Indopremier SMGR (BUY TP Rp 10000)

Inline Result
Despite a typical slow revenue growth, Semen Gresik Group was able to record superb profitability in 1Q10, thanks to strengthening Rupiah and cost efficiency program. All in all, the 1Q10 financial performances were inline with our forecast, in which the company revenue and net profit fulfilled 19% and 21% of our full year estimates, respectively. Semen Gresik Group dominates domestic market share, has a strong balance sheet while still conducting favorable valuations. We maintain our BUY rating for this stock with fair value Rp 10,000 which reflects 15.6x-4.83x PE-PBV FY10F valuation.

Still dominate domestic market
Semen Gresik Group (SGG) registered a 12.4% YoY growth in sales volume to 4.24 million tones during the 1Q10 period, the lowest growth compared to its competitors. Consequently, the company market share has plunged from 45.7% in 1Q09 to 43.6% in 1Q10. Loss of market share was expropriated by competitors Indocement and Holcim because of their spare utilization capacity of 25% and 19%, respectively. Nonetheless, worth to point that SGG dominates domestic market share by significant percentage points over its competitors as a result of its sales area diversification strategy.

Recorded superb profitability
Although the 1Q10 revenue only registered a slightly increase (0.6% YoY), SGG was able to record superb profitability, thanks to strengthening Rupiah and cost efficiency program through the use of a low-calorie coal and an alternative fuel development as well as synergy resulted from raw materials supplied from within the group.

Expansion Update
Besides the optimization of SGG production capacity through the construction of 2 new cement plants with total capacity of 5 million tones p.a. and additional capacity of 500k tones, SGG also plans to build 4 packaging plants this year which is aimed to anticipate strong domestic demand for the next 5 years and cost saving in transportation and distribution.

Maintain BUY - fair value at Rp 10,000
All in all, the 1Q10 figures were in-line with our forecast, in which revenue and net profit represent 19% and 21% of our full year estimates, respectively. We maintain our FY10 forecast for Semen Gresik, and at yesterday closing price, the counter is traded at 12.87x-3.98x PE-PBV FY10, still provide attractive valuation in cement sector universe. Hence, we maintain our BUY recommendation with fair value at Rp 10,000 which offers 21% upside potential.