Thursday, September 8, 2011

Semen Gresik

by Kresna Securities

we enjoyed a friendly breakfasting session with the management of Semen Gresik (SMGR); this provided an opportunity for us to learn of updates on the progress of its new plants as well as sharing insights on next year’s targets. Here are some key points from our meeting:

Good progress on its new plants. Management announced that the progress of its new Tuban IV plant has reached 91.1%, sooner than their expectations; hence, they estimate the plant will be completed by the end of this year (initial plan by Feb/Mar12). On the other hand, the Tonasa V plant was a little behind schedule because of logistic difficulties. However, progress has reached 89.4% of the target and the plant is thus estimated to be ready for operation by Mar12, only 3 months behind the original plan. The two of these will boost production capacity by 5.0m tons.

Sales volume is estimated to accelerate by 18% YoY next year. The company also indicated this year’s sales are anticipated to reach 19.5m tons, a realistic target in our view, since 7M11 sales marked 11.0m tons. For next year, SMGR is targeting sales to reach 22.0m-23.0m tons, 13-18% higher than this year, adding in the operations of its new plants. From 23.0m tons, 11.7m tons will be contributed by Semen Gresik, 6.2m tons from Semen Padang, while the remaining 5.1m tons will be delivered from Semen Tonasa.

Less maintenance in 2H11. Interestingly, the company displayed for us their plant maintenance schedules for 2011. During the first 7 months the company has carried out maintenance on its all plants across Indonesia, while during the remainder of this year, the company only scheduled four maintenance sessions in its plants, namely, Indarung II, Indarung IV, Tuban I and Tuban III. In our view, this signifies lower maintenance costs by the end of the year, while on the upside it will potentially facilitate increased company production volume.

Caution in hiking its prices. The company also still sees an opportunity to increase its selling price by 2% this year; however, they indicated they would take care with any such decision since Indonesia's cement price is already quite high compare to that of other countries, and they don't want any foreign competitors sensing an opportunity to enter the market.

Maintain BUY recommendation with TP of Rp10,950. We maintain our forecast at the moment, as we see no significant impact from the current update on company performance this year. However, we believe the completion of its new plant in Tuban (less than 6 months away) will provide a positive catalyst on the counter. SMGR's valuation at FY11 P/E of 13.1x is also more attractive than INTP (FY11 P/E of 16.0x) and SMCB (FY11 P/E of 16.4x). Hence, we reiterate our BUY call on the counter with TP of Rp10,950.

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