SMGR
Contact our analyst Eka
5th March 2021
BUY 35% Upside
Price Rp 11,200
Target price Rp15,150
BUY 35% Upside
Price Rp 11,200
Target price Rp15,150
Cement Demand Decreased
- Domestic cement sales volume in 2020 declined by -10.4% YoY to 62,7 million tons (mt) from the impact of the Covid-19 outbreak which caused a slowdown in economic growth and the postponing of infrastructure projects.
- SMGR domestic sales decreased -13.2% YoY to 32.1 mt, lower than total domestic growth.
- However, SMGR was able to increases export sales 23.1% to 7.7 mt. SMGR expanded their export markets to new countries such as Myanmar, Brunei Darussalam and Taiwan while maintaining their existing export destinations in China, Australia, Bangladesh, and others.
- So, in total, SMGR sales volume recorded a -7.9% decrease to 39.8 mt.
- Domestic Cement demand was impacted by the reallocation of government funds from infrastructure to handling the pandemic.
- We conservatively expect flat cement demand in 2021 as the government will still be focused on managing the pandemic and the vaccine program, until next year.
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Profit Above Expectation
Valuation: Maintain BUY, TP 15,150 with 35% upside
- SMGR managed positive profit growth despite the demand decrease in 2020.
- SMGR revenue decreased -12.9% YoY to IDR 35.17 trillion from IDR 40.37 trillion in 2019 due to lower domestic sales volume.
- SMGR continues to manage their cost by maintaining cost efficiencies in coal consumption, electricity, and optimizing the utilization of Waste Heat Recovery Power Generation (WHRPG) which resulted in a COGS decrease by -14.8% YoY to IDR 23.5 trillion. The decrease also came from lower sales volume and a decline in the coal price.
- However, Gross profit still decreased -8.6% YoY to IDR 11.6 trillion but with a higher gross profit margin of 33% from 31.5% in 2019. The EBITDA margin also increased to 25.3% YoY from 21.7% in 2019.
- SMGR bottom line was above our expectation with double-digit profit growth of 16.7% YoY to IDR 2.79 trillion.
- We are forecasting SMGR bottom line 2021F to grow +18% YoY to IDR 3.29 trillion as cost efficiencies are expected to continue in 2021.
Valuation: Maintain BUY, TP 15,150 with 35% upside
- We are now targeting SMGR to trade at 24x PE in 2022F. Target price is IDR 15,150 which represents +35% upside. We maintain our BUY recommendation.
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