(SMGR IJ) 1Q18 review: Expectations missed Cement Company Report May 8, 2018 (Maintain) Hold Target Price (12M, IDR) 9,575 Share Price (5/7/18, IDR) 9,125 Expected Return 4.9% Consensus OP (18F, IDRtr) 3.6 EPS Growth (18F, %) -3.4 P/E (18F, x) 27.8 Industry P/E (18F, x) 18.6 Benchmark P/E (18F, x) 15.0 Market Cap (IDRbn) 54,125.1 Shares Outstanding (mn) 5,931.5 Free Float (mn) 2,906.1 Institutional Ownership (%) 71.5 Beta (Adjusted, 24M) 1.2 52-Week Low (IDR) 8,600 52-Week High (IDR) 11,775 (%) 1M 6M 12M Absolute -11.6-12.0 3.7 Relative -5.8-9.5 0.1 (D-1yr=100) JCI SMGR 150 130 110 1Q18 review: Revenue +3.4% YoY, supported by other business For 1Q18, (SMGR) booked revenue of IDR6.6tr (+3.4% YoY, -8.9% QoQ), achieving 21.9% of our full-year forecast and 22.4% of the full-year consensus. It is usual for cement companies to see a seasonal QoQ decline in first-quarter revenue. On a YoY basis, SMGR s revenue growth was mainly supported not by cement (-0.7% YoY, -17.7% QoQ), but rather other segments like ready-mix concrete (RMC, +33.8% YoY), clinker (+223.0% YoY), and blasting services (sales of which surged to IDR17.7bn from just IDR139.9mn in 1Q17). Profit margin continued to decline in 1Q18 During the quarter, COGS growth (+10.0% YoY) outpaced revenue growth (+3.4% YoY), mostly due to higher raw material costs, which swelled 116.3% YoY and 68.5% QoQ. The cost increase was partly due to the Rembang plant s start of operation. Gross margin slipped to 25.9% (vs. 26.3% in 4Q17 and 30.4% in 1Q17), translating to gross profit of IDR1.7tr (-11.6% YoY, -10.2% QoQ). In addition, OP margin inched down to 10.6% (vs. 11.1% in 4Q17 and 14.0% in 1Q17), mostly due to the impact of lower gross margin. Operating profit fell 21.8% YoY and 12.7% QoQ to IDR701.0bn. Meanwhile, finance costs grew 139.5% YoY due to higher debt, while debt-to-equity ratio stood at 0.35x at end- 1Q18, compared to 0.23x at end-1q17. Bottom line, SMGR booked 1Q18 net profit of IDR411.6bn (-44.9% YoY, -25.8% QoQ), achieving only 15.4% of our full-year forecast and 16.2% of the full-year consensus. Weak sales volume growth achivement, with higher ASP During the first three months of 2018, SMGR s domestic cement sales volume grew 1.3% YoY (to 6.2mn tonnes), lagging behind industry growth (+6.6% YoY). We attribute SMGR s slower growth to 1) relatively weak consumption in East Java, one of the company s main regions, and 2) rising blended ASP, which caused its market share to slip from 41.4% in 3M17 to 39.4% in 3M18. Maintain Hold recommendation, and lower TP to IDR9,575 In light of the lower-than-expected 1Q18 net profit, we revised down our 2018F-19F net profit estimates by 27.3% and 19.3%, respectively, as we lowered our margin estimates. We maintain our Hold recommendation on SMGR and cut our target price to IDR9,575/share (previously IDR10,200). Upside risks include a better-than-expected ASP recovery, stronger-than-expected property market recovery, cement industry consolidation, and weaker-than-expected coal prices. Downside risks are lower-thanexpected volume and margins due to higher-than-expected costs and/or worse-thanexpected oversupply. 