SMGR Sep2022

SMGR

Contact our analyst Eka

9th September 2022
BUY 50% Upside
Price Rp 6,550
Target price Rp 9,800

Sales Contraction Continues

The Pressure on the cement market continued in July with a domestic cement sales volume contraction of -4.8% YoY to 5.2 million tones (mt) led by a contraction in bag sales volume -10.2% YoY due to further price increases. Domestic cement sales also contracted in June by -2.0%. For the 1H2022, domestic cement sales volume grew +1.2% YoY to 29.36 million tons with a contraction in bag volume of -4% but strong growth of bulk sales at +21%.
SMGR’s domestic cement sales also contracted -13% YoY to 2.63 mt in July, after a -17.6% contraction in June. For Jan – July, SMGR’s total sales volume decreased -12.2% YoY to 19.7 mt. Fo the 1H2022, SMGR booked a -11.5% YoY decrease in sales volume from lower demand.
Inline with the decline in sales volume, SMGR booked revenue of IDR 15.87 trillion, -2.1% YoY, while in 2Q2022 sales grew + 1.5% YoY to IDR 7.7 trillion from a higher ASP.
As the coal price continues to increase, SMGR plans more ASP increases in the 2H2022.
With higher cement prices, demand is likely to continue to decline, led by the bag market as costumers may shift to buying bulk cement.

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Stronger profit than peers

Despite lower sales volume and coal price volatility, SMGR maintained positive growth of net income to IDR 829 billion, +4% YoY in the 1H2022, which is stronger compared to peers. For 2Q2022, SMGR net profit decreased -4% YoY or -34% QoQ to IDR 330 billion with a stable NPM of 4.3%
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 30.6% while peers grew by 45.7% in 1H2022.
SMGR’s COGS/ton only increased +13.6% while peers grew +18.3%, so cost of revenue decreased -1% YoY in 1H2022. This resulted in a slight decline in gross profit of -4% YoY to IDR 4.41 trillion. For 2Q2022 gross profit decreased -6% YoY to IDR 2.15 trillion with a stable GPM of 27.8%
SMGR also managed to lower operating expenses, down by -11% mainly from lower transportation, promotion and labor costs. As a result, profit before tax slightly increased +13% YoY with a higher OPM of 7.7% compared to 6.4% last year.
With the plan to hike prices again in 2H2022 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. 34 trillion which is +16% YoY growth.

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Valuation: Maintain BUY, TP 9,800 with 50% upside

We are now targeting SMGR to trade at 22x PE in 2023F. Target price is IDR 9,800 which represents +50% upside. We maintain our BUY recommendation.

Previously

SMGR Jun2022