Semen Baturaja (Persero)(SMBR.IJ)

Transcription

1 Equity Research Company Update Wednesday,05 July 2017 SELL Maintain Last price (IDR) 3,300 Target Price (IDR) Rp380 Upside/Downside -88.5% Previous Target Price (IDR) Stock Statistics Sector Bloomberg Ticker Rp390 Cement SMBR IJ No of Shrs (mn) 9,838 Mkt. Cap (IDR bn/usdmn) 28,923/2,175 Avg. daily T/O (IDR bn/usdmn) Major shareholders n/a/n/a Indonesian Government 76.2% Public 23.8% Estimated free float (%) 23.8 EPS Consensus 2017F 2018F 2019F Danareksa Consensus Danareksa/Cons (31.4) (35.5) (26.3) SMBR relative to JCI Index Semen Baturaja (Persero)(SMBR.IJ) Seasonally weak We reiterate our SELL call on SMBR with a slightly lower target price of IDR380 as we cut our sales volume target given poor expected bulk cement sales. Operationally, there is some good news, however, following the recent signing of company s coal supply agreement with PTBA for lower CV coal, the termination of the clinkers purchase agreement and the shift in its electricity category from I- 3 to I-4. As a result, we expect SMBR to maintain its EBITDA margin at 28.7%. Poor sales in June 2017 Given the fewer working days during the festive period, SMBR expects to record sales of only 90,000 tons in June 2017, down 36.1%yoy. This reflects the seasonal impact of Lebaran which this year fell at the end of June 2017 compared to early July last year. Comparing the expected sales in June 2017 with those in July 2016, the figure is down by 9.3%. The weak expected sales owe to poor demand for bulk cement, we believe. All in all, in 1H17, we estimate that SMBR s sales will be 4.yoy lower at 665,000tons. Limited demand from major projects Earlier, we expected strong demand for bulk cement from several major projects, namely the second phase of the Oki Pulp and Paper project and the coal transportation hauling road. Cement demand for these projects was expected to reach 150,000tons this year. However, we now think this figure might be unrealistic given slow progress in the negotiations process with the project owners. This prompts us to cut our 2017 sales volume target from 1.8mn tons to 1.7mn tons (- 7.6%yoy). Long-term coal supply agreement with PTBA SMBR recently signed a coal supply agreement with PT Bukit Asam (PTBA) for the long-term supply of 1.7mn tons of coal up to This agreement stipulates that PTBA will now supply coal with CV of 5,500 and 4,500 (previously, PTBA supplied coal to SMBR with CV of 6,300). Since the coal to be supplied under the agreement has a lower CV, it should carry a 20-35% price discount to the coal with CV of 6,300. As SMBR s annual coal consumption is around 300,000 tons, the company expects to achieve cost savings of IDR38bn from using the lower CV coal. Source : Bloomberg Antonia Febe Hartono (62-21) ext.3504 antonia.hartono@danareksa.com Stefanus Darmagiri (62-21) stefanus.darmagiri@danareksa.com SELL maintained with a lower target price of IDR380 We maintain our SELL call on SMBR with a lower target price of IDR380 (DCF based valuation with WACC of 12.1% and Terminal Growth of 3.). We trim our WACC assumption from 12.3% to 12.1% by lowering our risk-free rate from 7.8% to 7.3% to take into account the normalization of government bond yields. Our target price implies 22.5x 2017F P/E, below the four-year mean of 42.6x. Key Financials Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Revenue, (Rpmn) 1,461,248 1,522,808 1,537,823 1,648,684 1,782,052 EBITDA, (Rpmn) 422, , , , ,607 EBITDA Growth, (%) 31.3 (2.4) Net profit (Rpmn) 354, , , , ,887 EPS (Rp) EPS growth (%) 5.4 (26.8) (36.5) (1.8) 10.0 BVPS, (Rp) DPS, (Rp) PER (x) PBV (x) Dividend yield (%) EV/EBITDA (x) Source : SMBR, Danareksa Estimates See important disclosure at the back of this report 1

2 The Three Elephants initiatives With the new management in place, SMBR will adopt business strategies aimed at boosting the company s financial performance. These business strategies have been called by the company the Three Elephants Initiatives. Hereby, the company will focus on three main areas: cost leadership, market expansion and the business process. 1. Cost Leadership To achieve better cost efficiency, SMBR will conduct several efficiency measures. These measures are expected to result in annual savings of IDR100bn. (i) Reducing the clinker content for the PCC from 8 currently to 7. Although lower clinker content may impact the strength of the cement, SMBR believes that the impact is minimal, with no adverse impact on the perception of its cement quality. (ii) Reducing the cost of the supplemental components for cement by negotiating with suppliers. (iii) Reducing cement distribution to neighboring areas by establishing warehouses at several locations in Jambi and Bengkulu. (iv) Minimizing production at the grinding plant in Palembang and Panjang and increasing utilization of the Baturaja II plant. The company estimates that the production cost per ton at the Palembang and Panjang plants is 20-3 higher than at Baturaja II. 2. Market expansion Besides defending market share in its home market, SMBR also plans to aggressively penetrate the markets of Jambi and Bengkulu in a bid to lift its market share in those markets to 20-3 from 4-6% currently. Exhibit 1. SMBR market share () South Sumatera 6 5 Lampung SMBR CG Conch INTP Jui Shin Bengkulu SMCB Padang Siam 10 SMBR CG Conch INTP Jui Shin Jambi SMCB Padang Siam SMBR CG Conch INTP SMCB Padang 4 2 SMBR Bosowa Conch INTP SMCB Padang Siam Source: ASI, Company See important disclosure at the back of this report 2

