Asia Pacific/Indonesia Equity Research Cement Rating NEUTRAL* Price (28 Mar 12, Rp) 2,575.00 Target price (Rp) (from 2,400.00) 2,800.00¹ Chg to TP (%) 8.7 Market cap. (Rp bn) 19,732 Enterprise value (Rp bn) 20,673 Number of shares (mn) 7,662.90 Free float (%) 22.7 52-week price range 2,575.0-1,680.0 *Stock ratings are relative to the relevant country benchmark. ¹Target price is for 12 months. Share price performance 2600 2100 1600 Price (LHS) Research Analysts Ella Nusantoro 62 21 2553 7917 ella.nusantoro@credit-suisse.com Rebased Rel (RHS) Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 120 100 The price relative chart measures performance against the JSX COMPOSITE INDEX which closed at 4081.13 on 27/03/12 On 27/03/12 the spot exchange rate was Rp9150./US$1 Performance over 1M 3M 12M Absolute (%) 13.2 22.6 28.8 Relative (%) 7.5 15.4 15.1 80 60 (SMCB.JK / SMCB IJ) INCREASE TARGET PRICE Running at full capacity Earnings tweaked to reflect the latest update. We tweaked our 2012 14 earnings estimates for to reflect the audited 2011 figures. We expect 14% YoY net profit growth in 2012 on 1 higher revenue (8% volume growth and 6% blended ASP). We expect margins to be slightly lower due to higher costs. We estimate a higher proportion of the company s cement volume for the domestic market versus export, at 94%, which is higher than our initial estimate of 81%. Domestic demand continues to be strong. We estimate property presales to remain strong given the still-low mortgage rate. The company still sells the majority of its cement in bags (81%), instead of in bulk, indicating that infrastructure-related activities are still minimal. We believe the implementation of the Land Reform Bill, which was approved by the parliament at the end of last year, should continue to further boost cement demand. New plant to commence production by 2013. We expect the new 1.7 mtpa capacity in Tuban, East Java, to be completed in 2013, which upon completion will have 10 mtpa capacity. The company is now running at full utilisation rate. Maintain NEUTRAL rating with a new target price of Rp2,800. We raise our DCF-based target price to Rp2,800 (from Rp2,400) as we adjust our estimates and WACC assumptions. We are using 14.3% WACC and 6.4% terminal value growth. Our new target price equates to 9.4x 2012E EV/EBITDA and EV/capacity of US$298, with 17.8x 2012E P/E on 17% estimated earnings growth over the next two years. We expect the strong cement demand growth to continue to drive up the stock s momentum. Financial and valuation metrics Year 12/11A 12/12E 12/13E 12/14E Revenue (Rp bn) 7,524.0 8,644.6 9,827.4 11,146.9 EBITDA (Rp bn) 2,261.3 2,414.0 2,702.6 3,172.2 EBIT (Rp bn) 1,701.0 1,849.2 2,109.6 2,416.8 Net profit (Rp bn) 1,084.2 1,207.6 1,397.0 1,651.5 EPS (CS adj.) (Rp) 141.48 157.60 182.30 215.51 Change from previous EPS (%) n.a. -4.5-3.7 0.9 Consensus EPS (Rp) n.a. 155 180 200 EPS growth (%) 35.7 11.4 15.7 18.2 P/E (x) 18.2 16.3 14.1 11.9 Dividend yield (%) 0.9 1.3 1.5 1.8 EV/EBITDA (x) 8.8 8.6 7.2 6.2 P/B (x) 2.6 2.3 2.0 1.8 ROE (%) 14.9 14.9 15.3 16.0 Net debt/equity (%) 1.5 11.1 net cash 0.7 Source: Company data, Thomson Reuters, Credit Suisse estimates. DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Focus charts Figure 1: cost breakdown 10 9.9% 8.9% 11.9% 8.8% 10.9% 10.6% 10.7% 10.6% 9. 8.6% 3.8% 3.8% 3.8% 4.2% 4.1% 4. 4. 3.7% 3. 3.4% 11. 11.3% 11.3% 12.6% 12.2% 11.9% 12. 11.1% 11.2% 11.8% 7 25. 25.2% 25. 27.9% 27.1% 26.4% 26.7% 25.9% 26. 