by Lautandhana Securities
Semen Gresik Group’s (SGG) FY10 revenue reached Rp 14.34 trillion, which is roughly flat compares to Rp 14.39 trillion in FY09, however, its net profit climbed by 9.2% YoY to Rp 3.63 trillion.
On quarterly basis, 4Q10 SGG revenue grew by 11.6% QoQ to reach Rp 4.05 trillion vs Rp 3.63 trillion in 3Q10. Operating and EBITDA profits also increased by 10.9% QoQ and 11.3% QoQ, respectively, while net profit surged by 24.25% QoQ from Rp 895 bilion in 3Q10 to Rp 1.11 trillion in 4Q10.
Tonasa V new cement plant is expected to commence operation in 4Q11, while Tuban IV will follow in early 2012. These additional capacities will increase SGG annual installed capacity from 19.5 million tones p.a. in 2010 to 22.5 million tones p.a. in 2012.
Overall, FY10 SGG result is in line with our estimates. In FY10F, we projected SGG revenue and net profit attained to Rp 14,2 trillion and Rp 3.5 trillion, respectively.
We like that SGG managed to improve their profitability, notably due to production cost’s efficiency through the development of alternative fuel and ability to use low calorie coal. This resulted in an improvement in unit cost of production by 2% YoY. By then, SGG operating margin increased from 30% in FY09 to 31% in FY10. Meanwhile, FY10 net profit margin was recorded at the highest level of 25.3% in its history, partly due to lower corporate tax rate since the company’s public portion surpassed 40%.
The construction of its new cement plant located in Tonasa (Tonasa V) and Tuban (Tuban IV) is on schedule. As of February 2011, the progresses of its constructions have reached 79% in Tonasa V and 78% in Tuban IV. Meanwhile, the progress of power plant project in Tonasa only reached 16% from the schedule due to the contract renegotiation. Hence, SGG has secured electricity supply from PLN to support the operation of Tonasa V this year.
This year, we expect SGG gross margin will improve to 48.8%, backed by increase alternative fuel usage, fully shifting coal consumption from high-medium calorie to low calorie and stronger Rupiah-US$ currency. Meanwhile, SGG’s revenue and net profit is projected to grow 9% YoY and 8% YoY reaching Rp 15.64 trillion and Rp 3.93 trillion, respectively. The company’s balance sheet is in a healthy position with net cash position in end of 2010.
Based on FY2010 result, we make a slight adjustment to the average selling price of the company. Using a 12.2% WACC assumption, our DCF calculation resulted in a new fair value is Rp 11,000 per share (previously Rp 11,500 per share). The new target price represents PER of 16.59x FY11F and PBV of 4.67x FY11F. Currently, SGG is trading at PE of 13.72x FY11 and PBV of 3.86x FY11. We maintained our BUY recommendation which offers 21% upside.