Result note - Potent mix of price strength and cost control - by Rania Rahmundita (SMGR IJ / SMGR.JK, NEUTRAL - Upgraded, Rp3,475 - Tgt. Rp4,000, Construction and Materials)
SMGR's FY08 net profit was 9% and 13% above our forecast and consensus expectations respectively, on higher ASPs. Adjusting for this, we raise our FY09-10 ASP assumptions by 5%. Coal costs could increase on annual re-pricing in Jan 09. We thus raise our FY09-10 cost assumptions by 10%. As a result, our FY09-10 EPS forecasts have been cut by 5-8%, but a better cash cycle has boosted net cash and lifted our target price to Rp4,000 (based on US$100 EV/tonne) from Rp3,700. We upgrade the stock to Neutral from Underperform as we believe its recent underperformance has been adequate, though positive catalysts for a re-rating can only come from rupiah strength and a domestic demand recovery in 2H09.
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