Semen Baturaja (Persero), Tbk

Transcription

1 Equity Valuation Semen Baturaja (Persero), Tbk Primary Report December 21, 2015 Target Price Low High Cement Historical Chart Source : Bloomberg Cementing the growth Stock Information Ticker code IDR SMBR Market price as of December 18, Market price 24 week high 404 Market price 24 week low 250 Market cap 24 week high (bn) 3,974 Market cap 24 week low (bn) 2,459 Last 4 Weeks of Price and Volume Source: Bloomberg. PEFINDO Research and Consulting - Equity & Index Valuation Shareholders (%) Government of the Republic of Indonesia Public (below 5% ownership) Contact: Equity & Index Valuation Division Phone: (6221) info-equityindexvaluation@pefindoconsulting.co.id is an integral part of this report PT Semen Baturaja (Persero) Tbk ( SMBR ) is a state owned Indonesian company established in The Company mainly engaged in cement industry producing cement under Portland brand. The Company is the largest cement producer in South Sumatera with 70%-75% of the total sales contributed to serve the area. The Company focuses to cover the south area of Sumatera and Bengkulu through its 2.0 mn tons/year plants spread in Palembang, Baturaja and Lampung. The Company produces two types of products, consisting of bagged cement (70%) and bulk cement (30%); bagged cement is used mainly for housing (retail or residential sector) which is the largest consumer of cement in Indonesia, while bulk cement is mainly for infrastructure and fabricator sector. The Company is currently undertaking the construction of a new plant Baturaja II consisting of clinker plants, cement plants and packing plants from the funds obtained from the IPO in June Upon completion of its plants expansion (which is targetted to be completed and begin commercial operation in early 2017), the Company will be able to produce 3.85 mn tons/year. Page 1 of 13

2 INVESTMENT PARAMETER Infrastructure development to boost cement demand Economy now is in the downswing. To overcome the situation government continue to push structural reforms through a wide range of economic policy packages and the realization of basic infrastructure projects which then expected to boost the economy. Despite facing tougher environment, we expect the infrastructure development to boost cement demand. As in August, cement sales rose 15% YoY and 57% MoM, reflecting strong demand potential inline government spending in the infrastructure development has started to bring impact for the demand. Cement industry is also facing tighter competition as the new players is entering the market and total national production capacity is also expanding. Nonetheless, we see that the growing room for cement consumption remains substantial. Domestic market consumed only 238 kg cement per capita in 2014, lower than that of peers such as Thailand, Vietnam and Malaysia, which have reached above 500 kg per capita. Eyeing stronger growth by adding plant SMBR is upgrading the plant s capacity to nearly double to 3.85 mn tons/year from 2 mn tons/year. The new plant (Baturaja II), which is currently in construction stage, would cost about IDR3.3 tn, stemming from clinker, cement and packing plant. The Company will utilize the fund from IPO proceed (IDR 1.3 tn) and the rest will be from bank loans and internal cash as well. We expect the new plant would come on stream in early Robust revenue growth in 9M15 SMBR recorded a 26.4% YoY increase of revenue to IDR1.032 tn during 9M15, particularly due to soaring bag and bulk cement sales of 17.5% and 42.4%, respectively. By having bulk cements as one of its products, which is less expensive than bag cement, SMBR still can booked a positive sales volume amid slowing growth of property and construction. Business Prospect We view Indonesia cement sector is going to experience supply shock in 2016 with total of potential excess capacity of 30 mn tons and utilization around 67%. Despite being overshadowed by unfavorable economic conditions, we foresee domestic cement consumption will remain solid, citing the Government plan to boost infrastructure. Therefore, we believe bulk cement portion will go faster than the bag. For SMBR, we estimate its revenue to grow at CAGR 13.3% in Table 1: Performance Summary P 2016P Revenue [IDR bn] 1,098 1,169 1,215 1,462 1,640 EBITDA Pre-tax Profit [IDR bn] Net Profit [IDR bn] EPS [IDR] EPS Growth [%] P/E [x] * 7.0* PBV [x] * 0.8* Sources: PT Semen Baturaja (Persero) Tbk., PEFINDO Research and Consulting - Equity & Index Valuation Estimates * Based on the SMBR s share price as of December 18, 2015 IDR296/share December 21, 2015 Page 2 of 13