26.2% 5 Figure 2: opex breakdown 10 17% 18% 19% 18% 14% 12% 12% 12% 19% 17% 4% 4% 4% 4% 8 1% 3% 4% 4% 4% 1 6% 3% 3% 4% 3% 3% 1 4% 7% 6% 7% 3% 7% 8% 8% 4% 6% 6 18% 2 24% 2 23% 22% 23% 27% 2 24% 2 25. 25.2% 25. 17. 18.1% 15.2% 27.9% 27.1% 26.4% 26.7% 28.4% 29.9% 31. 11.8% 12. 13.7% 13.2% 14.7% 14.3% 13.3% 4 2 52% 4 43% 44% 43% 4 44% 47% 49% 49% 6.9% 7. 7.8% 6.8% 6.7% 7. 6.6% 5. 5.6% 5.1% 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E Salaries & wages Depreciation Coal Electricity Raw materials Packaging Others Distribution cost Salary and wages Promotion & advertising Professional fees Trademark fee Others Figure 3: annual domestic market share 18% 16% 14% 12% 15.6% 14.1% 13.7% 13.9% 13.8% 13. 15.8% 15.1% 15.2% 12.7% 14. 14.1% 13.7% 13.6% 15.6% Figure 4: market share by region, 2011 Sumatera 17% Nusa Tenggara 2% Sulawesi 1% Kalimantan 6% East Indonesia Banten 7% Jakarta 19% 10.2% 1 8% 6% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Indonesia Cement Association East Java 9% Yogyakarta Central Java 16% Source: Indonesia Cement Association West Java 18% Figure 5: revenue YoY vs margins 4 37% 37% 34% 34% 34% 3 36% 38% 38% 38% 39% 4 42% 43% 37% 41% 3 3 3 36% 4 3 3 3 28% 28% 3 26% 24% 24% 2 2 23% 23% 22% 22% 22% 23% 21% 19% 2 21% 21% 2 2 2 2 19% 1 1 1 1 16% 11% 8% 8% 8% 1 1 3% -2% - 3M08 6M08 9M08 FY08 3M09 6M09 9M09 FY09 3M10 6M10 9M10 FY10 3M11 6M11 9M11 FY11 Operating margin Gross margin Revenue YoY (RHS) Source: Company data Figure 6: quarterly financials 900 892 2200 2116 750 736 710 714 2000 6591858 1868 1784 1784 596 611 632 1800 587 600 1673 1682 541 539 483 495 502 505 1600 1501 1522 1483 435 399 416 437 450 1435 1372 375 1369 394 1400 371 372 1266 299 312 331 1170 300 258 263 266 278 1200 195 1000 150 133 886 800-600 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Gross profit (Rpbn) Operating profit (Rpbn) Revenue (Rpbn) - RHS Source: Company data (SMCB.JK / SMCB IJ) 2
Expecting completion of new plant by 2013 We tweak our 2012 14 earnings estimates for to reflect the audited 2011 figures. We revise down our net profit estimate by to Rp1.2 tn (+14% YoY) for 2012 and 4% to Rp1.4 tn (+16% YoY) for 2013 on higher interest expenses estimates. We raise our revenue estimates by 13% and 17% for 2012 and 2013, respectively, on higher volume in the domestic market, while export volume falls. We raise our total volume estimate by 8% in 2012 to 8.5 mn t and 19% in 2013 to 9.2 mn t. We also expect a higher proportion of domestic volume versus export, at 94% of the company s total volume, higher than our initial estimate of 81%. The substantially higher new 2013 volume estimate is due to the completion of the company s new 1.7 mtpa capacity in Tuban, East Java, which we did not include in our previous estimates. We estimate the company is already running at full capacity this year on 8.3 mtpa capacity and expect 92% utilisation in 2013 on 10 mtpa capacity. We expect the strong domestic cement demand to continue, with property pre-sales up 51% YoY in 2011E. The company sold the majority of its cement in bags (81%), instead of in bulk, indicating that infrastructure-related activities are still minimal. We believe the implementation of the Land Reform Bill, which was approved by the parliament at the end of last year, should continue to further boost cement demand. The company s domestic cement price is much higher than its export price, resulting in the higher blended ASP. We estimate ASP to be up 4% YoY in 2012 and flat in 2013, whereas we expect domestic price to increase by 6% each year in 2012 and 2013, based on the inflation rate. Estimates tweaked to be in line with the company s number update New plant to commence production by 2013 Expecting a 6% ASP increase this year Figure 7: domestic vs export volume 10 98.4% 95.3% 9 90. 