Equity Research

Company Update

Friday,12 May 2017

HOLD Semen Indonesia (Persero)(SMGR.IJ)

Upgrade Sales boost
Last price (IDR) 8,800 We upgrade our recommendation on SMGR to HOLD with a higher target price of
Target Price (IDR) Rp8,600 IDR8,600 from IDR8,200 previously. With the stellar sales volume in 4M17, we
upgrade our full year sales volume estimate by 3.2% to 28.0mn tons. Although
Upside/Downside -2.3%
we also cut our ASP estimate by 2.1% to take into account the stiffer competition,
Previous Target Price (IDR) Rp8,200 we raise our non-cement revenues estimate given expansion of the RMC
business. SMGR currently trades at 16.5x 2017F P/E.
Stock Statistics
Sector Cement Stellar sales in April 2017. SMGR recorded domestic sales volume of 2.1mn tons in
Bloomberg Ticker SMGR IJ April 2017, up 9.4%yoy. This was mainly attributable to the accelerated
No of Shrs (mn) 5,932 construction of multiple government infrastructure projects (as indicated by the
brisker growth in bulk cement sales which surged 26.8%yoy compared to the
Mkt. Cap (IDR bn/USDmn) 52,197/3,917
3.4%yoy growth in sales of bagged cement). As a result, the cumulative 4M17 sales
Avg. daily T/O (IDR bn/USDmn) n/a/n/a increased by 8.2%yoy to 8.7mn tons.
Major shareholders
We raise our sales volume target. The 4M17 sales are 31.9% of our full year sales
Republic of Indonesia 51.0% volume target. While historically the 4M sales are 30% of the full year figure, we
Lazard LTD 2.4% are confident that SMGR will beat our 2017 sales volume target. This prompts us
Estimated free float (%) 39.3 to raise our 2017 sales volume target to 28.0mn tons, implying 6.5%yoy growth.

EPS Consensus ASP will remain under pressure. SMGRs higher sales volume has come, however,
2017F 2018F 2019F at the expense of lower ASP. SMGRs average domestic ASP in April 2017 reached
IDR737,939/ton, down 1.0%mom. Assuming that its selling prices remain stable at
Danareksa 534.2 545.9 584.9
this level throughout the year, SMGRs domestic ASP will be lower by 7.8%yoy. In
Consensus 634.2 681.9 752.3 our estimate, however, we expect the blended ASP to be 7.0%yoy lower, given the
Danareksa/Cons (15.8) (19.9) (22.3) higher contribution of revenues from cement distribution.

SMGR relative to JCI Index Flat 2017 sales to be offset by higher non-cement revenues. While we expect
cement sales in 2017 to be relatively flat on a yoy basis (-0.7%yoy), we also expect
non-cement sales revenues to double in 2017 thanks largely to higher revenues
from the RMC business and higher clinker sales. This year, Semen Indonesia Beton
(SI Beton, SMGRs subsidiary which focuses on the Ready Mixed Business) plans to
establish more batching plants (increasing the number of locations from 35 to 42),
thus raising its installed capacity to 3mn m3, particularly in areas outside Java. All
in all, we expect SMGR to record 2.9%yoy revenues growth this year.

Upgrade recommendation to HOLD. We upgrade our recommendation to HOLD

with a higher target price of IDR8,600 (DCF based valuation with WACC of 13.3%
and Terminal Growth of 4.0%). Our target price implies 16.1x 2017F P/E. SMGR is
currently trading at 16.5X 2017F P/E.
Source : Bloomberg
Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Antonia Febe Hartono Revenue, (Rpbn) 26,948 26,134 26,887 28,531 30,954
(62-21) 2955 5888 ext.3504 EBITDA, (Rpbn) 7,326 6,611 6,265 6,594 7,327
antonia.hartono@danareksa.com EBITDA Growth, (%) (10.8) (9.8) (5.2) 5.2 11.1
Net profit (Rpbn) 4,521 4,522 3,169 3,238 3,469
Stefanus Darmagiri EPS (Rp) 762.3 762.3 534.2 545.9 584.9
EPS growth (%) (18.7) 0.0 (29.9) 2.2 7.1
(62-21) 2955 5831 BVPS, (Rp) 4,454.1 4,895.1 5,122.7 5,453.8 5,819.1
stefanus.darmagiri@danareksa.com DPS, (Rp) 377.0 306.6 306.6 214.9 219.6
PER (x) 11.6 11.6 16.5 16.2 15.1
PBV (x) 2.0 1.8 1.7 1.6 1.5
Dividend yield (%) 4.3 3.5 3.5 2.4 2.5
EV/EBITDA (x) 7.1 8.4 9.2 9.0 8.3
Source : SMGR, Danareksa Estimates
www.danareksa.com See important disclosure at the back of this report 1
 Bonds issuance to reduce interest expenses
SMGR announced that it would issue IDR3tn of bonds in June 2017 (as part of its
IDR8tn shelf registered bonds). With an AA+ rating, we expect the coupon rate to
be below 10%. The proceeds from the bonds issuance will be used to refinance
the existing bank loans of Semen Tonasa (45.7%) and to finance its working
capital (54.3%). While SMGRs effective interest rate is currently 9.9%, we
estimate that the refinancing of its existing bank loans (which carry an average
interest rate of 10-12%) will lower the companys effective interest rate by 0.9%.

