SMGR
Contact our analyst Eka
18th March 2024
BUY 33% Upside
Price Rp 5850
Target price Rp 7800
BUY 33% Upside
Price Rp 5850
Target price Rp 7800
Anticipating Increased Demand for Bulk Cement
- In January, domestic cement sales grew by +3.1% year-on-year (YoY) to 5.05 million tonnes (mt), driven by significant growth in the bulk market in Java (+12%) and outside Java (+26.2%). Despite this, the bag market saw a slight decrease of -2.1%, attributed to higher rainfall in January and the election season, which led to weakened demand in some areas.
- For domestic sales, SMGR reported a slight decrease of -0.2% YoY, reaching 2.46 mt in January 2024. Total sales for SMGR increased by +3.9% YoY to 3.16 mt in January, boosted by higher export sales growth of +12.5% to 0.56 mt, in line with higher sales from Vietnam facilities to 0.132 mt or +89.9% growth.
- In Q4 2024, SMGR cement sales grew by +6.1% to 11.4 mt, resulting in higher revenue of +12% YoY or +3% quarter-over-quarter (QoQ) to IDR 10.9 trillion. Bulk cement experienced a significant increase of +25%, while bag cement grew by 10.9%. For FY 2023, SMGR's revenue reached IDR 38.65 trillion, reflecting a 6% YoY increase, driven by a higher sales volume of +10% YoY, mainly from bulk (+12.8%) and export.
- For Q1 2024, we expect flat demand due to heavy rains and the election season. However, for bulk cement, we anticipate higher demand as ongoing infrastructure projects, especially supply to IKN in East Kalimantan, will boost demand. For 2024, SMGR is targeting continued single-digit growth, spurred by infrastructure projects and export sales.
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4Q2023: Lower Margin
Valuation Maintain BUY, TP 7,800
- SMGR's bottom-line profit and margin declined due to increased raw material and transportation costs in Q4 2023.
- Higher costs of revenue in Q4 2023 (+18% YoY or +9% QoQ), driven by increased raw material usage (+4.8% YoY) and higher fuel and energy costs (+10.3%), resulted in a lower gross profit, down by -2% YoY or -9% QoQ to IDR 2.74 trillion, leading to a gross profit margin (GPM) of 24.9%.
- SMGR's net income also decreased by -40% YoY or -46% QoQ to IDR 457 billion, with the net profit margin (NPM) dropping to 4.2% in Q4 2023.
- We expect margin improvement as SMGR plans to increase their average selling price (ASP) by around 1%-1.5%, depending on market conditions in 2024. We project SMGR's bottom-line profit to reach IDR 2.47 trillion, representing a significant 14% YoY growth for 2024F.
Valuation Maintain BUY, TP 7,800
- We maintain our BUY recommendation with a target price (TP) of IDR 7,800, indicating a potential 33% upside. This valuation is based on a 19x price-to-earnings (PE) ratio for 2025F.
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