94.9% 83.4% 8 78.9% 77.7% 78.9% 76.7% 70.6% 70. 73. 73.7% 77.9% 79.2% 77. 7 6 5 4 3 2 29.4% 30. 27. 26.3% 21.1% 22.3% 21.1% 23.3% 22.1% 20.8% 22. 16.6% 1 9. 5.1% 1.6% 4.7% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Domestic Export Source: Indonesia Cement Association Figure 8: Java vs outside Java volume 9 8 7 6 5 4 3 2 1 80.3% 81.9% 83. 81. 80. 81.7% 80.9% 79.2% 74.8% 75. 75.9% 77. 73.8% 75.6% 75. 72. 19.7% 18.1% 16. 18. 20. 18.3% 19.1% 20.8% 25.2% 24. 24.1% 22. 26.2% 24.4% 25. 28. 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Java Source: Indonesia Cement Association Outside Java (SMCB.JK / SMCB IJ) 3
Figure 9: annual domestic market share 18% 16% 14% 12% 15.6% 14.1% 13.7% 13.9% 13.8% 13. 15.8% 15.1% 15.2% 12.7% 14. 14.1% 13.7% 13.6% 15.6% Figure 10: market share by region, 2011 Sumatera 17% Nusa Tenggara 2% Sulawesi 1% Kalimantan 6% East Indonesia Banten 7% Jakarta 19% 10.2% 1 8% 6% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Indonesia Cement Association East Java 9% Yogyakarta Central Java 16% Source: Indonesia Cement Association West Java 18% Figure 11: market share in Java 23% Figure 12: market share in outside Java 1 9.8% 22% 21% 2 19% 19.9% 20.7% 21.6% 20. 19.4% 19. 19.3% 21. 19.1% 19.7% 18.7% 19.7% 21.2% 20.9% 21.8% 19.7% 9% 8% 7% 6% 5.7% 5.8% 6. 5.7% 5.4% 5.2% 5.6% 7.4% 7.1% 7.4% 7.1% 6.8% 8.8% 8. 8.8% 18% 4% 17% 3% 16% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Source: Indonesia Cement Association 2% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Source: Indonesia Cement Association We estimate the company s gross profit to increase 12% YoY to Rp3.2 tn in 2012 and 14% YoY to Rp3.7 tn in 2013, with gross margin at 37%, lower than 2012E gross margin at 38%. We raise our cost estimate for the company on higher energy costs, which accounts for around 54% of the total cost. Distribution cost (logistic, transportation) accounts for the majority of the company s operating expenses 47% of total in 2012E. Our numbers also reflect the anticipated rise in fuel prices. Salaries and wages account for 2 of total opex. We estimate the company s operating profit to be at Rp1.8 tn (+1 YoY) in 2012 and Rp2.1 tn (+14% YoY) in 2013, with operating margin staying around 21%. Figure 13: cost breakdown 10 9.9% 8.9% 11.9% 8.8% 10.9% 10.6% 10.7% 10.6% 9. 8.6% 3.8% 3.8% 3.8% 4.2% 4.1% 4. 4. 3.7% 3. 3.4% 11. 11.3% 11.3% 12.6% 12.2% 11.9% 12. 11.1% 11.2% 11.8% 7 25. 25.2% 25. 27.9% 27.1% 26.4% 26.7% 25.9% 26. 26.2% 5 Figure 14: opex breakdown 10 17% 18% 19% 18% 14% 12% 12% 12% 19% 17% 4% 4% 4% 4% 8 1% 3% 4% 4% 4% 1 6% 3% 3% 4% 3% 3% 1 4% 7% 6% 7% 3% 7% 8% 8% 4% 6% 6 18% 2 24% 2 23% 22% 23% 27% 2 24% 2 25. 25.2% 25. 17. 18.1% 15.2% 27.9% 27.1% 26.4% 26.7% 28.4% 29.9% 31. 11.8% 12. 13.7% 13.2% 14.7% 14.3% 13.3% 4 2 52% 4 43% 44% 43% 4 44% 47% 49% 49% 6.9% 7. 7.8% 6.8% 6.7% 7. 6.6% 5. 5.6% 5.1% 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E Salaries & wages Depreciation Coal Electricity Raw materials Packaging Others Distribution cost Salary and wages Promotion & advertising Professional fees Trademark fee Others (SMCB.JK / SMCB IJ) 4
