SMGR11200

SMGR

Contact our analyst Eka

34% profit growth, BUY
6th November 2018
Price Rp 9,600
Target price Rp11,200

Expecting 34% growth in profit

SMGR’s revenue increased +4.4% to IDR 21.45 trillion in line with sales volume growth. While cost of revenue also increased +3.9% to IDR 15.1 trillion inline with the increase in sales volume and mainly from fuel, raw material, and distribution costs.
Efficiency and restructuring in SMGR’s logistic supply resulted in lower operating expenses (opex) in 9M2018 by -9.8% YoY to IDR 3.7 trillion from 4.1 trillion. The impact comes from: 1) decrease in transportation expenses by -16.6%. 2) promotion expenses decreased by -19% YoY. 3) Salary expenses decreased by -12%YoY, and 4) Business trip expenses decreased by -13% YOY.
So SMGR booked an operating profit increase of +36% YoY to IDR 2.6 trillion. And the bottom line increased 43% to IDR 2.1 trillion.
We assume the lower opex will continue until the end of year. And we expecting bottom line to increase 34% in 2018F to IDR 2.7 trillion from 2 trillion last year.

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Stable Sales Volume

SMGR sales volume including Thang Long Cement in Vietnam reached 23.8 million tons (mt) an increase of +4.9% yoy in 9M2018. Industry domestic sales volume was 49.76 million tons (mt), or stable (+4.9%) compared to 9M2018. SMGR’s domestic volume only increased by 1.2% YoY.
The lower growth in domestic sales is due to SMGR’s decision to increase selling prices since November 2017.
We expect an improvement in cement demand from a pickup in infrastructure development in the last quarter of 2018. In addition, the latest mortgage policy is expected to boost the property market and help a recovery in cement demand.

Valuation: TP 11,200 with 17% upside

Assuming lower opex in 2018 and improving cement demand in 4Q2018, We are targeting SMGR share price to reach IDR 11,200 with 24.6x PE.
Using a DCF valuation with WACC at 9.6%, we estimate SMGR shares will rise by 17% within a year. As the price already increase in October (+22%), we recommend to HOLD.

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