The company always beats consensus estimates for the past few years, although not remarkably outstanding. In 2009, the company’s financial result was again slightly better than our forecast, although still within a 10% range. Margin was higher better given higher cement price (some +16.5% yoy). In 2010, we believe volume growth will be higher, as 2M10 figures has posted 8.5% yoy growth. To be conservative, w! e project ed 7.1% yoy growth for 2010, instead. At the current price, SMGR is attractive as it has the lowest PER10 and EV/ton among peers, of only 11.5x and US$219 (vs average peers of 14.2x & US$246, respectively). Given that, We upgraded our recommendation to Buy with a target price of Rp9,400/share.
FY09 resuls were relatively in line with consensus estimates. Slightly higher total sales volume as well as cement price (of some 0.5% yoy and 16.5% yoy) lifted FY09 revenue, as well as margins. FY09 revenue was up 17.8% yoy, while gross margin grew to 47.1% from 43.9% in FY08, given manageable cost increase of some 10.5%. yoy and lower allocation for export. Thus, net profit grew 31.8% yoy. This was in line with consensus estimates yet slightly higher than ours.
Growth should be very much higher in 2010… The company believes that domestic consumption will grow by 6.5% yoy in 2010. Yet we believe it could be higher, as February figure rose 8.5% yoy. To be conservative, we projected volume growth to reach 7.1% yoy in 2010. Commencement of major infrastructure projects could result in 1-2% additional growth, in our view.
… and will be able to maintain its margin. Strong domestic demand could prompt the company to further lower its cement export allocation. We favor this, as domestic market offers greater margin. Thus, it could offset 15% electricity tariff increase, although price increase will only be in tandem with inflation or may be even lower, in our view.
Buy with a target price of Rp9,400/share. SMGR has a sound fundamental with net cash position which reflects cash/share of Rp863, while in the mean time owns the biggest market share in the country (43.4%). At the current price, the company has the lowest PER10F valuation of 11.5x and EV/ton of US$219/ton among its peers. After the stock has been pressured for quite some time, we believe this will make SMGR more attractive. Thus we upgraded our recommendation to Buy with a target price of Rp9,400/share.
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