I recently met with Mr. Irwan Suarly, the marketing director of Semen Gresik. He joined the management team in 2006 after the Rajawali group purchased its 25% stake. Prior to Semen Gresik, he worked for the Riau Andalan Pulp & Paper (RAPP) group which at one point managed to fetch the highest selling price for its paper products in Asia. He is looking to stay with Semen Gresik, provided that he gets re-appointed in the upcoming June EGM.
Bottom-line: 2010-11 earnings could see some consensus upgrades, but 2012 should be a big year for SMGR, with capacity expansion & cost cutting initiatives kicking-in. Margins should be steady when costs are rising, but should expand when costs are falling in Rupiah term. Cost cutting initiatives with regard to switch from medium rank to low rank coal not yet built into consensus estimate, a potential 4-5% lift to EBITDA margin. JPMorgan analyst is factoring a margin erosion from 33% in 2009, to 33% in 2010, to 32% in 2011, to 32% in 2012. Her forecast is in-line with consensus. I would bet for margin expansion instead. BUY ahead of potential MSCI weighting adjustment (upward) at the end of May. The stock trades on reasonable 13.4x and 13.1x P/E for 2010-11 based on conservative estimates.
#1. It is all about regional competition, not national!
Local brands tend to dominate in each region with strong brand loyalty; Indonesia is a big country. Semen Gresik's regional brand position (and pricing power) is a lot stronger than what it appears at the national level (national capacity market share of 38%).
In East Jawa, Semen Gresik brand commands 80% market share. In the Sumatera island, its Semen Padang brand commands 45% market share, with the number two being local brand Semen Andalas with 18% share. In the Sulawesi island, its Semen Tonasa brand commands 53% market share, with the number two being local brand Semen Bosowa with 23% share. In the Kalimantan island, it commands a 53% market share with a distant competition from Indocement with 28% share.
West Jawa, being the biggest cement market currently, is a three-way competition among Semen Gresik, Indocement, and Holcim with almost equal shares.
#2. Comfortable with pricing power, with the ceiling being lower cement prices in neighbouring countries.
Management seems confident about ability to pass-on cost increases, if any, given the market dynamic and its dominant market position at regional level. But they are watching closely the potential arbitrage opportunities, closing the doors at all time for potential imports from Malaysia and Thailand (among others).
Semen Gresik's net selling price is around US$75/ton at the moment. Cement price (fob) in Malaysia is ranging between US$65-68, in Thailand is about US$65, and in the Philippines is about US$85. Mr. Irwan reckons there is supply excess of about 12mn tons in Malaysia (28mn tons capacity and 16mn tons domestic consumption), and an excess of about 20mn tons in Thailand (60mn tons capacity and 40mn tons domestic consumption).
#3. Steady margins when costs are rising, expanding margins when costs are falling.
Margins should be steady when costs are rising, but should expand when costs are falling in Rupiah term. Strengthening Rupiah (if accompanied by strengthening MYR and THB) should lead to margin expansion. Dollar related costs should at least account for about 50% of cash costs (fuel, transport, and packaging).
Cost cutting initiatives should bear most fruits in year 2012. They are modifying its plants to take-on low calory coal starting year-end 2011. In 2009, SMGR consumed 3.2mn tons of coal, 18% of which is high grade above 5,700kcal, 70% of which is medium grade above 5,200kcal, 12% of which is low grade below 5,200kcal. Once the plants are able to consumer more low grade coal, they estimate a cost saving of between Rp200-300bn per year, vs. Rp150bn investment. Price gap between medium and low grade coal is huge in Indonesia. Rp200-300bn accounts for 4-5% of EBITDA in year 2009.
Tidak ada komentar:
Posting Komentar