SMGR
Contact our analyst Eka
30 January, 2020
BUY
Price Rp 12,300
Target price Rp17,000
BUY
Price Rp 12,300
Target price Rp17,000
2019FY: A Volume Decrease
- 2019, domestic cement demand had a slight increase +0.34% YoY to 69.77 mt from 69.5 mt in 2018. Export demand increased double digit +11.83% YoY to 6.36 mt from 5.69 mt in 2018.
- SMGR cement sales in December increased +4.38% YoY to 3.02 mt from 2.89 mt, but the full year 2019 domestic sales volume still decreased by -1.43% YoY to 32.7 mt.
- SBI (ex-Holcim) also had a slight decrease -2.46% YoY in cement sales to 10.86 mt in 2019, while December sales volume decreased -7.56% YoY to 0.91 mt.
- The SBI acquisition in 2019 brought total cement sales to 42.6 mt up 28.5%, compared to the previous year before the acquisition and we expect this will boost 2019 revenue.
- We also expect 1Q2020 demand of cement will grow slowly as the year has started with heavy rainfall which is expected to continue throughout the 1Q. We expect moderate growth for the cement industry in 2020 because of slow growth in the property sector.
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9M2019: Cost Pressure
- In 9M2019, SMGR had double digit growth in revenue of 31.1% yoy to IDR 28.1 trillion from IDR 21.45 trillion in 9M2018. Despite the higher revenue, SMGR is still overshadowed by higher energy and finance costs.
- COGS grew 30%, but SMGR still enjoyed a gross profit increase of 34% yoy to IDR 8.47 trillion from IDR 6.33 trillion in 9M2019. The Gross profit margin was stable at 30.1%.
- Finance costs were IDR 2.38 trillion or grew 235% from loans for the SBI acquisition. This resulted in a decrease in profit before tax of -35% YoY to IDR 1.79 trillion from 2.74 trillion in 9M2018.
- Net income also decreased by -38% yoy to IDR 1.29 billion from IDR 2.09 trillion in 9M2018.
- As the finance costs will continue to weigh on SMGR’s net income, we expect net income 2019 will decrease -33% to IDR 2.06 trillion.
- As the Domestic cement market will grow moderately and assuming better revenue growth in 2019, we are targeting SMGR share price to reach IDR 17,000 which is a valuation of 36x PE.
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