Friday, January 20, 2012

Semen Gresik - Contender Strikes Back

by ‎Etrading

Production capacity expansion boost future performance The capacity constrain has made the company loss its market share for 3 years in a row, this condition also benefited the under capacity company such as SMCB and INTP to gain market share. In the past, the company expands the capacity by debottlenecking or upgrading which only add slightly to its capacity, however due to strong cement demand, the Company will build new plants in Tuban, East Java and Tonasa, Sulawesi. This year we believe the company’s sales will grow 11.6% backing by 20% capacity expansion while the bottom line will grow to 20.5%.

Positive macroeconomic encouraging cement demand

The passing of the land reform bill in the end of last year and the investment grade rating for Indonesia will have positive impact in accelerating infrastructure project; these two factors are the answer in infrastructure development, land acquisition in one hand and financing in the others. Accelerating infrastructure developments encourage cement demand growth.

The company FY11 indicated performance in-line with our Forecast

Company sales and net profit for 2011 can reached 15 trillion IDR and 3.8 trillion IDR, this number in-line without estimation, we estimated the company’s sales increased by 10.6% to 15.8 Trillion last year and net profit increased by 2.3% reached 3.72 trillion. We are confidence with this year expanding production capacity can drive sales by 11.6% to 17.7 trillion and bottom line by 20.5% to 4,48 trillion.

The company FY11 indicated performance in-line with our forecast

We changed our risk free rate in our DCF calculation to 6.5% using 12 years Indonesia governments bond. We also changed our terminal growth from 5% to 4%, showing our more conservative view. We maintain buy recommendation with new target price 13,700/share or 16% potential upside from current price (11,800/share), reflecting PER2013e 16.167X.

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