As and when the fear of share placement overhang is removed, this is one laggard stock to look at. Top down, cement sector looks attractive as Indonesia’s GDP growth is set to accelerate, bank lending to pick-up, government spending to rise, property marketing sales to ramp-up, and toll-road projects to progress.
Even after we account for stronger EPS growth potential at peer stock Indocement, SMGR trades on lower 2011 P/E of 12.4x vs. INTP on 14.4x. (JPMorgan is forecasting 2010-11 EPS growth of 11% and 3% for SMGR, 16% and 15% for INTP), based on closing share prices of Rp7850 for SMGR and Rp14000 for INTP. With SMGR, there is scope for 2011 EPS to be lifted by 4-5% once the public floatation is increased, so 11.8x could be the more realistic P/E ratio to look at.
Arguably, SMGR and INTP should post similar growth prospects for 2012. SMGR should see construction of Tonasa V and Tuban IV adding 20% to installed capacity in 2012, driving 7-8% volume growth (similar growth with INTP). Liliana Bambang (analyst) is forecasting similar top line growth of 13-15%, and bottom line growth of 16-17% for both SMGR and INTP.
There is scope for SMGR trading liquidity to improve significantly, widening its potential investors base to include global funds. Its current public float is 24%, giving average daily trade of US$5.3mn (last six months). If the trading liquidity doubles, SMGR will rank sixth among the most liquid names in Indonesia after Bumi Resources, BRI, Telkom, Astra, Bank Mandiri, and PGAS.
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