by Lauthandana Securities
Semen Gresik Group (SGG) has released its 1Q11 result. Its revenue grew by 9.5% YoY to Rp 3.6 trillion compared to 1Q10 figure of Rp 3.2 trillion. SGG also booked net profit growth of 8.5% YoY from Rp 802 billion to Rp 871 billion.
SGG’s 1Q11 domestic cement sales volume was relatively flat at 4.3 million tonnes, compares to 1Q10 volume of 4.2 million tonnes. Meanwhile, SGG export sales climbed by 21.3% YoY from 30,350 tonnes to 36,811 tonnes.
The improvement in 1Q11 was mostly boosted by the increase of average selling price (ASP) by 7.8% YoY, recorded at Rp 819k per ton (vs Rp 760k per ton in 1Q10). Sales volume is relatively flat given limited production capacity since SGG has reached around 98% utilization rate. Hence, the company’s market share has declined to 41% from 44% from the same period last year.
SGG gross margin has eroded by 122 bps from 47.4% in 1Q10 to 46.3% in 1Q11, which was caused by higher production cost (+10.3% YoY) mainly from the increase in fuel cost (coal price increase). Meanwhile, its operating expense also increased by 10.5% YoY which resulted in lower operating and EBITDA margin (29.8% and 33.3% in 1Q11 vs 31.8% and 35.0% in 1Q10).
In all, 1Q11 SGG results are expected and came in line with our estimates. The revenue and net profit figure covered 23% and 22% to our full year estimates of Rp15.6 trillion in revenue and Rp3.6 trillion in net profit.
As of 31 March 2011, SGG still continued to book net cash position of Rp 3 trillion, while its debt equity ratio has slightly increased to 0.06x (vs 0,05x in 1Q10) since SGG has realized its bank loan commitment amounted Rp 808 billion to finance the construction of Tonasa V and power plant.
Despite of the inferior growth compared to its peers and declining margins, we believe that SGG will be able to improve its profitability with the use of alternative fuel and fully shifting coal consumption from high-medium calorie to low calories. A stronger Rupiah exchange rate will also benefit SGG. In addition, SGG is expected to regain its domestic market share to 44% by 2012 when Tonasa V plant will commence operation in 4Q11 and Tuban IV plant in early 2012. These additional capacities will increase SGG annual installed capacity from 19.5 million tones p.a. to 24.5 million tones p.a. in 2012.
We maintain our 2011 forecast, where SGG’s revenue and net profit are projected to grow by 9% YoY and 8% YoY reaching Rp 15.64 trillion and Rp 3.93 trillion, respectively. Currently, SGG is trading at PE of 14.17x FY11 and EV/EBITDA of 9.34x FY11, which offers attractive valuation compared to its peers. Maintained BUY recommendation and fair value at Rp 11,000 per share (17% upside potential).
The downside risk: higher energy price and lower than expected volume sales (due to the unpredictable weather and seasonal Lebaran Holiday).