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Semen Indonesia

2Q17 review: Negative seasonal impact

Semen Indonesia (SMGR) posted its 2Q17 financial results after the market close last
Friday (7/28). For the quarter, its revenue came in at IDR6.3tr (-2.1% YoY; -1.3% QoQ) and
Cement net profit at IDR346.5bn (-62.8% YoY; -53.6% QoQ). Despite having reflected weaker
achievements on both a yearly and quarterly basis, we think the 2Q17 performance is not
Company Report comparable in a YoY perspective given that the Eid al-Fitr holiday fell in the second
July 31, 2017 quarter in 2017, as compared to the third quarter in 2016. While SMGRs cement
performance was sluggish in 2Q17, it is worth noting that its ready-mix concrete (RMC)
business saw gradual improvement during the period. We maintain Hold on SMGR with
an unchanged target price of IDR9,000.
(Maintain) Hold
Seasonal event was a drag on performance
Target Price (12M, IDR) 9,000 For 2Q17, SMGRs revenue came in at IDR6.3tr (-2.1% YoY; -1.3% QoQ). Cumulatively, its
1H17 revenue stood at IDR12.7tr (+2.0% YoY), reaching 44.7% and 46.4% of our and
Share Price (7/31/17, IDR) 9,950 consensus FY17 revenue estimates. It seems that the cement business was still gloomy
during 1H17 given a decline in SMGRs cement business segment growth (-8.8% YoY).
Expected Return -9.5% However, the company saw improvement in its other businesses, such as RMC business,
which offset its sluggish cement performance. Cements contribution to SMGRs revenue
was squeezed from approx. 96% in 1H16 to only 86% in 1H17, while the RMC business
contribution gradually improved from 2% in 1H16 to 6% in 1H17.
Consensus OP (17F, IDRtr) 4.7
SMGRs gross profit margin (GPM) stood at 30.3% in 2Q17, far below that in 2Q16 at
EPS Growth (17F, %) -22.9
39.7%, which we suspect was due to higher coal price (YoY). However, the decline has
P/E (17F, x) 16.9
already been restrained given that the 2Q17 GPM was quite similar to that in 1Q17 at
Industry P/E (17F, x) 19.4
30.4%, reflecting relatively stable coal prices in both consecutive quarters. In the second-
Benchmark P/E (17F, x) 16.8 quarter operating level (selling, general, administrative expense (SG&A) level), SMGRs
Market Cap (IDRbn) 59,018.6 operating profit came in at IDR719.7bn (-45.9% YoY; -19.7% QoQ), and operating margin
Shares Outstanding (mn) 5,931.5 stood at only 11.4%, (vs. 20.6% in 2Q16 and 14.0% in 1Q17). For the bottom line, SMGR
Free Float (mn) 2,906.1 booked IDR346.5bn in net profit, bringing its 6M17 net profit to IDR1.1tr, reaching only
Institutional Ownership (%) 70.1
30.7% and 30.6% of our and consensus FY17 net profit estimates. The net profit
achievement portion until 1H17 was quite weak compared to the previous years (usually
Beta (Adjusted, 24M) 1.3
around above 40%).
52-Week Low (IDR) 8,050
52-Week High (IDR) 11,875 Better volume prospect in 2H17 but ASP remains a challenge
(%) 1M 6M 12M SMGR started 2Q17 with a better domestic volume sales achievement by growing +7.4%
Absolute -0.5 10.2 6.1 YoY in April and +3.6% YoY in May. However, the overall 2Q17 performance came down
Relative -0.7 -0.1 -5.8 due to the long Eid al-Fitr holiday in June. In 2Q17, SMGR booked 5.8mn tonnes in
domestic volume sales (-6.5% YoY vs. 6.3mn tonnes in 2Q16). Cumulatively during 6M17,
(D-1yr=100) JCI SMGR
it booked 12mn tonnes in domestic cement sales (-1.8% YoY; see Figure 1 and 2). Its
6M17 volume sales growth was mainly underpinned by Semen Indonesia (Semen Gresik
+4.0% YoY). Meanwhile, Semen Padang and Semen Tonasa saw a decline in their 6M17
volume sales growth (-8.5% YoY and -9.0% YoY, respectively). SMGR benefited from
80 significantly higher growth in East Java area, one of the home markets of its Semen
Gresik brand. Note that East Java is the biggest contributor to 1H17 cement consumption




in Java.

