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Sunday, June 12, 2011

PT. Semen Gresik Tbk

by Kresna Securities

We are confidence that the recent temporary disturbance at Tonasa IV will not give significant impact to the company's performance this year. In addition, successful de-bottlenecking program at Tuban is expected to boost production this year. The de-bottlenecking has pushed sales volume in Apr11 up by 15.2% YoY, particularly in Java (+26.3% YoY). Currently, the counter is trading at FY11 P/E of 13.1x, more attractive than its competitors (INTP's at 16.2x and SMCB's at 16.1x). Maintain BUY with TP of Rp12,200 per share.

· Successful de-bottlenecking program at Tuban Plants... During our latest discussion with the management, it revealed that one of the obstacles to increase production was that they need some more time to adjust with new technology from the de-bottlenecking programs, particularly at Tuban, East Java. However, the obstacle has been resolved in early Apr11.

· ...supported sales volume in Apr11. Having said that, the company was able to book domestic sales volume of 1.6m tons in Apr11, increased by 15.2% YoY from 1.3m tons a year before or by 2.9% from 1.5m tons in Mar11. The performance was mainly supported by strong cement sales in Java, which jumped by 26.3% YoY to 741.4K tons Apr11.

· Minor impact on temporary disturbance at Tonasa Plant IV. Regarding to recent electricity shortage at Tonasa IV, SMGR plans to close the production facility temporarily for 10 days, estimating around 40,000 tons of production loss due to the closure.

· New plants progress on track. By Apr11, the constructions of the new production facilities in Tonasa and Tuban have reached 84.1% and 84.4% respectively. Although the construction at Tonasa V seems a little behind schedule, we remain confidence that the construction can be completed on time. The two facilities will increase capacity by 5.0m tons in 2012.

· No revision is needed regarding to recent disturbance. We believe the disturbance will not hamper SMGR's overall performance this year since the scale is insignificant as compared to our expectation of 19.4m tons. The potential production loss of 40,000 tons on the temporary disturbance accounts for only around 0.2% of our expectation. In addition, given Tonasa’s utilization rate of 90%, we believe 10-day disturbance in Tonasa IV should not affect its overall production with the support from other plants in Tonasa.

· Maintain our BUY recommendation. As we expect no major impact on the issue, we retain our forecast on revenue to grow by 12.5% YoY to Rp16.1tr this year with net income to increase by 17.3% YoY to Rp4.3tr. Currently, the counter is trading at attractive FY11 P/E of 13.1x, laggard as compared to its competitors INTP (16.2x) and SMCB (16.1x).

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