SMGR Jun2022

SMGR

Contact our analyst Eka

2nd June 2022
BUY 47% Upside
Price Rp 7,300
Target price Rp10,700

Weak Volume but an ASP hike

In 1Q2022, Domestic cement sales volume maintained single digit growth of +4.7% YoY to 15.6 million tones (mt). SMGR’s domestic cement sales also maintained positive growth of +1.6% to 7.45 mt. while SMGR’s regional sales decreased -29% YoY to 1.68 mt as SMGR focused on maintaining their domestic market share. SMGR’s total sales volume decreased -5.8% YoY to 9.13 mt.
January – April domestic sales volume increased 1.2% YoY to 19.9 mt but in April 2022, domestic sales volume contracted -9.5% due to the national holiday and Eid Al-Fitr celebration. Bag sales contracted -14.2% YoY while bulk sales grew +5.7% YoY. SMGR’s sales volume in April also decreased -20.4% YoY to 2.58 mt. January-April SMGR total sales volume also decreased -9.01% YoY to 11.27 mt.
Despite the decline in sales volume, SMGR booked revenue of IDR 8.13 trillion, which is a slight increase +0.7% YoY due to an ASP hike in 4Q2021. SMGR continued to increase their ASP in April due to higher coal prices. Despite the ASP hike in April, SMGR still has the lowest prices in the domestic market.
After a decrease in domestic sales volume due to the holiday in April, demand is likely to normalize but performance will remain overshadowed by rising costs such as higher coal prices. We maintain our forecast for positive sales volume growth for 2022FY.

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Stronger profit than peers

Despite weak sales volume and coal price volatility, SMGR booked net income of IDR 498.5 billion, an increase of +11% YoY in 1Q2022, which is stronger compared to peers. SMGR was able to manage fuel cost increases by buying coal at the lower DMO price and with that privilege, SMGR’s fuel & energy cost/ton increased only 35.9% while peers grew by 55.2%.
NPM increased to 6.1% from 5.6% in 1Q2021.
SMGR’s COGS/ton growth only increased +9.6% while peers grew +14.5%, so cost of revenue only increased by +3.2% YoY. This resulted in a slight decline in gross profit of -2% YoY to IDR2.25 trillion.
SMGR finance costs continued to decrease -26.2% YoY to IDR 327 billion due to lower debt. SMGR also managed to lower operating expenses, down by -5.7% mainly from lower promotion and labor costs. As a result, profit before tax slightly increased +9% with a higher OPM of 9.0%.
As we expect cement demand will continue to recover and SMGR will be able to minimize the impact of fuel costs. We are forecasting SMGR bottom line for 2022F to reach IDR 2. 45 trillion which is +21% YoY growth.

Valuation: Maintain BUY, TP 10,700 with 47% upside

We are now targeting SMGR to trade at 23x PE in 2023F. Target price is IDR 10,700 which represents +47% upside. We maintain our BUY recommendation.

Previously

SMGR Mar2022