OSK Semen Gresik (SMGR IJ – Buy, target price Rp10,100), Bottom in-line

Sales came in at Rp6.7t in 1H10 (+5.2% QoQ or -1.6% YoY), slightly below our expectation because of lower sales volume. However, better-than-expected operating efficiency and lower effective tax rate have caused bottom-line profit to be in line with our expectation, coming in at Rp1.7t in 1H10 (+16.9% QoQ or 15.0% YoY), reaching 48.8% of our full-year estimate. We maintain our forecast and BUY recommendation with target price of Rp10,100 at which the counter will be traded at 16.8-13.5x FY10-11 PE. SMGR is attractively trading at 15.1-12.2x FY10-11 PE, much lower than its peers, Indocement (INTP) and Holcim Indonesia (SMCB) which are trading at 17.3-15.6x FY10-11 PE and 17.6-14.0x FY10-11 PE, respectively. Given SMGR’s strong cash position, strong profitability, and strong position in domestic market, it is unjustified to trading at discount to its peers.