Exhibit 1. SMGRs sales in April 2017

Sales volume Market share
000 tons Apr-16 Mar-17 Apr-17 yoy chg mom chg 4M16 4M17 yoy chg 4M16 4M17
Java 965 1,081 1,136 17.8% 5.1% 3,819 4,276 12.0% 36.7% 38.3%
East Java 431 531 534 23.8% 0.7% 1,726 2,053 19.0% 66.1% 68.2%
Central Java 247 267 287 16.3% 7.6% 938 1,079 15.0% 42.5% 42.8%
Sulawesi 257 282 232 -9.8% -17.7% 1,056 1,046 -1.0% 62.3% 66.1%
South Sulawesi 93 115 19 -79.6% -83.6% 412 345 -16.3% 57.3% 55.0%
North Sulawesi 82 75 120 45.1% 59.5% 317 339 7.1% 63.7% 71.2%
Sumatera 422 429 461 9.2% 7.4% 1,779 1,729 -2.8% 43.3% 41.9%
West Sumatera 80 85 82 3.6% -2.7% 311 331 6.2% 95.5% 97.3%
North Sumatera 100 84 106 5.5% 26.2% 442 366 -17.3% 42.4% 37.0%
Kalimantan 158 130 185 17.2% 42.2% 581 594 2.3% 43.0% 46.0%
Other area 168 156 140 -16.4% -9.7% 664 625 -5.9% 41.6% 37.8%
Total Outside Java 1,005 997 1,018 1.3% 2.2% 4,081 3,994 -2.1% 46.6% 46.1%
Total Indonesia 1,970 2,078 2,154 9.4% 3.7% 7,899 8,270 4.7% 41.2% 41.7%
Total exports 40 133 111 174.2% -16.9% 96 384 300.0% 30.8% 64.9%
Total domestic &
2,010 2,211 2,265 12.7% 2.5% 7,995 8,654 8.2% 41.1% 42.4%
export
Source : SMGR, Danareksa Estimates

Exhibit 2. Changes to our forecast

Previous New Changes (%)
2016 2017F 2018F 2017F 2018F 2017F 2018F
ASP (Rp/ton) 864,172 820,952 820,952 803,669 803,669 (2.1) (2.1)
Sales volume (mn ton) 28.7 29.4 30.5 30.4 32.2 3.2 5.4
Coal price (USD/ton) 66.5 70.0 72.0 70.0 72.0 - -
Electricity cost (Rp/kWh) 857 892 927 892 927 - -
Revenue 26,134 25,781 26,824 26,887 28,531 4.3 6.4
Gross profit 9,856 8,804 8,909 9,190 9,523 4.4 6.9
EBITDA 6,611 5,981 6,152 6,265 6,594 4.8 7.2
Net profit 4,522 2,907 2,776 3,169 3,238 9.0 16.7
Source : SMGR, Danareksa Estimates

Exhibit 3. PE band company Exhibit 4. PE band sector

(x ) (x )
23.0 26.0
2sd 2sd
21.0 24.0
19.0 1sd 22.0 1sd
20.0
17.0 Average: 15.88 Average: 17.95
18.0
15.0
-1sd 16.0 -1sd
13.0
14.0
11.0 -2sd -2sd
12.0
9.0 10.0
Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17

