SMGR
Contact our analyst Eka
10th October 2023
BUY 40% Upside
Price Rp 6600
Target price Rp 9200
BUY 40% Upside
Price Rp 6600
Target price Rp 9200
Softer domestic sales in August
- August witnessed a softer domestic sales performance, following a robust +12.6% YoY growth in domestic cement demand in July. In August, domestic demand growth slowed to +4% YoY, reaching 5.95 million tonnes (mt) of cement. The bag market increased slightly by +0.8%, while the bulk market saw significant growth at +12.7%. For the period of January to August, domestic cement demand decreased by -1.3% YoY, totaling 39.18 mt due to lower demand in the first half of 2023.
- However, SMGR outperformed with a 6.5% YoY increase in domestic cement sales, reaching 3.07 mt in August 2023. Total sales for SMGR showed impressive double-digit growth, surging by +21.5% YoY to 3.87 mt in August. Despite the overall domestic market decline of -0.2% YoY to 20.25 mt in the first eight months of 2023.
- In the first half of 2023, SMGR's revenue reached IDR 17.03 trillion, reflecting a 2% YoY increase, driven by a 4.5% YoY increase in domestic selling prices (ASP). However, sales volume dipped by -4.3% YoY to 14.2 mt for domestic sales, while regional sales increased by +21.8% to 3.67 mt. For 2Q2023, SMGR's revenue was slightly lower by -1% YoY, totaling IDR 8.14 trillion. This decline was attributed to a prolonged public holiday during the second quarter and its impact on fewer working days.
- Looking ahead, cement demand in 2H2023 is expected to rise due to ongoing infrastructure projects, both government and private, particularly in Kalimantan, which will be a key driver for bulk cement growth. Additionally, the longer dry season in 2H2023 is anticipated to stimulate demand.
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Lower Margins in 2Q2023
Valuation Maintain BUY, TP 9,200 with 40% upside
- Net income for 2Q2023 decreased by -9% YoY, primarily due to a -9% YoY decline in sales volume. The net profit margin (NPM) also decreased to 3.8% in 2Q2023, while it remained stable at 5.1% for 1H2023. Higher costs of revenue in 2Q2023, driven by increased raw material usage (+13.7% YoY) and higher fuel and energy costs (+10.8%), resulted in a lower gross profit, down by -16% YoY to IDR 1.97 trillion, and a reduced gross profit margin (GPM) of 24.3%.
- Although operating expenses decreased by -15% YoY, mainly due to lower transportation, promotion, and labor costs, the operating profit margin (OPM) remained lower at 6.2%.
- Considering the expected trends of higher cement prices and lower coal prices for 2023, SMGR's bottom-line profit is projected to reach IDR 2.7 trillion, representing a substantial 15.7% YoY growth.
Valuation Maintain BUY, TP 9,200 with 40% upside
- We maintain our a BUY recommendation with a target price (TP) of IDR 9,200, indicating a potential 40% upside. This valuation is based on a 23x price-to-earnings (PE) ratio for 2023F.
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