FY08 result was relatively higher compared to IPS estimate and consensus
Amid global financial crisis, Semen Gresik managed to book gleaming FY08 financial performance which was boosted by strong cement demand in domestic market by 11.4% YoY and better average cement selling price (ASP). We noted that SMGR performance was relatively higher compare to our estimate and consensus by 14.1% - 30.4% and 6.0% - 11.2%, respectively.
Profitability tended to increase
During year 2008, SMGR profitability remained sound and tend to improve which was fuelled by higher ASP in 3Q08 and 4Q08 to offset production cost hike which rose 5.6% QoQ (3Q08) and 3.2% QoQ (4Q08), reaching to Rp 399 thousand/tone and Rp 412 thousand/tone, respectively. It made the company’s gross margin grew by 45% in 3Q08 and 45.8% in 4Q08, after contracted in 2Q08 which was caused by higher production cost (mainly for energy and transportation cost) due to commodities price hike during 1H08.
Cement sector’s growth is projected to slowdown
This year, cement sector is projected to slowdown due to global financial crisis. SMGR management said that domestic cement demand will grow by 0% YoY – 3% YoY attaining to 38.01 million tons – 39.3 million tones and there is no ASP hike. Despite of gloomy in cement outlook, the company plans to raise export volume in FY09 account to 1.5 million tones through acquire foreign cement plant in South-East Asia, i.e.: Malaysia and Vietnam to offset domestic market decline. In addition, we expect that The Government stimulus in infrastructure sector worth of Rp 12.2 trillion would be a catalyst to prop up domestic purchasing power.
FY09 sales only grow by 2.4% YoY
Respond to the FY08 result and SMGR guideline, we evaluate assumptions in SMGR financial performance. For year 2009, we forecast the company’s domestic cement volume will only grow by 0.6% YoY reaching to 16.8 million tones, drop by 0.8% from previously forecast. Meanwhile, export sale is projected to grow 49.4% YoY reaching 1.5 million tones. By Assuming there is no ASP hike in FY09, revenue and EBITDA are estimated to rise by 2.4% YoY and 5.7% YoY coming at Rp 12.5 trillion and Rp 4.1 trillion, respectively.
Improving efficiency through cost management
To maintain its profitability in FY09, SMGR is keen to improve operating efficiency, especially for energy consumption and imported materials through cost management, i.e.:
1. reduce oil consumption to less than 0.5% of total energy usage and coal index consumption;
2. reduce electricity consumption;
3. alternative fuel consumption such as : biomass development.
Valuation
Based on 15.23% WACC assumption in DCF model calculation, we derive new target price at Rp 4,420 per share from previous TP Rp 4,580 per share which reflects 19% upside potential and 10.43x – 2.58x PE-PBV valuation for FY09E. Currently, the counter was traded by valuation PE-PBV09 8.79x – 2.18x. By considering healthy financial condition and net cash, we still maintain BUY recommendation.
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