90 5/17 7/17 9/17 11/17 1/18 3/18 PT. Basic Industry Mimi Halimin +62-21-515-1140 (ext.: 233) mimi.halimin@miraeasset.co.id FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F Revenue (IDRbn) 26,948 26,134 27,814 30,171 32,819 Operating profit (IDRbn) 5,899 4,973 3,126 3,027 4,023 Net Profit (IDRbn) 4,521 4,522 2,014 1,946 2,603 EPS (IDR) 762 762 340 328 439 BPS (IDR) 4,454 4,895 4,875 5,067 5,375 P/E (x) 12.0 12.0 26.9 27.8 20.8 P/B (x) 2.0 1.9 1.9 1.8 1.7 EV/EBITDA (x) 7.5 8.1 12.3 11.9 9.9 ROE (%) 17.1% 15.6% 7.0% 6.5% 8.2% ROA (%) 11.9% 10.2% 4.1% 3.8% 4.7% Dividend Yield (%) 3.3% 3.3% 1.5% 1.4% 1.9% Net gearing (x) 0.0% 11.8% 22.0% 20.4% 24.1% Note: Net profit refers to net profit attributable to controlling interests Source: Company data, Research PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
Table 1. SMGR s 1Q18 earnings results (IDRbn) 1Q17 4Q17 1Q18 YoY(%) QoQ (%) Revenue 6,399 7,262 6,618 3.4% -8.9% COGS -4,456-5,351-4,901 10.0% -8.4% Gross profit 1,943 1,911 1,717-11.6% -10.2% Operating profit 896 803 701-21.8% -12.7% Pre-tax profit 876 744 560-36.0% -24.7% Net profit 747 554 412-44.9% -25.8% Gross margin (%) 30.4% 26.3% 25.9% Op. margin (%) 14.0% 11.1% 10.6% Net margin (%) 11.7% 7.6% 6.2% Source: Company data, Research Table 2. SMGR s 1Q18 performance vs. target (before revision) FY18 (F) FY18 (F) 1Q18 (A) 1Q18 (A) to FY18F (%) FY (Dec.) Mirae Consensus Actual Mirae Consensus Revenue (IDRbn) 30,171 29,579 6,618 21.9% 22.4% Pre-tax profit (IDRbn) 3,513 3,352 560 15.9% 16.7% NP (IDRbn) 2,676 2,544 412 15.4% 16.2% Source: Company data, Bloomberg, Research estimates Figure 1. SMGR s historical 1Q revenue and growth Figure 2. SMGR s historical 1Q profit margin (IDRbn) (YoY growth) 7,000 Revenue growth YoY 40.0% 60.0% Gross margin Operating margin net margin 5,000 30.0% 45.0% 3,000 20.0% 30.0% 10.0% 1,000 0.0% 15.0% -1,000 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18-10.0% 0.0% 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 Source: Company data, Research Source: Company data, Research Table 3. Earnings forecast revisions FY (Dec.) 12/18 (Old) 12/18 (New) % change 12/19 (Old) 12/19 (New) % change Revenue (IDRbn) 30,171 30,171 0.0% 32,819 32,819 0.0% Gross profit (IDRbn) 9,120 8,173-10.4% 10,215 9,426-7.7% NP (IDRbn) 2,676 1,946-27.3% 3,227 2,603-19.3% Source: Company data, Research estimates 2
(SMGR/Hold/TP IDR9,575) Income Statement (Summarized) Statement of Financial Condition (Summarized) (IDRbn) 12/16 12/17 12/18F 12/19F (IDRbn) 12/16 12/17 12/18F 12/19F Revenue 26,134 27,814 30,171 32,819 Cash 2,848 3,666 5,014 4,734 Cost of Goods Sold 16,278 19,854 21,999 23,393 Trade Receivables 3,838 4,886 5,208 5,845 Gross Profit 9,856 7,960 8,173 9,426 Inventories 2,671 3,686 3,616 3,845 Operating Expenses -4,882-4,834-5,146-5,403 Other CA 1,016 1,563 1,182 1,286 Operating Profit 4,973 3,126 3,027 4,023 PPE 30,847 32,523 33,680 36,436 Pretax Profit 5,085 2,747 2,565 3,419 Other Non-CA 3,007 2,638 2,532 2,754 Income Tax 550 