SMGR Nov2022

SMGR

Contact our analyst Eka

8th November 2022
BUY 33% Upside
Price Rp 8,250
Target price Rp 10,955

Slowing demand amid prices hikes

The slow demand for cement continued in September. Domestic cement sales volume had a higher YoY contraction of -7.0% YoY to 5.98 million tones (mt) led by a contraction in bag sales volume -12.8% YoY due to price increases while the bulk market maintained growth of +11.4%. For 9M2022, domestic cement sales volume contracted -1.1% YoY to 46.4 million tons with a contraction in bag volume of -6.6% but strong growth of bulk sales of +18.2%.
SMGR’s domestic cement sales also contracted -13.5% YoY to 2.78 mt in September. For 9M2022, SMGR’s total sales volume decreased -12.9% YoY to 26.15 mt due to lower demand.
Inline with the decline in sales volume, SMGR booked revenue of IDR 25.3 trillion, -0.2% YoY, while in 3Q2022 sales grew + 3.2% YoY to IDR 9.4 trillion from an ASP hike.
After a price adjustment in October 2022 of around 2% -3% due to higher transportation cost, SMGR plans more increases in the 4Q2022.
With higher cement prices, demand is likely to continue to weak, so we expect top line growth of just +2% YoY to IDR 35.7 trillion.

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3Q2022: Higher Margin

SMGR maintained positive growth of net income to IDR 822 billion, +149% QoQ or +38% YoY in the 3Q2022 due to a higher ASP. For 9M2022, SMGR net profit increased +19% YoY to IDR 1.65 trillion. This resulted in a higher NPM compared to other quarters in 2022 of 8.7%, which boosted the 9M2022 NPM to 6.5%.
SMGR was able to manage fuel cost increases by buying coal at the lower DMO price and with that privilege SMGR’s fuel & energy cost/ton increased only 28.4% while peers grew by 36.6% in 9M2022.
SMGR’s COGS/ton only increased +16.3% while peers grew +20.5%, so cost of revenue was stable at IDR 17.9 trillion in 9M2022. For 3Q2022, cost of revenue increased 3% YoY or +16% QoQ due to fuel costs and other manufacturing overheads. This resulted in a higher gross profit of +3% YoY or +36% QoQ to IDR 2.9 trillion.
SMGR also managed to lower operating expenses by -9% mainly from lower transportation, promotion and labor costs. As a result, profit before tax slightly increased +97% YoY with a higher OPM of 12.4% compared to 10.2% last year.
With the plan to hike prices again in 4Q2022 and the positive impact of buying coal at the lower DMO price, we are forecasting SMGR bottom line profit for 2022F to reach IDR 2.4 trillion which is +23% YoY growth.

Valuation: Maintain BUY, TP 10,955 with 33% upside