SMGR Mar2020

SMGR

Contact our analyst Eka

20 March, 2020
BUY
Price Rp 5,875
Target price Rp14,000

Expecting lower 1Q sales volume

Domestic sales volume in February 2020 showed a slight improvement with domestic demand growth at -2,81% compared to -9,94% YoY in January and-6,68% YoY for the two months to 5.44 mt .
Total group SMGR cement sales in February decreased slightly, -5,88% to 2,91 mt from 3,09 mt.
Total group SMGR in January (which excludes SBI sales volume in January 2019) grew +34,5% YoY to 3,36 mt.
We expect 1Q2020 cement demand will grow more slowly from the impact of the COVID-19 virus plus heavy rainfall. We have revised our forecast from moderate growth to negative growth for cement demand in 2020F.

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2019FY results: Revenue Increased

In 2019FY, SMGR had double digit growth in revenue of 31.5% yoy to IDR 40.4 trillion from IDR 30.69 trillion in 2018. This is higher than our forecast of IDR 33 trillion.
SMGR also enjoyed a gross profit increase of 36% yoy to IDR 12.7 trillion from IDR 9.33 trillion in 2018. The Gross profit margin slightly increased to 31.5% from 30.4%.
Despite the higher revenue, SMGR is still overshadowed by higher energy and finance costs. Finance costs were IDR 3.2 trillion or up 234% because of the loans for the SBI acquisition. This led to a decrease in profit before tax of -22.1% YoY to IDR 3.1 trillion from 4.1 trillion in 2018.
Net income also decreased by -22.3% yoy to IDR 2.39 billion from IDR 3.08 trillion in 2018.
Despite the higher finance costs, we expect net income 2020F will increase slightly to IDR 2.58 trillion.

Valuation: Maintain BUY, TO14,000 with 138% upside

We are targeting SMGR share price to reach IDR 14,000 which is a valuation of 33x PE.
We recommend Buy as SMGR price is now at the lowest level since 2009 and we believe the fundamental outlook is still promising.

Previously

April, 2019