Our new estimates include the company s new greenfield project in Tuban, East Java. The 1.7 mtpa capacity will cost the company US$451 mn, or US$265/t, and will be funded using debt. Upon completion, which is scheduled in 2012, the company will have a total capacity of 10 mtpa, or 2 higher than the current capacity of 8.3 mtpa. We expect the company to be in Rp1.1 tn net debt this year, implying a debt-to-equity ratio of 0.15x. The company conducted a quasi-reorganisation on 30 June 2010, wherein it restructured its equity by eliminating its deficit and reappraising all its assets and liabilities. This allowed the company to have a statement of financial position with no past deficit. This also enabled the company to distribute cash dividend starting last year, at 21% payout ratio. We assume a 2 payout ratio going forward, implying less than 2% dividend yield. Figure 15: estimate changes Old New Changes (%) YoY growth (%) (Rp bn) 2011E 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E 2011 2012E 2013E Revenue 6,770 7,635 8,415 7,524 8,645 9,827 11.1 13.2 16.8 26.2 14.9 13.7 Gross profit 2,541 2,934 3,238 2,852 3,203 3,658 12.2 9.2 12.9 26.8 12.3 14.2 Operating profit 1,518 1,747 1,896 1,680 1,849 2,110 10.7 5.8 11.2 23.3 10.1 14.1 Pre-tax profit 1,365 1,687 1,934 1,533 1,726 1,996 12.3 2.3 3.2 33.6 12.6 15.7 Net profit 1,024 1,265 1,451 1,063 1,208 1,397 3.8-4.5-3.7 28.3 13.6 15.7 Production capacity (mtpa) 8,300 8,300 8,300 8,300 8,300 10,000 0.0 0.0 20.5 Utilisation rate (%) 89 94 93 95 102 92 Sales (thousand tons) 7,404 7,802 7,678 7,870 8,451 9,150 6.3 8.3 19.2 0.4 7.4 8.3 Domestic 5,904 6,302 6,678 7,463 8,051 8,750 26.4 27.8 31.0 19.7 7.9 8.7 Export 1,500 1,500 1,000 406 400 400-72.9-73.3-60.0-74.6-1.6 0.0 ASP ( 000 Rp/ton) 776 824 913 808 859 914 4.2 4.3 0.1 24.5 6.3 6.4 Domestic 893 947 1,003 828 879 935-7.3-7.1-6.8 0.5 6.2 6.3 Export 313 308 311 444 458 469 41.9 48.7 50.7 40.5 3.0 2.4 Export (US$/ton) 36 36 36 51 51 51 40.3 40.3 40.3 44.9 0.0 0.0 Margin analysis (%) Gross 37.5 38.4 38.5 37.9 37.1 37.2 Operating 22.4 22.9 22.5 22.3 21.4 21.5 Pre-tax 20.2 22.1 23.0 20.4 20.0 20.3 Net 15.1 16.6 17.2 14.1 14.0 14.2 (SMCB.JK / SMCB IJ) 5
Valuation We raise our target price for to Rp2,800 (from Rp2,400) as we adjust our estimates and WACC assumptions. We are using a discounted cash flow (DCF) method to capture the company s long-term earnings growth. We are using a WACC of 14.3%, which is based on a 7. risk-free rate, 1.5 beta and risk premium. We are using 6.4% terminal value growth, based on our Indonesia s GDP growth estimate for 2012. Our new target price equates to 9.4x 2012E EV/EBITDA and at EV/capacity of US$298, with 17.8x 2012E P/E on 17% estimated earnings growth over the next two years. We maintain NEUTRAL rating on the stock. We expect the strong cement demand growth to continue to drive up the stock s momentum. Figure 16: DCF calculation (Assumptions) Risk-free rate 7. Beta 1.5 Risk premium Ke 1 Kd 13% Debt/Capital 0.13 Equty/Capital 0.87 WACC 14.3% Terminal value growth 6.4% Net Present Value (Rp bn) 22,703 Less: Debt (Rp bn) (1,296) Add: Cash (Rp bn) 154 Shareholder value (Rp bn) 21,562 Target price (Rp/share) 2,800 Source: Credit Suisse estimates The stock outperformed the JCI this year, gaining 16% YTD versus JCI s 7%. The company s shifting focus on the domestic market has resulted in better operations and thus better margins. Figure 17: Holcim forward P/E band Figure 18: Holcim forward EV/EBITDA band Rp/share 3,300 2,800 2,300 1,800 1,300 800 300 (200) Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Rp/share 2,800 2,300 1,800 1,300 800 300 (200) Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Price 5 X 10 X 15 X 20 X Price 2.5 X 5 X 7.5 X 10 X (SMCB.JK / SMCB IJ) 6
