SMGR
Contact our analyst Eka
10 November, 2020
BUY
Price Rp 10,225
Target price Rp12,675
BUY
Price Rp 10,225
Target price Rp12,675
Slow Cement Demand
- The Covid-19 outbreak PSBB in 2Q2020 and 3Q2020, and the slowdown or postponing of infrastructure projects still overshadows domestic cement demand in 2020. 9M2020 domestic cement sales dropped -9.0% YoY to 44.65 million tons with the biggest pressure on the bulk market which was lower by -20.4% while the Bag market was down -4.9%.
- SMGR recorded sales volume growth of -2.9% YoY to 29.1 million tons in 9M2020. In terms of area, SMGR still had sales growth outside Java while business was more challenging in Java with tight competition and pricing wars. SMGR also recorded export sales growth with higher demand from China because of China’s economic recovery.
- SMGR utilisation was down inline with decreased domestic demand.
- We revise down our SMGR’s sales forecast in 2020F to IDR 37.8 trillion. But we are still expecting SMGR sales volume in 2021 will grow faster than this year as we expect an economic recovery from a recovery in the property sector and continuation of Indonesia Government infrastructure projects.
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Margin Recovery
- SMGR revenue decreased -8.9% YoY to IDR 25.6 trillion from IDR 28.1 trillion in 9M2020 due to lower domestic sales volume while SMGR still managed ASP growth in 2020.
- SMGR managed their cost by maintaining cost efficiencies , such as raw material management, integrating the marketing, distribution, procurement functions, and utilizing industrial waste as an alternative source of raw material.
- The result was COGS decreased by -11.5% YoY to IDR 17.4 trillion.
- The greater efficiency in costs is above our expectation, and resulted in a higher gross profit margin of 32.1% from 30.1% last year. Gross profit still decreased -2.9% YoY to IDR 8.23 trillion.
- The EBITDA margin also increased to 24.5% YoY from 21.0% in 9M2020 as depreciation Increased by +31% to IDR 2.2 trillion. The increasing EBITDA is expected to continue in 4Q2020 because of the accounting treatment of operating leases under PSAK.
- SMGR maintained double-digit profit growth of 19% YoY to IDR 1.54 trillion helped by lower interest expenses from the refinancing program last year and lower floating rates. SMGR’s debt including Temporary Syirkah Funds was also stable at IDR 28 trillion in 9M2020
- We are adjusting our SMGR bottom line 2020F forecast to IDR 2.6 trillion as cost efficiencies are expected to continue in 4Q2020.
- We are now targeting SMGR to trade at 26x PE in 2021F. Target price is IDR 12,675 which represents +24% upside. We maintain our BUY recommendation.
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