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| 1PT. Semen Indonesia, Tbk (SMGR)
Equity Research Report, November 23
rd, 2015
SMGR’s price movement is underperforming JCI JKSE in the last 12-months with 1.4 - 1.6 Beta.
Analysts:
Robertus Yanuar Hardy
+6221 5790 5455 Shanti Dwi Jayanti (Research Associate)
Expecting growth acceleration from infrastructure
development projects and related sectors.
9M 2015 financial and business performance
Revenue declined 1.2% to Rp16,115 bn in the first 9-months of this year from Rp19,349 bn in the same period last year. However, increasing production costs especially from manufacturing overhead has squeezed profit margins so net income fallen 21% to Rp3,198 bn from Rp4,077 bn.
(Exhibit 1 and 5).
The company is already experiencing a tough challenge this year, where domestic cement consumption declined 1.9% in the first 9-months of this year (Exhibit 2), as a result of slowing economic growth and weakening property sector. The government’s instruction to lower SMGR’s cement selling price in January is adding more difficulties for the company to increase sales value. In addition to that, the reduction of fuel and electricity subsidy also contributed to increasing costs.
Brief company profile
PT. Semen Indonesia, Tbk (SMGR) is a holding of 3 state-owned cement companies. They are:
• Semen Padang that is mainly operating in Sumatra,
• Semen Gresik that is mainly operating in Java and Kalimantan, and
• Semen Tonasa that is mainly operating in Sulawesi, Kalimantan, and Eastern Indonesia.
Currently the group holds the largest market share and production capacity in the country’s cement industry (Exhibit 3 and 4).
Opportunities and challenges in the future
SMGR is still in the mission to expand, with Semen Gresik’s new factory in Rembang, Central Java, is scheduled to be fully operating in September 2016, meanwhile Semen Padang’s Indarung VI plant in West Sumatra is scheduled to be fully operating in November 2016. Both projects will add 3 mn tons each to the group’s annual production capacity. These expansion plans are intended to maintain SMGR’s position as market share leader (Exhibit 3).
Possible challenges in the future could come from the addition of several new cement producers (Exhibit 4). Price war is the most likely scenario that will occur. However, with years of experience and nation wide distribution channels, we expect SMGR could survive the competition by increasing efficiency to maintain profit margins. We also expect the groundbreaking of several strategic infrastructure projects by the Government recently could affect other related sectors, especially property, to grow together next year.
Valuation and recommendation
We are maintaining Buy rating with target price at Rp12,700. Implying 14.8x of 2016 P/E Ratio, which inline with SMGR’s average P/E Ratio in the last 5-years. Our projection is already based on expected increase in domestic cement consumption in the future especially after the groundbreaking of several infrastructure projects by the government that are expected to stimulate growth in other related sectors, especially property.
Risks to our projection
Other than the possibility of price war from new competitors, we see currency volatility could be a problem for the company’s financial performance, regarding some of the raw materials are still have to be imported, and also more than 30% of the company’s long term debts are in foreign currency.