3 MACROECONOMY & BUSINESS INFORMATION Economic slowdown is about to continue We view that recent economic slowdown is constraining the cement industry to grow optimally. Construction activity are also seen growing slower, thus potentially affect the cement demand in domestic market throughout Overall, Bank Indonesia projects the economic tends to grow at a range of 4.7-5,1% in 2015, slower than previous projection ( %). Figure 1: GDP & Construction Sector slowdown Sources: Bank of Indonesia, PEFINDO Research and Consulting, Equity & Index Valuation Division Government consistency in pushing structural reforms through a wide range of economic policy packages and the realization of infrastructure projects are expected to boost the economy. Government plans to invest more on infrastructure projects, such as the construction of toll roads, power plants and dams as stated in the medium term plan of , which some of the projects have been in the construction phase. If successfully executed, we believe the infrastructure improvement would support economic growth more sustainably. Domestic cement consumption 2015 is flat However, the cumulative consumption over January-August still dropped about 2.9% to 20.4 million tons, based on the lastest data from Association. By the end of this year, overall domestic consumption is expected to be flat at around 60 million ton, given the recent the slowdown of activity in the several sectors, as reflected in a slower economic growth. Figure 2: Cement Consumption tend to stagnant in 2015 Sources: PEFINDO Research and Consulting, Equity & Index Valuation Division Estimates December 21, 2015 Page 3 of 13

4 Cement outlook: still wide room to grow Although facing tougher environment, we expect the infrastructure projects to be executed successfully. Thus, it will be a catalyst for cement demand. The government estimates that infrastructure investment needs reached IDR6,780 trillion during , jumped from IDR1,923,8 trillion during In addition, we also see that the growing room of cement consumption remains substantial. Domestic market consumed 238 kg cement per capita as of 2014, lower than the peers such as Thailand, Vietnam and Malaysia, which have been above 500 kg per capita. Thus, domestic consumption have potential to grow sustainably in the future and to be equal with the peers. Figure 3: Low Consumption per capita of cement (in kg) Sources: PT Semen Indonesia (Persero) Tbk, PEFINDO Research and Consulting Equity & Index Valuation Division More intense competition in the near-terms We see the competition in the cement industry will be increasingly stringent. Domestic supply is expected to be flooded in line with the presence of new players and the expansion of the existing players companies. Among the new players are PT. Cemindo Gemilang with Semen Merah Putih, UltraTech Cement Ltd, PT Fajar Semen Barru, which have declared a capacity production of 11.5 million tons, 4.5 million tons and 3.3 million tons. In total, domestic capacity of production is projected to increase to 97.7 million tons in 2016, increased by 13.3 million tons from 71.6 million tons in With a larger supplies, the players have to compete intensively for their respective markets, particularly in facing the current sluggish growth in the domestic market. December 21, 2015 Page 4 of 13

5 SMBR at a Glance SMBR is a state-owned cement producer whose manufacture plants in Baturaja, Palembang and Lampung under the brand of Portland. The Company currently operates 3 grinding plants and 1 clinker plants in South Sumatera region with a combined capacity of 2.0 mn tons/year. The Company distributes 70%-75% of the production to cover South Sumatera and 25%-30% Lampung s market. This is an advantage as Sumatera is the second most populated area in Indonesia and has the second biggest cement demand after Java (22.48%). After series times of ownership changes, SMBR is now currently owned by the Government of Indonesia (76.23%) and public (23.76%). S Figure 4: SMBR s Ownership Structure and Key Milestones Sources: PT Semen Baturaja (Persero) Tbk, PEFINDO Research and Consulting, Equity & Index Valuation Division Plan for additional capacity in 1Q17 Government s innitiatives to boost infrastructure development have been identified. Government took several actions such as the reduction of fuel subsidies by IDR291 tn to be transferred to enhance infrastructure development, loosened property credit by reduction of Loan to Value (LTV) as well as the commencing construction of Trans Sumatera Tollroad project in the Special Economic Zone (KEK) of Sei Mangke, and the upcoming celebration of Asian Games 2018 hosted by Indonesian in DKI Jakarta and South Sumatera will provide additional growth opportunity for SMBR. In addition, based on data from Committee of Accelleration and Expansion of Indonesia s Economic Development (KP3EI), economic development will be centered to Java and Sumatera. There will be 12 projects worth IDR111 tn will be implemented in Sumatera, 3 projects have been inaugurated in 2014 and 9 groundbreaking of projects will be done in These projects for example are port, airport, bridge, and road construction project. To cater with these opportunities, SMBR is currently undertaking the construction of a new plant Baturaja II amounting to IDR3.32 tn consisting of clinker, cement and packing plants. The funds will be obtained from the previous IPO proceed (IDR 1.3 tn) and the rest will be from bank loans and internal cash. Upon completion of its plants expansion (which is targetted to be completed and begin commercial operation in early 2017), the Company will be able to produce 3.85 mn tons/year of cements. December 21, 2015 Page 5 of 13

