SMGR
Contact our analyst Eka
11th September 2024
BUY 20% Upside
Price Rp 4000
Target price Rp 4800
BUY 20% Upside
Price Rp 4000
Target price Rp 4800
Weak retail segment, More ASP hikes
- In 1H 2024, domestic cement sales volume, including Semen Grobogan, grew by +2.2% to 28.02 million tons (mt). Bulk cement saw a significant increase of +13.2% to 8.46 mt, while bagged cement declined by -1.9% to 19.55 mt. Excluding the additional volume from the latest acquisition, national domestic cement sales actually decreased by -0.9%. The decline in the bagged cement market was due to weakening purchasing power, while the spike in bulk cement sales was driven by government projects in the new capital city and accelerated infrastructure development in Java.
- SMGR’s total cement sales volume contracted by -1.1% to 17.7 mt in 1H 2024. Domestic sales decreased by -1.5% year-on-year (YoY) to 14.02 mt, while export sales dropped by -0.6% to 2.9 mt. Bulk cement sales volume grew by +6.3% YoY, but retail or bagged cement sales fell by -4.4% YoY, reflecting lower retail demand.
- In Q2 2024, SMGR’s total sales volume slightly declined by -0.04% to 8.52 mt, leading to a -1.4% YoY revenue decrease to IDR 8.04 trillion, down -4% quarter-over-quarter (QoQ). This was primarily due to a -6% drop in the average selling price (ASP) in Q2 2024, attributed to the higher proportion of bulk sales.
- Regarding price adjustments, SMGR raised its ASP by approximately 3% for premium brand bagged cement in 13 provinces during the May–June period, and by 3%-5% for both bagged and bulk cement in July–August. Further increases are planned for September–December, covering bagged, bulk, and export cement. These hikes aim to offset rising costs caused by the weakening Rupiah against the USD.
- For July, domestic sales volume rebounded with +0.8% YoY growth. SMGR’s domestic sales also increased by +0.7% YoY to 2.97 mt due to stronger demand during the dry season, with this trend expected to continue in Q3 2024.
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Q2 2024: Lower Margin
Valuation Maintain BUY, with lower TP 4,800
- SMGR’s profit and margins declined in Q2 2024, mainly due to the contraction in the retail segment and an increased share of bulk cement sales, which lowered ASP. Costs of revenue rose by +9.9% YoY, driven by higher raw material costs (+5% YoY) and labor costs (+3.2%). Consequently, gross profit fell by -29.3% YoY to IDR 1.65 trillion, with the gross profit margin (GPM) declining to 20.5%.
- Net income dropped sharply by -91% YoY to IDR 30 billion, with the net profit margin (NPM) falling to 0.4%. However, as SMGR continues to focus on cost and operational efficiencies, alongside further ASP hikes, we expect margin improvements in the second half of 2024.
Valuation Maintain BUY, with lower TP 4,800
- We maintain our BUY recommendation with a target price (TP) of IDR 4,800, implying a potential 20% upside. This valuation is based on an 18.6x price-to-earnings (PE) ratio for 2025F.
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