Current Price 11,400
2016 P/E 13.3
Target Price 12,700
2016 P/E 14.8 Basic Indust ry, Cement .
Bloomberg ticker SMGR:IJ
Reuters ticker SMGR.JK
52 w eek High 16,800
52 w eek Low 7,100
Shares Outstanding (mn shares) 5,932 Market Cap (Rp tn) 67.6 Market Cap (US$ bn) 4.9
USDIDR 13,700
JCI JKSE 4,561
Daily Average Vol ('000 shares) 6,604 Daily Average Val (Rp bn) 63 Daily Average Val (US$ mn) 4.6 Major Shareholders:
Indonesia Government 51.01%
Public 48.99%
Relat ive Performance vs JCI JKSE:
BUY
-60% -50% -40% -30% -20% -10% 0% 10% JCI JKSE SMGRwww.reliance-securities.com, www.relitrade.com | Please see important disclosure information on the final page of this document
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| 2HEAD OFFICE
PT. Semen Indonesia, Tbk (SMGR)
Revenue Cont ribut ion
(Rp bn) 9M 2014 9M 2015 Change Cont ribut ion
Cement Sales 18,656 18,346 -1.7% 96.0%
Ready mix concrete 312 336 7.7% 1.8% Clinker 196 213 8.7% 1.1% Cement bags 25 45 80.0% 0.2% Mining Services 25 43 72.0% 0.2% Industrial estate rental 19 16 -15.8% 0.1% Industrial estate sales 17 1 -94.1% 0.0% Blasting services 4 - - 0.0% Others 93 114 22.6% 0.6%
Cost St ruct ure
(Rp bn) 9M 2014 9M 2015 Change Cont ribut ion
Manufacturing overhead 9,247 10,084 9.1% 85.7%
Labor 1,031 1,065 3.3% 9.0% Raw materials 561 617 10.0% 5.2% Cost of other sales 4 2 -50.0% 0.0%
Domest ic Cement Market Share, 9M 2015. SMGR 42.8% INTP 28.2% SMCB 14.2% Bosowa 5.1% Andalas 3.0% SMBR 2.5% Ot hers 4.2%
Domest ic Cement Product ion Capacit y Year 2015 (mn ton p.a.)
SMGR 30.0 INTP 25.9 SMCB 12.1 Andalas 1.6 SMBR 2.0 Bosow a 6.0 Kupang 0.5 Jui Shin 2.0 Puger 0.3
Year 2016E* (mn ton p.a.)
Merah Putih 4.0 Anhui Conch 1.7 Siam Cement 1.8 Pan Asia 1.8 TOTAL 2016E 89.7 *possible addition
Exhibit 1: 96% of the company’s revenue are generated from cement sales, where more than 70% is from bagged cement sales, and the rest is from bulk cement sales.
Manufacturing overhead contributes the largest to COGS, reaching almost 86%. The weakening of Rupiah exchange rate has also contribute to the increase of several costs, regarding some of the raw materials is still have to be imported, or using foreign currency as benchmark pricing.
Exhibit 2: Domestic cement consumption slightly declined 0.4% in the first 10-months of this year. However, we expect full year achievement will at least equal last year at 59.9 mn tons, and starting to gain some growth next year, following the groundbreaking of most of the government infrastructure projects recently, where as a state-owned company, we expect SMGR could benefit more than other companies to provide cement and ready mix concretes. We also expect national business and investment climate especially in the property sector could recover next year and benefit SMGR further as the company with nation-wide product distribution channels.
Exhibit 3: SMGR is currently still the largest market share holder in domestic cement sales. Together with INTP, the company is dominating more than 70% of the country’s cement market. We consider both companies as primary benchmark for others, in terms of product price and business achievements.
Exhibit 4: There will be a tougher challenge for companies in national cement industry in the future, where the possible addition of production capacity from several new players will also increase competition. However, with years of experience and ongoing innovation to increase efficiency and productivity, we expect SMGR could survive from possible stronger challenge from new competitors in the future.
Sources: company’s report, ASI, bloomberg, Reliance Research.
