SMGR Aug2020

SMGR

Contact our analyst Eka

6th August, 2020
BUY
Price Rp 9,450
Target price Rp12,270

Slight Volume Growth

In 1H2020, Domestic cement sales dropped -6.4% YoY to 27.6 million tons. But in June, domestic cement sales increased +32.3% YoY to 4.97 million tons.
Despite the negative domestic growth due to the covid-19 outbreak, SMGR recorded a 1.9% YoY volume growth to 18.1 million tons in 1H2020. The positive growth is from the consolidation of PT Solusi Bangun Indonesia (SBI) and supported by an increase in regional sales volume by 29% YoY.
With positive growth in 1H2020, SMGR and SBI combined are still the market leaders in Indonesia with a 53.1% market share.
We are expecting SMGR sales volume in 2H2020 will grow faster than 1H2020 as we expect an economic recovery after re-opening and Indonesia Government infrastructure projects will continue.

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1H2020 Results: double digit profit growth

SMGR revenue was slightly lower -2.0% YoY to IDR 8.58 trillion from IDR 16.02 trillion in 1H2020 due to lower domestic sales which have a higher selling price compared to regional sales.
Lower coal prices have resulted in a cost of revenue decline of -4.05% YoY to IDR 11.2 trillion. Costs were also positively impacted by the rerouting of SMGR’s distribution network since February 2020.
Lower cost of revenue in 1H2020 resulted in single digit growth in gross profit +3.2%% YoY to IDR 4.81 trillion from IDR 4.66 trillion in 1H2019 and a gross profit margin increase of 1.5% to 30%.
The EBITDA margin also increased 2.3% YoY to 21.7%.
After last year’s refinancing and lower interest rates in 2020, SMGR interest expense decreased-20% YoY in 1H2020. As a result, SMGR maintained a double-digit profit growth of 26.3% YoY to IDR 612.4 billion. The net profit margin also increased 0.8% to 3.8%.
After the 1H2020 result we are reducing our forecast for revenue in 2020F to IDR 39.81 trillion but we still expect double-digit profit growth.

Valuation: Maintain BUY, TP 12,270 with 30% upside

We are now targeting SMGR to trade at 20x PE in 2021F. Target price is IDR 12,270 which represents +30% upside. We maintain our BUY recommendation.

Previously

SMGR May2020