3 3. Business process transformation SMBR plans to establish Baturaja Logistic, a subsidiary that will focus on improving the logistics process for raw materials and finished products. With the establishment of this business unit, the company expects to reduce its transportation costs. Baturaja II has started its commercial operation On 29 June 2017, the commercial operation of the Baturaja II plant began. This plant has installed capacity of 1.85mn tons. This year, the company expects this plant to produce 550,000 tons of cement. Employing the latest technology, the cost to produce cement in Baturaja II will be 10-15% lower than at its existing plant. Production cost savings will mainly come from lower CV coal usage and electricity migration from I-3 to I-4. Exhibit 2. Earnings revision Previous New Changes (%) ASP (Rp/ton) 933, , , , , Sales volume (mn ton) (7.6) (8.0) Coal price (USD/ton) Electricity cost (Rp/kWh) 1,079 1, , ,088 1, Revenue 1,523 1,664 1,792 1,538 1,649 (7.6) (8.0) Gross profit (6.3) (5.3) Operating profit (11.6) (9.9) EBITDA (6.9) (5.7) Net profit (12.6) (11.2) Source: Company, Danareksa Sekuritas See important disclosure at the back of this report 3

4 Exhibit 3. Income Statement Revenue 1,461,248 1,522,808 1,537,823 1,648,684 1,782,052 COGS (967,669) (1,011,810) (1,033,730) (1,112,086) (1,212,574) Gross profit 493, , , , ,478 EBITDA 422, , , , ,607 Oper. profit 330, , , , ,346 Interest income 120,302 27,978 20,219 36,271 37,841 Interest expense (151) (7,119) (54,927) (86,016) (82,489) Forex Gain/(Loss) Income From Assoc. Co s Other Income (Expenses) (7,572) 7,729 8,116 8,116 8,116 Pre-tax profit 443, , , , ,813 Income tax (89,234) (90,190) (57,291) (56,288) (61,924) Minority interest 0 (4) (2) (2) (3) Net profit 354, , , , ,887 Core Net Profit 354, , , , ,887 Exhibit 4. Balance Sheet Cash & cash equivalent 1,251, , , , ,929 Receivables 39, , , , ,372 Inventory 185, , , , ,611 Other Curr. Asset 461, , , , ,820 Fixed assets - Net 787,024 3,480,075 3,875,124 3,839,458 3,782,097 Other non-curr.asset 543,077 50,570 50,117 52,640 55,866 Total asset 3,268,668 4,368,877 4,730,364 4,950,188 4,951,818 ST Debt 0 15,619 20, , ,861 Payables 109, , , , ,775 Other Curr. Liabilities 146, , , , ,609 Long Term Debt 0 624, , , ,479 Other LT. Liabilities 63, , , , ,204 Total Liabilities 319,315 1,248,119 1,486,169 1,584,716 1,452,928 Shareholder'sFunds 2,949,353 3,120,729 3,244,167 3,365,443 3,498,861 Minority interests Total Equity & Liabilities 3,268,668 4,368,877 4,730,364 4,950,188 4,951,818 See important disclosure at the back of this report 4

5 Exhibit 5.Cash Flow Net income 354, , , , ,887 Depreciation and Amort. 91,668 91, , , ,262 Change in Working Capital (321,724) 215,627 (5,638) (17,953) (16,317) OtherOper. Cash Flow (119,446) 270,782 34,708 49,745 44,648 Operating Cash Flow 4, , , , ,480 Capex (320,153) (2,783,888) (586,945) (170,985) (170,985) Others Inv. Cash Flow (388,603) 519,493 19,752 32,828 33,700 Investing Cash Flow (708,755) (2,264,394) (567,192) (138,157) (137,285) Net change in debt 0 639, ,680 80,225 (154,861) New Capital (5,835) Dividend payment (82,084) (88,539) (41,142) (40,422) (44,469) Other Fin. Cash Flow (10,567) (39,293) (54,927) (86,016) (82,489) Financing Cash Flow (98,486) 512, ,611 (46,212) (281,819) Net Change in Cash (802,564) (914,381) (49,116) 216,690 16,375 Cash - begin of the year 2,053,924 1,251, , , ,553 Cash - end of the year 1,251, , , , ,929 Exhibit 6. Key Ratios Year to 31 Dec 2015A 2016A 2017F 2018F 2019F Growth (%) Sales EBITDA 31.3 (2.4) Operating profit 34.3 (3.1) (22.5) Net profit 5.4 (26.8) (36.5) (1.8) 10.0 Profitability (%) Gross margin EBITDA margin Operating margin Net margin ROAA ROAE Leverage Net Gearing (x) (0.4) Interest Coverage (%) 2, Source : SMBR, Danareksa Estimates See important disclosure at the back of this report 5