SMGR
Contact our analyst Eka
5th December 2024
BUY 40% Upside
Price Rp 3440
Target price Rp 4800
BUY 40% Upside
Price Rp 3440
Target price Rp 4800
Sales Decline Amid industry growth
- The domestic cement industry traditionally achieves peak sales in October. In October 2024, sales volume increased slightly by 0.2% YoY to 6.32 million tons (mt), with cumulative sales for January–October 2024 rising by 1.4% YoY to 52.35 mt. Despite this positive trend, bulk cement sales fell by 2.0%, primarily due to the completion of Phase 1 projects for the new capital city, particularly in Kalimantan. Conversely, bagged cement sales showed a modest rebound, increasing by 1.2% YoY.
- SMGR’s domestic sales volume, however, declined by -6.4% YoY in October 2024 to 3.1 mt, contributing to a -3.2% YoY decrease in its 10M2024 sales to 25.9 mt. The total group sales volume also contracted by -4.1% YoY to 31.7 mt. For 9M2024, SMGR’s domestic cement sales volume decreased by -2.7% YoY to 22.7 mt, with the retail segment contracting by -5% YoY, while the bulk segment showed 3.0% YoY growth, reflecting weaker retail demand. Total cement sales for SMGR declined by -4.3% YoY to 27.95 mt.
- In Q3 2024, SMGR’s total group sales volume dropped by -9.3% YoY to 10.25 mt, leading to a -7.0% YoY revenue decrease to IDR 9.88 trillion, despite a +23.0% QoQ improvement. The YoY decline was due to intensified competition and demand contraction, as SMGR increased its reliance on its Fighting Brand to maintain market share.
- Export sales also faced challenges, declining -14.6% YoY to 4.03 mt in 9M2024 due to political issues in Bangladesh and Sri Lanka. However, export performance improved in October with a +16.6% YoY increase to 509,507 tons. Going forward, SMGR aims to target the US and Latin American markets with a 500,000-ton annual export quota.
- Looking ahead to Q4 2024, softer cement demand is expected due to the regional elections in November and the rainy season. Management projects low single-digit growth of 3%–4% in 2025, with market share maintained at 50%, supported by anticipated housing program stimulus and a recovery in the property sector.
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Q3 2024: Quarterly Margin Improvement
Valuation Maintain BUY, with TP 4,800
- SMGR’s profit and margins recovered on a quarterly basis in Q3 2024, driven by higher sales and reduced financing costs due to lower interest-bearing liabilities.
- Cost of revenue increased by +1.6% YoY and +21% QoQ, largely due to a +26% YoY rise in raw material costs. As a result, gross profit declined by -28.6% YoY but improved +30.7% QoQ to IDR 2.15 trillion, with gross profit margin (GPM) rising to 21.8% QoQ.
- Net income showed a significant +635% QoQ improvement to IDR 218 billion, although it still declined by -74% YoY, with net profit margin (NPM) increasing to 2.2%.
- We expect further margin improvements as SMGR focuses on cost and operational efficiencies, coupled with additional ASP hikes in Q4 2024.
Valuation Maintain BUY, with TP 4,800
- We maintain our BUY recommendation with a target price (TP) of IDR 4,800, representing a potential 40% upside. This valuation is based on a 20x PE ratio for 2025F, reflecting expectations of gradual recovery in margins and demand growth in the coming year.
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