AAA SEMEN GRESIK Manage to live with a Flat Growth

Stable Revenue Growth
New Capacity expansion
Efficiency Initiative to manage profitability
Maintain Buy

At the end of 2008, SMGR achived revenue growth as 27% yoy or Rp. 12,2 tr. This number was slightly above our expectation at Rp. 10, 6 tr. The growing of company's revenue was backed by the increasing of volume sales as 3% yoy to 17,6 mn ton and also the increasing of average selling price as 23% yoy to Rp 691 th /ton.

Compare to national cement volume consumption growth in 2008 as 11,5% yoy, SMGR volume sales growth by 4,2% yoy shown below average industry. In our opinion, the lower volume growth compare to industry, was caused by SMGR limited capacity. Recently SMGR operate in full capacity in term of utilization rate as 98,1%. This would limit SMGR ability to fullfil the national consumption growth. Thats why, increase capacity by building a new cement factory was an important thing for the company to growth in a sustainable way.

SMGR also have an initiative efficiency program to manage its cost structure. The efficiency program consist of decreasing coal index consumption, start using alternative energy, decrease electricity consumption index, substitution of raw material with a lower price, improve maintanance system to manage cost, including packaging cost etc. With all of these consideration, company hope that the cogs/ton
would growth more or less as much as inflation rate around 7%-8% at the end of 2009.

Preasure of constant negative news in capital market for several month ago, impact on SMGR relative valuation reflected in trailing PER. In a normal situation SMGR usually trading at 18X compare to recently SMGR PE around 8X. When the global economic worsening fade out in the end of 2009 and going to be recovery expected in 2010, we hope that equity market start to be in a normal ralative valuation next year. With this considaration we keep to recomend Buy for this stock with TP at Rp. 7,100 for long term investment horizon.