Figure 19: trades at 12% premium, but below its average, based on P/B relative less ROE relative to MSCI Indonesia Figure 20: share performance relative to JCI 16 14 12 10 8 6 4 2-2 -4 Average Jan 06 to date: 2 12% 25 20 15 10 5 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12-5 PB Rel Less ROE Rel to Indonesia Average Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Source: MSCI, Bloomberg,Credit Suisse estimates Source: Bloomberg, Credit Suisse estimates (SMCB.JK / SMCB IJ) 7
2011 financial results reported 2011 net profit of Rp1.1 tn, or 28% higher YoY, on 26% higher revenue YoY to Rp7.5 tn. Its volume was reported at 7.9 mn t, or 1 higher YoY. Its domestic sales volume surged 34% YoY, while export volume declined 74% YoY. Domestic sales volume accounted for 9 of the total in 2011, up from 78% in 2010. As a result, its blended ASP soared 13% YoY, despite a YoY flat domestic price of Rp828,000/t (US$94/t). Margins were slightly higher, with gross margin at 38% and operating margin at 23%. In 4Q11, the company reported strong performance with net profit soaring 14% QoQ (+5 YoY) on 13% higher revenue QoQ (+26% YoY). Sales volume grew 12% QoQ (+11% YoY) to 2.2 mn tonnes, with flat domestic ASP of Rp836,000/t (US$93/t). Its gross margin surged to 42%, from 38% in 3Q11, and operating margin rose to 26% from 23% in 3Q11. As at end-2011, was in a net debt position of Rp379 bn, down from Rp1.1 tn in 2010. Its debt-to-equity ratio stood at 0.5x. Figure 21: financial results (Rp bn) Dec-10 Dec-11 Chg (%) 4Q10 3Q11 4Q11 QoQ chg (%) YoY chg (%) 2H10 2H11 YoY chg (%) Cement 5,087 6,361 25.0 1,416 1,593 1,799 12.9 27.1 2,631 3,392 28.9 Domestic 4,586 6,180 34.8 1,280 1,563 1,754 12.2 37.1 2,379 3,317 39.4 Export 502 181-64.0 136 30 45 52.2-66.9 252 75-70.4 RMC 828 1,105 33.5 242 257 301 17.1 24.5 449 558 24.1 Sand quarry 46 58 28.3 16 19 16-12.8 0.7 28 35 23.3 Total revenue 5,961 7,524 26.2 1,673 1,868 2,116 13.3 26.4 3,108 3,984 28.2 Gross profit 2,249 2,852 26.8 632 714 892 24.9 41.0 1,243 1,606 29.2 Operating profit 1,333 1,701 27.6 372 437 539 23.3 44.8 772 955 23.7 Pre-tax profit 1,148 1,533 33.6 305 400 472 17.9 54.7 642 872 35.8 Net profit 828 1,064 28.4 209 284 323 13.8 54.5 458 606 32.4 Margin analysis (%) Gross margin 37.7 37.9 37.8 38.2 42.1 40.0 40.3 Operating margin 22.4 22.6 22.2 23.4 25.5 24.8 24.0 Pre-tax margin 19.3 20.4 18.2 21.4 22.3 20.7 21.9 Net margin 13.9 14.1 12.5 15.2 15.3 14.7 15.2 Volume ( 000 tons) 7,150 7,870 9.9 1,999 1,977 2,211 11.8 10.6 4,363 4,187-4.0 Domestic 5,564 7,463 33.6 1,550 1,883 2,098 11.4 35.4 3,551 3,981 12.1 Export 1,585 406-74.1 449 94 113 20.1-74.9 811 206-74.6 ASP ( 000 Rp/ton) 712 808 13.1 708 806 814 1.0 14.9 603 810 34.3 Domestic 824 828 0.2 826 830 836 0.7 1.3 670 833 24.4 Export 316 444 43.5 303 316 400 26.8 32.0 310 362 16.7 ASP (US$/t) 35 51 50.4 34 37 44 21.5 31.5 Domestic 91 94 5.0 92 96 93-3.5 0.9 Export 35 51 50.4 34 37 44 21.5 31.5 Exchange rate (Rp/US$): end 8,991 9,068-1.1 8,991 8,823 9,078 2.9 1.0 average 9,074 8,799-4.6 8,977 8,636 9,008 4.3 0.3 Source: Company data, Indonesia Cement Association (SMCB.JK / SMCB IJ) 8