6 Figure 5: SMBR s Plant Location in South Sumatera Sources: PT Semen Baturaja (Persero) Tbk, PEFINDO Research and Consulting, Equity & Index Valuation Division Favorable capital structure As shown in the below figure, Debt to Equity Ratio (DER) had ben declining from 0.52X to 0.08X reflecting low use of leverage. As the Company is expanding their plants (Baturaja II in 1Q2017 and Baturaja III in FY2018/FY2019 in the pipeline) for 1.85 mn tons/year for each, potential external funding to fund the expansion will sttill be feasible. Amid the conservative capital structure (as shown in Figure 6 below) which potentially benefits its expansion plan in the future, we like the Company achievement to book solid revenue growth in 9M15, after declining growth trend in 2014 of 3.9% YoY from 6.5% YoY in Figure 6: SMBR s Utilization Rate, Sales Growth and Debt to Equity Ratio (DER) Sources: PT Semen Baturaja (Persero) Tbk, PEFINDO Research and Consulting, Equity & Index Valuation Division December 21, 2015 Page 6 of 13

7 FINANCE Robust growth of revenue, margins improving By becoming a king of cement sales in South Sumatera and Lampung area, SMBR s growth of revenue remained 26.4% positive in 9M15. By having bulk cements as one of its products, which is less expensive than bagging cement, further SMBR still can book a positive sales volume, mostly from bulk cements, amid slowing growth of property and construction during 1H2015. However, on the back of slightly rebound of Indonesia economy during 3Q15 and strong infrastructure spending from the government during 3Q15 hoist SMBR s sales from bagging cements. As a result, SMBR s operating margin improved from 20.54% as of June 2015 to 22.33% as per September Figure 7: SMBR s Revenue, 9M15 vs 9M14 (in IDR billion) Sources: PT Semen Baturaja (Persero) Tbk, PEFINDO Research and Consulting, Equity & Index Valuation Division Figure 8: SMBR s Gross, Operating and Net Profit Margins, H2015 Sources: PT Semen Baturaja (Persero) Tbk, PEFINDO Research and Consulting, Equity & Index Valuation Division More certainty on the receivables collection To provide more certainty its trade receivables collection, SMBR entered into agreement with PT Bank Mandiri (Persero) Tbk related to the implementation of sales system using trust receipt method, in which distributors have been given the loan facility to paid the sales invoice, so then SMBR would have gained the more assurance of receivable payment on the due date period. Around 68% of total SMBR s trade receivables have used such facility as of June 30, However, such facility also comes with interest expense for SMBR, but relatively insignificant for SMBR s current financial condition. December 21, 2015 Page 7 of 13

8 No interest bearing debt but ample cash for expansion As of Sept 30, 2015, SMBR had only insignificant debt on their book. With no loan from banks or bonds issued, SMBR had no debt in their financial statements. With relatively no debt in their book, SMBR relies on its internal cash to support its expansion activity. Its cash position as of end September 2015, was IDR1.7 trillion, which we believe sufficient to finance SMBR s expansion activity. Figure 9: SMBR s Cash Position Sources: PT Semen Baturaja (Persero) Tbk, PEFINDO Research and Consulting, Equity & Index Valuation Division December 21, 2015 Page 8 of 13