704 590 786 Total Assets 44,227 48,964 51,232 54,900 Non-Controlling Interest 13 29 29 29 Trade Payables 4,078 4,927 4,701 4,999 Net Profit 4,522 2,014 1,946 2,603 ST loans + CPLTD 1,811 1,921 2,324 2,555 Total CL 8,152 8,804 9,104 9,770 Profitability ratio Long-term debt 4,450 8,099 8,826 9,853 Gross Profit Margin 37.7% 28.6% 27.1% 28.7% Total Liabilities 13,653 18,524 19,652 21,495 Operating Profit Margin 19.0% 11.2% 10.0% 12.3% Common Stock 593 593 593 593 Net Profit Margin 17.3% 7.2% 6.5% 7.9% Paid in Capital 1,458 1,458 1,458 1,458 Return on Equity 15.6% 7.0% 6.5% 8.2% Retained Earnings 26,528 26,733 27,874 29,699 Return on Asset 10.2% 4.1% 3.8% 4.7% Non-Controlling interest 1,539 1,524 1,524 1,524 Equity (ex minority) 29,035 28,915 30,056 31,880 Cash Flow (Summarized) Forecasts/ Valuations (Summarized) (IDRbn) 12/16 12/17 12/18F 12/19F 12/16 12/17 12/18F 12/19F Operating Cash Flow P/E (x) 12.0 26.9 27.8 20.8 Net income 4,522 2,014 1,946 2,603 P/B (x) 1.9 1.9 1.8 1.7 Depreciation 2,111 1,775 2,044 2,244 EV/EBITDA (x) 8.1 12.3 11.9 9.9 Changes in operating accounts EPS (IDR) 762 340 328 439 in trade receivables 294 1,048 322 637 BPS (IDR) 4,895 4,875 5,067 5,375 in inventories 262 1,015-70 229 DPS (IDR) 305 136 131 176 in others CA 419 548-381 104 Payout ratio (%) 40.0% 40.0% 40.0% 40.0% in trade payable 295 849-226 298 Dividend Yield (%) 3.3% 1.5% 1.4% 1.9% in accrued expense 44-47 11 11 Revenue growth (%) -3.0% 6.4% 8.5% 8.8% in others CL 249-260 112 126 GP growth (%) -7.4% -19.2% 2.7% 15.3% CFO 7,209 1,831 4,420 4,543 OP growth (%) -15.7% -37.1% -3.2% 32.9% EBITDA growth (%) -2.5% -30.8% 3.5% 23.6% Investing Cash Flow NP growth (%) 0.0% -55.5% -3.4% 33.8% in PPE 7,790 3,452 3,200 5,000 AR turnover (x) 7.1 6.4 5.8 5.6 Invt. turnover (x) 6.4 6.2 6.1 6.1 CFI -8,350-3,083-3,094-5,222 AP turnover (x) 4.1 4.4 4.7 4.7 Financing Cash Flow ROA (%) 10.2% 4.1% 3.8% 4.7% in other liability 93 571 100 151 ROE (%) 15.6% 7.0% 6.5% 8.2% in equity 1,906 2,134 806 778 Gearing in minority interest 518-15 0 0 Total debt (IDRbn) 6,260 10,019 11,150 12,407 CFF 0 2,071 21 400 Debt/equity (%) 21.6% 34.7% 37.1% 38.9% Net cash -1,141 818 1,347-280 Net debt (IDRbn) 3,412 6,353 6,136 7,674 beginning balance 3,989 2,848 3,666 5,014 Net debt/equity (%) 11.8% 22.0% 20.4% 24.1% ending balance 2,848 3,666 5,014 4,734 Source: Company, Research estimates 3
APPENDIX 1 Important Disclosures & Disclaimers Disclosures As of the publication date, PT., and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding. Stock Ratings Industry Ratings Buy Relative performance of 20% or greater Overweight Fundamentals are favorable or improving Trading Buy Relative performance of 10% or greater, but with volatility Neutral Fundamentals are steady without any material changes Hold Relative performance of -10% and 10% Underweight Fundamentals are unfavorable or worsening Sell Relative performance of -10% * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst s estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. 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