Figure 22: revenue YoY vs margins 4 37% 37% 34% 34% 34% 3 36% 38% 38% 38% 39% 4 42% 43% 37% 41% 3 3 3 36% 4 3 3 3 28% 28% 3 26% 24% 24% 2 2 23% 23% 22% 22% 22% 23% 21% 19% 2 21% 21% 2 2 2 2 19% 1 1 1 1 16% 11% 8% 8% 8% 1 1 3% -2% - 3M08 6M08 9M08 FY08 3M09 6M09 9M09 FY09 3M10 6M10 9M10 FY10 3M11 6M11 9M11 FY11 Operating margin Gross margin Revenue YoY (RHS) Source: Company data Figure 23: quarterly financials 900 892 2200 2116 750 736 710 714 2000 6591858 1868 1784 1784 596 611 632 1800 587 600 1673 1682 541 539 483 495 502 505 1600 1501 1522 1483 435 399 416 437 450 1435 1372 375 1369 394 1400 371 372 1266 299 312 331 1170 300 258 263 266 278 1200 195 1000 150 133 886 800-600 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Gross profit (Rpbn) Operating profit (Rpbn) Revenue (Rpbn) - RHS Source: Company data (SMCB.JK / SMCB IJ) 9
Financial summary Figure 24: key assumptions Year-end 31 Dec 2007 2008 2009 2010 2011 2012E 2013E 2014E Real GDP growth (%) 6.3 6.1 4.5 6.1 6.5 6.4 6.6 6.6 Average inflation (%) 6.4 9.8 4.8 5.1 5.4 6.2 6.3 6.0 Exchange rate (Rp/US$): Y/E 9,419 10,950 9,400 8,991 9,068 9,050 9,500 9,595 Average 9,164 9,757 10,354 9,078 8,799 9,059 9,275 9,368 Production capacity ( 000 tpa) 7,900 7,900 8,300 8,300 8,300 8,300 10,000 10,000 Utilisation rate (%) 88 88 87 94 95 102 92 99 Sales volume ( 000 tpa) 6,958 6,959 7,214 7,836 7,870 8,451 9,150 9,900 Domestic 4,973 6,064 5,960 6,237 7,463 8,051 8,750 9,500 Export 1,979 1,584 1,870 1,599 406 400 400 400 ASP ( 000 Rp/ton) 466 645 710 649 808 859 914 970 Domestic 540 731 839 824 828 879 935 991 Export 281 355 396 316 444 458 469 473 ASP (US$/t) Domestic 59 75 81 91 94 97 101 106 Export 31 36 38 35 51 51 51 51 Figure 25: profit and loss statement Year-end 31 Dec (Rp bn) 2007 2008 2009 2010 2011 2012E 2013E 2014E Revenue 3,755 5,341 5,944 5,961 7,524 8,645 9,827 11,147 Gross profit 1,262 1,950 2,250 2,249 2,852 3,203 3,658 4,193 Operating profit 520 1,001 1,398 1,363 1,680 1,849 2,110 2,417 EBITDA 822 1,609 1,761 1,481 2,240 2,417 2,703 3,172 Pre-tax profit 187 299 1,297 1,148 1,533 1,727 1,996 2,360 Net profit 169 282 896 828 1,063 1,208 1,397 1,651 YoY growth (%) 39% Revenue 25.4 42.2 11.3 0.3 26.2 14.9 13.7 13.4 Gross profit 98.1 54.5 15.4 0.0 26.8 12.3 14.2 14.6 Operating profit 8324.5 92.4 39.6-2.5 23.3 10.1 14.1 14.6 EBITDA 115.5 95.9 9.4-15.9 51.3 7.8 12.0 17.4 Pre-tax profit -22.7 60.1 334.3-11.5 33.6 12.6 15.7 18.2 Net profit -3.7 66.6 217.4-7.5 28.3 13.6 15.7 18.2 (SMCB.JK / SMCB IJ) 10
Figure 26: balance sheet Year-end 31 Dec (Rp bn) 2007 2008 2009 2010 2011 2012E 2013E 2014E Cash and equivalents 682 894 380 1,070 1,127 154 1,301 781 Accounts receivable 494 650 664 643 705 850 921 1,070 Inventories 263 430 382 500 570 635 713 807 Other current assets 22 123 50 40 65 72 83 98 Total current assets 1,461 2,097 1,476 2,253 2,468 1,712 3,019 2,757 Fixed assets - net 5,672 5,832 5,461 7,893 8,238 7,786 7,897 11,203 Other 75 280 328 291 244 2,292 2,140 269 Total assets 7,208 8,209 7,265 10,437 10,951 11,790 13,056 14,229 Short-term debts - 275 169 64 72 72 72 72 Accounts payable 326 474 480 637 774 811 922 1,045 Current maturities 427 141 - - - - - - Other current liabilities 345 379 513 655 837 853 1,012 842 Total current liabilities 1,098 1,270 1,163 1,356 1,684 1,736 2,006 1,959 Long-term loans 3,449 3,628 2,317 1,730 1,170 1,024 896 784 Other liabilities 403 506 489 525 569 561 589 618 Total liabilities 4,951 5,403 3,968 3,611 3,423 3,320 3,491 3,362 Shareholders' equity 2,257 2,804 3,296 6,823 7,525 8,467 9,562 10,864 Total liabilities & equity 7,208 8,209 7,265 10,437 10,951 11,790 13,056 14,229 Figure 27: cash flow statements Year-end 31 Dec (Rp bn) 2007 2008 2009 2010 2011 2012E 2013E 2014E Operating profit 520 1,001 1,398 1,363 1,680 