9 SWOT ANALYSIS Table 2: SWOT Analysis Strength The plants are located stategically close to the market in Sumatera (as the 2 nd most populated area as well as the 2 nd highest demand of cement in Indonesia after Java). Further, demand in South Sumatera is the 2 nd largest in Sumatera. Good reputation and backed up by strong management team for more than 40 years in cement industry. Conservative capital structure (low use of leverage) which enables the Company to raise external funding to further expanding the capacity. Opportunity Weakness Limited distribution area, the biggest only in South Sumatera and Lampung. Threat Low cement penetration in the country (238kg/capita) compared to neigborhood countries in Asia Pacific region, i.e. Malaysia, Thailand, Vietnam (734, 505 and 540 kg/capita respectively). Government plans to boost infrastruture development and property especially in Java and Sumatera province, including Trans Sumatera toll road. Also, Asian Games event in Growing Indonesian middle class economy potentially increases the middle class property demand. Cement supply potentially exceeds demand with incoming capacities from new foreign entrants. Intense price war amongst the new foreign entrants for them to gain more market share, creating lower margins. Government intervention to instruct SOEs to lower (4%-5%) their bagged cement price, offsetting the benefit from lower fuel price. Prolong property and construction sector would reduce cement demand. Table 3: SMBR and Peers Performance Summary as of September 2015 SMBR SMCB SMGR INTP Sales [IDR bn] 1,032 6,558 19,115 12,886 Gross Profit [IDR bn] 350 1,477 7,513 5,752 Operating Profit [IDR bn] 231 (411) 4,102 3,692 Net Profit [IDR bn] 265 (372) 3,208 3,218 Total Asset [IDR bn] 3,119 17,996 36,355 25,930 Total Liabilities [IDR bn] ,065 10,016 3,148 Total Equity [IDR bn] 2,866 7,931 26,338 22,781 Growth YoY Sales [%] Gross Profit [%] Net Profit [%] Profitability Gross Margin [%] Operating Margin [%] Net Margin [%] ROA [%] ROE [%] Leverage DER [x] 26.4 (2.6) (1.2) (9.0) 45.3 (24.2) (11.1) (9.6) 19.7 (228.4) (21.4) (13.8) (6.3) (5.7) (11.9) (13.0) Sources: PT Semen Baturaja (Persero) Tbk, PT Holcim Indonesia Tbk, PT Semen Indonesia (Persero) Tbk, PT Indocement Tunggal Prakarsa Tbk., PEFINDO Research and Consulting, Equity & Index Valuation Division December 21, 2015 Page 9 of 13

10 TARGET PRICE VALUATION Methodology We applied the Discounted Cash Flow (DCF) method as the main valuation approach considering that income growth is the value driver in SMBR instead of asset growth. Furthermore, we also apply Guideline Company Method (GCM) as comparison method. This valuation is based on 100% share price as of December 18, 2015, using SMBR s financial report as of September 30, 2015, for our fundamental analysis. Value Estimation We use Cost of Capital of 12.3% and Cost of Equity of 12.4% based on the following assumption: Table 4: Assumption Risk free rate [%]* 9.1 Risk premium [%]* 4.1 Beta [x]** 0.8 Cost of Equity [%] 12.4 Marginal tax rate [%] 25.0 Interest Bearing Debt to Equity Ratio [x] 0.03 WACC [%] 12.3 Sources: Bloomberg, PEFINDO Research and Consulting, Equity & Index Valuation Division Estimates Notes: * As of December 18, 2015 ** Based on PEFINDO Beta Saham report dated December 17, 2015 Target price for 12 months based on valuation as per December 18, 2015 is as follows: Using DCF method with discount rate assumption 12.3% is IDR374 IDR396 per share. Using GCM method (PBV 1.9X and P/E 12.1X) is IDR325 IDR554 per share. In order to obtain a value which represents both value indications, we have weighted both DCF and GCM methods by 70%:30%. Based on the above calculation, target price of SMBR for 12 month is IDR359 IDR444 per share. Table 5: Summary of DCF Method Valuation Conservative Moderate Aggressive PV of Free Cash Flows [IDR bn] PV Terminal Value [IDR bn] 1,914 2,014 2,115 Non-Operating Assets [IDR bn] 1,657 1,657 1,657 Interest Bearing Debt [IDR bn] (60) (60) (60) Total Equity Value [IDR bn] 3,680 3,789 3,899 Number of Share [mn shares] 9,838 9,838 9,838 Fair Value per Share [IDR] Source: PEFINDO Research and Consulting, Equity & Index Valuation Division December 21, 2015 Page 10 of 13

11 Table 6: GCM Comparison SMBR SMCB SMGR INTP Average Valuation, P/E, [x] 7.7 n.a P/BV, [x] Sources: Bloomberg, PEFINDO Research and Consulting, Equity & Index Valuation Division Table 7: Summary of GCM Method Valuation Multiples (x) Est. EPS (IDR) Est. BV/Share (IDR) Value (IDR) P/E P/BV Sources: Bloomberg, PEFINDO Research and Consulting, Equity & Index Valuation Division Table 8: Fair Value Reconciliation Fair Value per Share [IDR] DCF GCM Average Upper limit Bottom limit Weight 70% 30% Sources: PEFINDO Research and Consulting, Equity & Index Valuation Division Estimates December 21, 2015 Page 11 of 13

