Sunday, March 27, 2011

PT. Semen Gresik Tbk (SMGR)

by Samuel Securities

Strong 4Q10 Performance
Highlights: PT Semen Gresik (SMGR) posted FY10 net profit of Rp3.63tn, grew by 9.2% YoY from Rp3.32tn in FY09. While its revenue was flat at Rp14.34tn vs Rp14.38tn in FY09. While on QoQ basis, SMGR reported a strong improvement in 4Q10 with revenue and net profit grew by 11.6% and 24.2%, respectively.

SMGR’s FY10 results came in-line within our expectation as its revenue and net profit accounted for 98.8% and 102.2% of our FY estimate. Strong improvement in 4Q10 was mainly due to higher sales volume during 4Q10 which increased by 18.5% QoQ and the lower tax rate applied. The company also booked lower than expected interest expense as in FY10 the company only disbursed Rp500bn bank loan compared to our assumption of Rp1tn. Margins improved across the board with net margin up by 2.2bps to reach 25.3% mainly due to lower tax rate as SMGR enjoy the tax benefit this year as its free float is higher than 40%. On the balance sheet items, SMGR’s leverage profile was increased as the company starts to disburse its loan commitment to fund its new cement and power plant projects. DER inched up to 5.5% from 1.5% in FY09, while it still in net-cash position.

Action & Recommendation:
We maintain our future earnings forecast for SMGR given its in-line FY10 results. We expect in the next 2 years, SMGR will be able to claim back its market share loss as currently the company has adequate capacity to fulfill the demand growth. Currently trading at ‘11F PE and EV/EBITDA of 12.5x and 8.0x, we maintain our stances on the counter with potential final dividend yield of 3.2% at current price. BUY

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