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| 3PT. Semen Indonesia, Tbk (SMGR)
Exhibit 5:
Income St at ement Balance Sheet
(Rp bn) 2014 2015E 2016E 2017E 2018E (Rp bn) 2014 2015E 2016E 2017E 2018E
Revenue 26,987 26,760 28,366 30,210 32,325 Cash 4,926 3,807 3,764 3,598 3,298 Gross Profit 11,599 10,786 11,575 12,478 13,513 Restricted cash 14 10 12 14 17 EBT 7,091 5,997 6,493 7,062 7,716 Short term investment 92 93 95 97 99 EAT 5,574 4,714 5,104 5,551 6,065 Account receivables 3,433 4,070 4,680 5,383 6,190 Net income 5,566 4,707 5,097 5,544 6,056 Inventories 2,812 3,177 3,336 3,503 3,678 EPS 938 794 859 935 1,021 Advances, prepaids & taxes 373 644 692 744 799
Tot al Current Asset s 11,649 11,801 12,579 13,338 14,081
Current Price 11,400 Deferred tax assets 40 37 38 39 40 P/E 13.3 Investment in associates 147 175 210 252 303 Target Price 12,700 Investment properties 183 216 270 338 423 P/E 14.8 Fixed asset 20,221 22,360 24,827 27,656 30,883 Purchasing advances 532 722 730 737 744
Rat ios & Margins: 2014 2015E 2016E 2017E 2018E Deffered charges 113 129 138 147 156 Revenue grow th 10.1% -0.8% 6.0% 6.5% 7.0% Intangible assets 1,104 1,182 1,200 1,218 1,236 Gross Profit margin 43.0% 40.3% 40.8% 41.3% 41.8% Other 326 356 365 374 384 Net Profit margin 20.6% 17.6% 18.0% 18.4% 18.7% Tot al NC Asset s 22,666 25,179 27,779 30,761 34,169
Net Profit grow th 3.6% -15.4% 8.3% 8.8% 9.3% Tot al Asset s 34,315 36,981 40,358 44,099 48,250
ROA 16.2% 12.7% 12.6% 12.6% 12.6% Short term bank loans 82 164 177 190 204 ROE 22.3% 17.1% 16.6% 16.3% 16.0% Trade payables 3,032 3,370 3,673 4,003 4,364 Total Debt 3,913 3,830 3,717 3,614 3,521 Other payables 215 320 344 370 398 Cash 4,926 3,807 3,764 3,598 3,298 Accrued expenses 445 562 579 596 614 Net Debt (1,013) 22 (48) 16 223 Taxes payable 272 154 115 87 65 Book Value per share 4,215 4,629 5,162 5,747 6,393 ST Employee Benefit Liab 682 513 518 523 528 Dividend per share 407 418 349 374 402 Sales advances 30 22 22 22 22 Dividend payout ratio 45.0% 44.5% 44.0% 43.5% 43.0% Current maturities of LT Debt 516 580 609 640 672
Tot al Current Liabilit ies 5,273 5,685 6,037 6,431 6,867
Cash Flows Deferred tax liabilities 58 119 122 125 128
Change in w orking capital (929) (1,096) (638) (723) (828) Employee benefits liabilities 479 393 402 412 423 Net income 5,566 4,707 5,097 5,544 6,056 Long term loans - net 3,315 3,085 2,931 2,784 2,645 Depreciation 1,237 1,264 1,276 1,289 1,302 LT Provision 175 184 187 189 192
Net t cf from operat ion 5,874 4,875 5,735 6,109 6,530 Other 12 58 63 67 72 Capex (2,595) (3,403) (3,743) (4,118) (4,529) Tot al NC Liabilit ies 4,039 3,839 3,705 3,579 3,461 Net cf from invest ment (2,595) (3,403) (3,743) (4,118) (4,529) Tot al Liabilit ies 9,312 9,524 9,742 10,010 10,328
Loans and Debts (170) (83) (113) (103) (93) Employee Benefit Liabilities 114 (255) 15 15 16 Equit y
Non Ctrling Int 39 98 122 134 148 Share capital 593 593 593 593 593 Chg in Equity 10 126 12 12 13 Additional paid in capital 1,458 1,458 1,458 1,458 1,458 Dividend (2,417) (2,477) (2,071) (2,217) (2,384) Retained earnings 21,630 23,860 26,886 30,212 33,885
Net cf from financing (2,423) (2,591) (2,035) (2,158) (2,301) Other comprhnsv income 360 486 498 511 523
Sub t ot al Equit y 24,042 26,398 29,436 32,774 36,460
Net Cash Flows 855 (1,119) (43) (167) (300) Non Controlling Interest 960 1,059 1,181 1,315 1,462 Cash at the beginning of the year 4,070 4,926 3,807 3,764 3,598 Tot al Equit y 25,002 27,457 30,616 34,089 37,922 Cash at t he end of t he year4,926 3,807 3,764 3,598 3,298
(Rp bn) 9M2014 9M2015 Revenue 19,349 19,115 growth -1.2% Gross Profit 8,451 7,513 margin 43.7% 39.3% Net income 4,077 3,198 growth -21.6%
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