1,849 2,110 2,417 Depreciation and amortisation 301 608 362 118 560 565 593 755 Net interest (102) (200) (420) (215) (147) (123) (113) (57) Tax paid (17) (17) (385) (318) (470) (518) (599) (708) Chg in working capital 139 (249) 248 (112) 223 (96) 40 (35) Others (232) (502) 303 (2) (0) (0) (1) (1) CF from operations 610 641 1,507 834 1,846 1,677 2,030 2,372 Capital expenditures (67) (768) 9 (2,550) (905) (2,153) (544) (2,181) Others 34 (205) (48) 37 47 (7) (8) (9) Free cash flow 578 (331) 1,467 (1,679) 988 (484) 1,478 182 Capital issuance - - - (1,303) - - - - Dividends paid - - - - (176) (266) (302) (349) Change in loans (170) 176 (1,561) (367) (607) (221) (58) (382) Others (13) 367 (420) 4,040 (147) (3) 28 30 Net change in cash 395 212 (514) 690 57 (973) 1,147 (520) Cash at the beg of the year 287 682 894 380 1,070 1,127 154 1,301 Cash at the end of the year 682 894 380 1,070 1,127 154 1,301 781 (SMCB.JK / SMCB IJ) 11
Figure 28: key ratios Year-end 31 Dec (%) 2007 2008 2009 2010 2011 2012E 2013E 2014E ROA 2.4 3.4 12.3 7.9 9.7 10.2 10.7 11.7 ROE 7.5 10.1 27.2 12.1 14.1 14.3 14.7 15.3 Gross margin 33.6 36.5 37.8 37.7 37.9 37.1 37.2 37.6 Operating margin 13.9 18.7 23.5 22.9 22.3 21.4 21.5 21.7 EBITDA margin 21.9 30.1 29.6 24.8 29.8 28.0 27.3 29.3 Pre-tax margin 5.0 5.6 21.8 19.3 20.4 20.0 20.4 21.4 Net margin 4.5 5.3 15.1 13.9 14.1 14.0 14.3 15.0 Net interest cover (x) 4.4 4.7 3.1 5.9 8.7 12.4 14.8 24.6 Gross debt/equity 171.7 144.4 75.5 31.1 20.0 15.3 12.9 7.9 Net debt/equity 141.5 112.5 64.0 15.4 5.0 12.9-6.5-6.0 Total debt/ebitda (x) 4.7 2.5 1.4 1.4 0.7 0.5 0.5 0.3 (SMCB.JK / SMCB IJ) 12
Companies Mentioned (Price as of 27 Mar 12) TBK PT (SMCB.JK, Rp2,575.00, NEUTRAL, TP Rp2,800.00) Disclosure Appendix Important Global Disclosures I, Ella Nusantoro, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. See the Companies Mentioned section for full company names. 3-Year Price, Target Price and Rating Change History Chart for SMCB.JK SMCB.JK Closing Target Price Price Initiation/ Date (Rp) (Rp) Rating Assumption 14-May-09 900 900 X 24-Aug-09 1320 1500 2-Nov-09 1620 1700 27-Nov-09 1520 1900 X 5-Jul-10 2175 2300 19-Nov-10 2450 2500 X 25-Feb-11 1860 2400 2550 2050 1550 1050 900 1500 1700 1900 2300 2500 14-May-09 27-Nov-09 19-Nov-10 Rp 550 2400 29-Mar-09 29-May-09 29-Jul-09 29-Sep-09 29-Nov-09 29-Jan-10 29-Mar-10 29-May-10 29-Jul-10 29-Sep-10 29-Nov-10 29-Jan-11 29-Mar-11 29-May-11 29-Jul-11 29-Sep-11 29-Nov-11 29-Jan-12 Closing Price Target Price Initiation/Assumption Rating O=Outperform; N=Neutral; U=Underperform; R=Restricted; NR=Not Rated; NC=Not Covered The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities. Analysts stock ratings are defined as follows: Outperform (O): The stock s total return is expected to outperform the relevant benchmark* by at least 10-1 (or more, depending on perceived risk) over the next 12 months. Neutral (N): The stock s total return is expected to be in line with the relevant benchmark* (range of ±10-1) over the next 12 months. Underperform (U): The stock s total return is expected to underperform the relevant benchmark* by 10-1 or more over the next 12 months. *Relevant benchmark by region: As of 29 th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock s absolute total return potential to its current share price and (2) the relative attractiveness of a stock s total return potential within an analyst s coverage universe**, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-japan Asia stocks, ratings are based on a stock s total return relative to the average total return of the relevant country or regional benchmark; for European stocks, ratings are based on a stock s total return relative to the analyst's coverage universe**. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 1 and a 7. threshold replace the 10-1 level in the Outperform and Underperform stock rating definitions, respectively. The 1 and 7. thresholds replace the +10-1 and -10-1 levels in the Neutral stock rating definition, respectively. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 2 or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts coverage universe weightings are distinct from analysts stock ratings and are based on the expected performance of an analyst s coverage universe* versus the relevant broad market benchmark**: Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. *An analyst s coverage universe consists of all companies covered by the analyst within the relevant sector. **The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months. Credit Suisse s distribution of stock ratings (and banking clients) is: Global Ratings Distribution Outperform/Buy* 46% (61% banking clients) (SMCB.JK / SMCB IJ) 13
Neutral/Hold* 42% (57% banking clients) Underperform/Sell* 1 (53% banking clients) Restricted 2% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Credit Suisse s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. See the Companies Mentioned section for full company names. Price Target: (12 months) for (SMCB.JK) Method: We base our target price of Rp2,800 for on our discounted cash flow (DCF) analysis, assuming a 14.3% weighted average cost of capital (WACC), 7. risk-free rate and 6.4% terminal growth. Our target price equates to 9.4x 2011E EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortization), EV/capacity of US$298/t, and a 17% earnings growth over the next two years Risks: Risks to our 12-month target price of Rp2,800 for include downturns in the overall economy, higher oil/energy prices, high interest rates, and rupiah exchange rates. These factors have direct impact on the company's revenues and costs. Price competition is another key risk for the company. Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names. The subject company (SMCB.JK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (SMCB.JK) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (SMCB.JK) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (SMCB.JK) within the past 12 months. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (SMCB.JK) within the next 3 months. Important Regional Disclosures Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (SMCB.JK) within the past 12 months. 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Commission is the commission rate or the amount agreed with a customer when setting up an account or at anytime after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan-based analysts on non-taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. To the extent this is a report authored in whole or in part by a non-u.s. analyst and is made available in the U.S., the following are important disclosures regarding any non-u.s. analyst contributors: The non-u.s. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-u.s. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Ella Nusantoro, non-u.s. analyst, is a research analyst employed by PT Credit Suisse Securities Indonesia. (SMCB.JK / SMCB IJ) 14
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