Source: Bloomberg, Danareksa Sekuritas Source: Bloomberg, Danareksa Sekuritas

www.danareksa.com See important disclosure at the back of this report 2

 Exhibit 5. Income Statement
Year to 31 Dec (Rpbn) 2015A 2016A 2017F 2018F 2019F
Revenue 26,948 26,134 26,887 28,531 30,954
COGS (16,302) (16,278) (17,697) (19,009) (20,711)
Gross profit 10,646 9,856 9,190 9,523 10,243
EBITDA 7,326 6,611 6,265 6,594 7,327
Oper. profit 5,899 4,973 4,239 4,400 4,833
Interest income 241 184 153 156 163
Interest expense (370) (363) (513) (633) (781)
Forex Gain/(Loss) 0 0 0 0 0
Income From Assoc. Cos 34 37 19 56 56
Other Income (Expenses) 46 254 203 211 220
Pre-tax profit 5,851 5,085 4,101 4,190 4,490
Income tax (1,325) (550) (929) (949) (1,017)
Minority interest (4) (13) (3) (3) (3)
Net profit 4,521 4,522 3,169 3,238 3,469
Core Net Profit 4,521 4,522 3,169 3,238 3,469

Exhibit 6. Balance Sheet

Year to 31 Dec (Rpbn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 3,964 2,834 2,406 2,506 2,695
Receivables 3,629 4,018 4,281 4,543 4,844
Inventory 2,409 2,671 3,049 3,275 3,569
Other Curr. Asset 512 835 863 914 985
Fixed assets - Net 25,168 30,847 33,556 37,382 40,782
Other non-curr.asset 2,447 3,007 3,035 3,064 3,093
Total asset 38,153 44,227 47,204 51,697 55,982

ST Debt 769 1,686 1,225 1,781 2,071

Payables 3,978 4,383 4,522 4,858 5,293
Other Curr. Liabilities 1,853 2,083 2,184 2,218 2,276
Long Term Debt 3,156 4,450 6,256 7,817 9,105
Other LT. Liabilities 958 1,051 1,092 1,135 1,181
Total Liabilities 10,712 13,653 15,279 17,809 19,927
Shareholder'sFunds 26,420 29,035 30,385 32,349 34,516
Minority interests 1,021 1,539 1,539 1,539 1,539
Total Equity & Liabilities 38,153 44,227 47,204 51,697 55,982

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 Exhibit 7.Cash Flow
Year to 31 Dec (Rpbn) 2015A 2016A 2017F 2018F 2019F
Net income 4,521 4,522 3,169 3,238 3,469
Depreciation and Amort. 1,443 1,653 2,041 2,210 2,509
Change in Working Capital 1,239 (388) (466) (145) (154)
OtherOper. Cash Flow 214 (427) 360 476 619
Operating Cash Flow 7,418 5,360 5,104 5,779 6,443

Capex (5,168) (5,065) (4,740) (6,025) (5,899)

Others Inv. Cash Flow (183) (280) 115 117 123
Investing Cash Flow (5,351) (5,345) (4,625) (5,908) (5,776)

Net change in debt (28) 1,741 1,383 2,092 1,561

New Capital 0 0 0 0 0
Dividend payment 2,236 1,819 1,819 1,274 1,302
Other Fin. Cash Flow (370) (363) (472) (590) (736)
Financing Cash Flow 1,838 3,196 2,730 2,777 2,128

Net Change in Cash 3,904 3,211 3,209 2,649 2,794

Cash - begin of the year 4,926 3,964 2,834 2,406 2,506
Cash - end of the year 3,964 2,834 2,406 2,506 2,695

Exhibit 8. Key Ratios

Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales (0.1) (3.0) 2.9 6.1 8.5
EBITDA (10.8) (9.8) (5.2) 5.2 11.1
Operating profit (15.1) (15.7) (14.8) 3.8 9.8
Net profit (18.7) 0.0 (29.9) 2.2 7.1
Profitability (%)
Gross margin 39.5 37.7 34.2 33.4 33.1
EBITDA margin 27.2 25.3 23.3 23.1 23.7
Operating margin 21.9 19.0 15.8 15.4 15.6
Net margin 16.8 17.3 11.8 11.3 11.2
ROAA 12.5 11.0 6.9 6.5 6.4
ROAE 17.9 16.3 10.7 10.3 10.4
Leverage
Net Gearing (x) 0.0 0.1 0.2 0.2 0.2
Interest Coverage (%) 15.9 13.7 8.3 7.0 6.2

Source : SMGR, Danareksa Estimates

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