Results Review:
Semen Indonesia SMGR IJ, Neutral, TP: IDR9,800)
Changing Focus To Improve Margins
Semen Indonesia SMGR IJ, Neutral, TP: IDR9,800)
Changing Focus To Improve Margins
In
January, Semen Indonesia slightly raised its ASP to partly pass on higher
energy costs to customers. To boost earnings, we note that it is now focusing
more on growing profitablity than increasing market share. The company’s 4Q16
earnings came in above our expectations, driven by a gain on taxes from asset
revaluations, as well as higher other income. We remain NEUTRAL on the stock,
with a DCF-based TP of of IDR9,800 (7% upside) that also implies a FY17F P/E of
12x.
¨ Higher ASP in
January.
On a MoM basis, Semen Indonesia slightly raised its domestic cement ASP to
IDR763,000/tonne in January (+0.3% MoM, Dec 2016: IDR761,000/tonne). We believe
this was done mainly to maintain its EBIT margin on the back of pressure from
higher energy costs. We expect energy costs – which accounted for c.24% of FY16
COGM – to further increase after its coal purchase contracts are renewed, and
in line with the trend of higher international coal prices. The majority of its
coal is purchased under 3- or 6-month contracts.
¨ 4Q16 earnings are better than expected. Semen Indonesia’s
4Q16 earnings jumped to IDR1.6trn (+65% QoQ, +20% YoY), which came in higher
than our expectations. The performance was driven by gains on taxes from asset
revaluation, as well as higher other income from its waste treatment business.
Its operational EBIT margin declined to 15.6% in 4Q16 (from 19.8% in 3Q16),
which we believe was driven by both lower ASPs and higher expenses. Its
domestic cement ASP declined to IDR766,000/tonne in 4Q16 (-3% QoQ).
¨ Still NEUTRAL. Our DCF-based TP of
IDR9,800 implies FY17F P/E of 12x. Although Semen Indonesia is trading at low
P/Es, ie at close to -2SD from its average forward rolling P/E mean, we do not
think it is an attractive option given the strong headwinds in the industry.
Risks to our call are detailed on page 3.
Kindly click the following link for the full report: Semen Indonesia : Changing Focus To Improve Margins
Andrey Wijaya
Senior Vice President
Research Analyst – Auto,
Consumer, Cement
PT. RHB Securities
Indonesia
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