12 Table 9: Consolidated Statements of Comprehensive Income (IDR bn) Figure 10: Historical P/E and P/BV Ratio P 2016P Sales 1,098 1,16 1,215 1,462 1,640 Cost of Goods Sold (608) (706 (842) (977) (1,08 Gross Profit ) ) Operating Expense (123) (133 (129) (171) (192) Operating Profit ) Other Income (expense) Pre-tax Profit Tax (97) (88) (66) (77) (86) Net Profit Sources: PT Semen Baturaja (Persero) Tbk., PEFINDO Research and Consulting, Equity & Index Valuation Division Estimates Table 10: Consolidated Statements of Financial Position (IDR bn) P 2016P Sources: PT Semen Baturaja (Persero) Tbk., PEFINDO Research and Consulting - Equity & Index Valuation Division Figure 11: ROA, ROE and Assets Turnover Assets Current Assets Cash and cash equivalents 543 1,903 2,054 1,637 1,616 Receivables Inventory Other Assets Total Current Assets 668 2,107 2,336 2,676 2,880 Fixed Assets Other Assets Total Assets 1,199 2,711 2,926 3,293 3,690 Liabilities Trade payables Short term liabilities Other short term liabilities Long term liablities Total Liabilities Total Equity 954 2,467 2,717 2,976 3,339 Sources: PT Semen Baturaja (Persero) Tbk., PEFINDO Research and Consulting, Equity & Index Valuation Division Estimates Sources: PT Semen Baturaja (Persero) Tbk., PEFINDO Research and Consulting - Equity & Index Valuation Division Table 11: Key Ratio Growth [%] P 2016P Sales Operating Profit 19.5 (10.3) (26.1) EBITDA 70.4 (5.2) (19.6) Net Profit Profitability [%] Gross Margin Operating Margin EBITDA Margin Net Margin ROA ROE Solvability [X] Debt to Equity Debt to Asset Liquidity [X] Current Ratio Quick Ratio Source: PT Semen Baturaja (Persero) Tbk., PEFINDO Research and Consulting, Equity & Index Valuation Division Estimates December 21, 2015 Page 12 of 13

13 DISCLAIMER This report was prepared based on trusted and reliable sources. Nevertheless, we do not guarantee the completeness, accuracy and adequacy of the information furnished to us by the sources and therefore will not be held responsible for any investment decisions made based on this report. All assumptions, opinions and predictions were solely of our internal judgments as of the reporting date, and those judgments are subject to changes without further notice. We are not responsible for any mistakes or negligence that arises from using this report. Recent performance cannot always be used as a reference for future outcome. This report does not offer a recommendation to purchase or hold particular shares and might not be suitable for some investors. All opinions in this report have been presented fairly as of the issuing date with good intentions; however, they could change at any time without further notice. The price, value or income of each share of the Company stated in this report might be lower than investor expectations, and investors may obtain returns lower than the invested amount. Investment is defined as the probable income that will be received in the future; nonetheless, such returns may fluctuate. As for companies whose shares are denominated in a currency other than Rupiah, foreign exchange fluctuation may reduce their share value, price or the returns for investors. This report does not contain any information for tax considerations in investment decision-making. The share price target in this report is a fundamental value, not a fair market value or a transaction price reference required by regulations. The share price target report issued by the PT PEFINDO Riset Konsultasi ( PRK ) or PEFINDO Research & Consulting is not a recommendation to buy, sell or hold particular shares. It should not be considered as investment advice from the PRK and its scope of service to some parties, including listed companies, financial advisors, brokers, investment banks, financial institutions and intermediaries, does not correlate with receiving rewards or any other benefits from such parties. This report is not intended for any particular investor and cannot be used as part of an objective investment analysis of particular shares, an investment recommendation, or an investment strategy. We strongly recommend investors to consider the suitability of the situation and conditions before making a decision in relation with the figures in this report. If necessary, consult with your f inancial advisor. PEFINDO keeps the activities of the Equity Valuation separate from its ratings activities to preserve the independence and objectivity of its analytical processes and products. PEFINDO has established policies and procedures to maintain the confidentiality of non-public information received in connection with each analytical process. The entire process, methodology and the database used in the preparation of the Reference Share Price Target Report as a whole are different from the proce sses, methodologies and databases used by PEFINDO in issuing ratings. This report was prepared and composed by PRK with the objective of enhancing the transparency of share prices of listed companies in the Indonesia Stock Exchange (IDX). This report is a lso free of influence from any other party, including pressure or force either from IDX or the listed company reviewed. PRK earns a reward from IDX and the reviewed company for issuing this report twice a year. For further information, please visit our website at This report was prepared and composed by the PEFINDO Research & Consulting - Equity & Index Valuation Division. In Indonesia, this report is published in our website and in the IDX website. December 21, 2015 Page 13 of 13