not mined the limestone from quarries near to its Rembang plant considering the ongoing dispute with local farmers. To resolve the ongoing dispute, the President instructed the Ministry of Energy last year to conduct a strategic environmental assessment. SMGR claims that this study has already been completed, and that it is therefore only waiting for the government to officially announce the results of the study. Upon the announcement, the company expects it will be able to start to mine the limestone in early February Should SMGR be able to mine limestone from its quarries in Rembang, we believe the company will be positively impacted. At the moment, SMGR procures the limestone needed for cement production from traditional miners which is 20% more costly than its own mining, As such, we expect that the production costs at its Rembang plant can be lowered through its own mining. New product launching: the study is still ongoing This year, SMGR plans to launch a second-liner product as the fighting brand to compete with the second-liner cement brands that are offered at considerably lower prices. SMGR is currently still exploring the opportunities and has not disclosed any timeline for the product launching. Besides second-liner products, the company also plans to launch a slag cement product named Maxstrength. This product is still in the testing stage before it can be launched. The company is currently distributing product samples to major SOE contractors. See important disclosure at the back of this report 3

4 Exhibit 7. Income Statement Revenue 26,948 26,134 27,479 29,084 31,890 COGS (16,302) (16,278) (19,426) (20,538) (22,204) Gross profit 10,646 9,856 8,053 8,546 9,686 EBITDA 7,326 6,611 4,975 5,345 6,420 Oper. profit 5,899 4,973 2,966 3,213 4,018 Interest income Interest expense (370) (363) (807) (885) (935) Forex Gain/(Loss) Income From Assoc. Co s Other Income (Expenses) Pre-tax profit 5,851 5,085 2,522 2,734 3,472 Income tax (1,325) (550) (571) (619) (787) Minority interest (4) (13) (6) (6) (8) Net profit 4,521 4,522 1,945 2,109 2,678 Core Net Profit 4,521 4,522 1,945 2,109 2,678 Exhibit 8. Balance Sheet Cash & cash equivalent 3,964 2,834 4,294 3,966 3,234 Receivables 3,629 4,018 4,376 4,631 4,991 Inventory 2,409 2,671 3,347 3,539 3,826 Other Curr. Asset ,009 Fixed assets - Net 25,168 30,847 32,256 33,529 37,064 Other non-curr.asset 2,447 3,007 3,035 3,064 3,093 Total asset 38,153 44,227 48,199 49,670 53,232 ST Debt 769 1,686 2,050 2,156 2,384 Payables 3,978 4,383 4,965 5,249 5,674 Other Curr. Liabilities 1,853 2,083 2,261 2,286 2,343 Long Term Debt 3,156 4,450 7,131 6,817 7,793 Other LT. Liabilities 958 1,051 1,092 1,135 1,181 Total Liabilities 10,712 13,653 17,499 17,643 19,375 Shareholder'sFunds 26,420 29,035 29,161 30,488 32,318 Minority interests 1,021 1,539 1,539 1,539 1,539 Total Equity & Liabilities 38,153 44,227 48,199 49,670 53,232 See important disclosure at the back of this report 4

5 Exhibit 9.Cash Flow Net income 4,521 4,522 1,945 2,109 2,678 Depreciation and Amort. 1,443 1,653 2,024 2,147 2,418 Change in Working Capital 1,239 (388) (354) (163) (227) OtherOper. Cash Flow 214 (427) Operating Cash Flow 7,418 5,360 4,166 4,720 5,566 Capex (5,168) (5,065) (3,423) (3,410) (5,943) Others Inv. Cash Flow (183) (280) Investing Cash Flow (5,351) (5,345) (3,206) (3,192) (5,745) Net change in debt (28) 1,741 3,083 (233) 1,186 New Capital Dividend payment 2,236 1,819 1, Other Fin. Cash Flow (370) (363) (765) (842) (890) Financing Cash Flow 1,838 3,196 4,136 (292) 1,144 Net Change in Cash 3,904 3,211 5,097 1, Cash - begin of the year 4,926 3,964 2,834 4,294 3,966 Cash - end of the year 3,964 2,834 4,294 3,966 3,234 Exhibit 10. Key Ratios Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Growth (%) Sales (0.1) (3.0) EBITDA (10.8) (9.8) (24.7) Operating profit (15.1) (15.7) (40.4) Net profit (18.7) 0.0 (57.0) Profitability (%) Gross margin EBITDA margin Operating margin Net margin ROAA ROAE Leverage Net Gearing (x) Interest Coverage (x) Source : SMGR, Danareksa Estimates See important disclosure at the back of this report 5