Indopremier SMGR (BUY - TP Rp 4.980)

1Q09 solid performance’s growth amid crisis
In 1Q09 Semen Gresik managed to book solid performance amid gloomy domestic and export volume which have fallen by 2.0% YoY and 4.6% YoY, respectively, due to global financial crisis. In this period, the company’s revenue expanded by 26.2% YoY attaining at Rp 3.22 trillion compared to Rp 2.56 trillion in 1Q08 which was much backed by 28.7% YoY cement’s average selling price (ASP) hike.

Fluctuated profitability in 1Q09
Profitability was also improved in the last quarter, thanks to management’s policy to maintain production cost remain stable. We noted that the ASP hike in 1Q09, reaching to Rp 804 thousand per tones managed to cushion the upsurge of COGS per tones (27.9% YoY, accounted to Rp 463 thousand per tones) which mainly driven by 49.9% YoY jumped in energy cost. As a result, gross margin improved to 42.7% in 1Q09 compared to 42.5% level in 1Q08. On the other hand, operating margin and EBITDA margin moved to the opposite direction, which tumbled 70 bps – 420 bps due to a significant increase in raw material, packaging, fuel and transportation costs.

Healthy balance sheet was an added value
Amidst gleaming profit and loss result, SMGR has also booked a healthy balance sheet. We viewed that this is an added value for the company amid financial crisis for facilities its expansion plan funding. On 31 March 2009, we noted that the company’s cash and cash equivalent grew by 2.1% YoY, becoming to Rp 3.05 trillion, still net cash position book and lowered in gearing ratio (registered below 0.05x in DER).

Maintain Buy – New target price at Rp 4,980
We believe that Government’s stimulus worth of Rp 12.2 trillion in infrastructure sector could stimulate domestic cement’s purchasing power to prop up cement domestic decline. Therefore, we maintain our BUY recommendation for this stock with new target price at Rp 4,980,- per share (previous TP Rp 4,420 per share) which is derived by using 14.19% WACC assumption (Rf= 11.84% and Rm= 5.45%) in DCF model calculation. At yesterday’s closing price, this new TP reflected 25% upside potential and represented PE and PBV valuation by 9.38x and 2.32x for FY09E.