CIMB Semen Gresik Result note - Continues to please

(SMGR IJ / SMGR.JK, OUTPERFORM - Maintained, Rp6,650 - Tgt. Rp8,400, Construction and Materials)

Maintain Outperform on Semen Gresik. 9M09 net profit was slightly ahead of our estimate due to higher margins and other income. Semen Gresik has started spending on its new cement plant and equipment totalling Rp0.7tr (in 3Q09 alone). We expect this to boost depreciation and amortisation costs in FY09 and are thus maintaining our estimates. No change to our stock rating or end-CY10 target price of Rp8,400, DCF-based (WACC 13%, LTG 5.5%). This implies 15.9x and 14.9x CY10-11 earnings. Catalysts could include positive growth in ASP and sales volume in FY10 and the success of cost-cutting initiatives. Semen Gresik has placed out all its treasury shares this month, at Rp6,075/share, resulting in additional cash of Rp413.3bn, which should be booked in 4Q09. Given its heavy capex planned for the next few years, we believe the placement proceeds will be spent on expansion.