SMGR May2020

SMGR

Contact our analyst Eka

28 May, 2020
BUY
Price Rp 9,275
Target price Rp14,300

Expecting Lower Demand

The covid-19 outbreak has led to the delay of many property and infrastructure project.
This will likely hurt cement demand because cement demand growth has been dominated by bulk to support infrastructure project.
Lower demand will be compounded by more competition in the coming quarters as new players enter the market this year.
We are expecting cement demand to decline more than 10%-20% in line with delayed government projects.

Slightly Increase in April

SMGR sales volume in April 2020 showed a slight improvement despite slower domestic demand. SMGR sales volume in April grew +0.47% YoY and has increased +5.35% year to date in 2020 compared to same period last year. Sales volume in March decreased -1.99% YoY.
Domestic sales volume in April declined -6.81% YoY and for the year to date has decreased by -5.22% YoY.
SMGR sales volume in 1Q2020 has not yet been affected by Covid-19, so we expect lower utilization from lower demand will have an impact in 2Q2020, 3Q2020 and 4Q2020 mainly in Java area.

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1Q2020 Results: Above expectation

In 1Q2020, SMGR revenue grew 5.57% YoY to IDR 8.58 trillion from IDR 8.17 trillion in 1Q2019 in line with higher sales volume of 7% YoY.
Lower cost of revenue in 1Q2020 resulted in double digit growth in gross profit of 22% YoY to IDR 2.7 trillion from IDR 2.2 trillion in 1Q2019. Inline with the increased in the gross profit margin to 31.5% from 27.2% in 1Q2019.
EBITDA also increased 25.5% YoY to IDR 2 trillion from 1.6 trillion, with a higher EBITDA margin of 23.6%.
Profit before tax increased 57% YoY to IDR 713 billion, in line with lower finance costs which were down -13.4% YoY to IDR 552 billion from 637 billion in 1Q2019.
Net income recorded double digit growth of 66.5% YoY to IDR 446.5 billion.
As we see slow cement demand in the next quarters, we expect single digit growth for the bottom line and lower margins in 2020F.

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Valuation: Maintain BUY, TP 14,300 with 54% upside

We are targeting SMGR share price to reach IDR 14,300 which is a valuation of 31x PE within a year.

Previously

SMGR Mar2020