SMGR Nov2023

SMGR

Contact our analyst Eka

15th November 2023
BUY 41% Upside
Price Rp 6225
Target price Rp 8800

Positive cement sales volume in 9M2023

In September, domestic cement sales grew by +4.4% YoY to 6.11 million tonnes (mt), supported by continuous dry weather. The bag market increased slightly by +1.1%, while the bulk market maintained significant growth at +13.3%. The higher growth in the bulk market indicates sustained recovery in major construction projects, while the bag market remained flat due to retail customers switching to ready-mix products. For 9M2023, domestic cement demand slightly decreased by -0.6% YoY, totaling 45.3 mt, attributed to lower demand in the first half of 2023.
However, SMGR outperformed with a 7% YoY increase in domestic cement sales, reaching 3.19 mt in September 2023. Total sales for SMGR increased by +2.3% YoY to 3.57 mt in September after impressive growth in August.
Despite the overall domestic market's +0.7% YoY increase to 23.4 mt in 9M2023, SMGR's revenue reached IDR 27.66 trillion, reflecting a 4% YoY increase, driven by higher sales volume mainly from bulk and export. Export sales volume jumped by +62% YoY to 4.7 mt, with the majority sold to Australia, Bangladesh, Philippines, Taiwan, Sri Lanka, and Timor Leste.
For 3Q2023, SMGR's revenue recorded +7% YoY or +31% QoQ, growth to IDR 10.6 trillion due to a higher ASP. ASP is also expected to increase in October due to higher costs.
As the dry season continued in October, resulting in higher growth, and ongoing infrastructure projects will boost demand, we expect higher cement demand in 4Q2023.

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Margins Improve in 3Q2023

After a decline in 2Q2023, SMGR's bottom line profit and margin improved in 3Q2023, although still lower compared to 3Q2022.
SMGR net income increased +1% YoY or +178% QoQ, primarily due to higher ASP and lower operating expenses (-7% YoY), offsetting the highest cost of revenue by +12% YoY in 3Q2023. The net profit margin (NPM) increased to 8% in 3Q2023, while it remained stable at 6.2% for 9M2023.
Higher costs of revenue in 3Q2023, driven by increased raw material usage (+3% YoY) and higher fuel and energy costs (+17%), resulted in a lower gross profit, down by -3% YoY but still higher QoQ by +54% to IDR 3.02 trillion, resulting in a higher QoQ gross profit margin (GPM) of 28.5%.
Considering the expected trends of higher cement prices and improving cement demand, SMGR's bottom-line profit is projected to reach IDR 2.5 trillion, representing a substantial 7% YoY growth.

Valuation Maintain BUY, TP 8,800

We maintain our BUY recommendation with a target price (TP) of IDR 8,800, indicating a potential 41% upside. This valuation is based on a 23x price-to-earnings (PE) ratio for 2024F.

Previously

SMGR Oct2023