PT. Mirae Asset Sekuritas Indonesia

FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F
Basic Industry Revenue (IDRbn) 26,987 26,948 26,134 28,424 31,591
Gross profit (IDRbn) 11,579 10,646 9,856 9,664 11,057
Mimi Halimin Operating profit (IDRbn) 6,947 5,899 4,973 4,662 5,560
+62-21-515-1140 (ext.: 233) NP (IDRbn) 5,560 4,521 4,522 3,487 4,082 EPS (IDR) 937 762 762 588 688
BPS (IDR) 4,054 4,454 4,895 5,178 5,631
P/E (x) 10.6 13.1 13.1 16.9 14.5
P/B (x) 2.5 2.2 2.0 1.9 1.8
ROE (%) 23.1% 17.1% 15.6% 11.4% 12.2%
ROA (%) 16.2% 11.9% 10.2% 7.4% 8.0%
Note: NP refers to net profit attributable to controlling interests
Source: Company data, Mirae Asset Sekuritas Indonesia Research estimates
July 31, 2017 Semen Indonesia

SMGRs subsidiary in Vietnam, Thang Long Cement Joint Stock Company (TLCC) also booked
sluggish performance during 2Q17. For the quarter, its revenue came in at IDR381.3bn (-18.2%
YoY; -3.3% QoQ), and net profit at IDR8bn (-51.1% YoY; -19.4% QoQ).

With Eid holidays effects now behind us and activities having gone back to normal, we expect to
see better volume sales in 2H17 (vs. 1H17). However, despite the better outlook for 2H17 cement
sales volume, SMGRs weak domestic average selling price (ASP) remains a challenge. We suspect
this is due to the persisting tight competition among cement producers and partly due to bulk
cements increased contribution (bulk cement usually has a lower ASP than bag cement).

Maintain Hold on SMGR

We still maintain our bearish call on the cement sector given our belief that improvement in
cement volume sales will not be enough to offset the decline in YoY ASP this year. High coal prices
also pose an additional burden for cement producers. We note that fuel component in SMGRs
cement cost structure surged approx. 20% YoY in 1H17.

However, despite its sluggish performance in 2Q17 (which we mostly attribute to seasonal effects,
which shifted to the second quarter from the third quarter, normally), it is noteworthy that
SMGRs other business, the RMC, showed potential growth given its recent gradual improvement,
in our view. The exceptional growth in East Javas cement consumption was also positive for
SMGRs cement volume growth.

We lowered our net profit estimates, reflecting our lowered operating profit margin projections.
We also made adjustments in SMGRs debt estimates, reflecting its IDR3tr bond issuance in June
2017. We maintain our Hold recommendation with an unchanged target price of IDR9,000. The
upside risks to our call include: 1) stronger-than-expected recovery in the property market; 2) the
governments supportive actions for the property and cement sectors; 3) cement industry
consolidation; and 4) weaker-than-expected coal prices.

Table 1. SMGRs 2Q17 financial performance summary

FY (Dec.) 2Q16 1Q17 2Q17 YoY QoQ 6M16 6M17 YoY
Revenue (IDRbn) 6,449 6,399 6,315 -2.1% -1.3% 12,470 12,714 2.0%
COGS (IDRbn) -3,887 -4,456 -4,402 13.3% -1.2% -7,483 -8,857 18.4%
Gross profit (IDRbn) 2,563 1,943 1,914 -25.3% -1.5% 4,988 3,857 -22.7%
Gross profit margin (%) 39.7% 30.4% 30.3% 40.0% 30.3%
Operating profit (IDRbn) - SG&A 1,330 896 720 -45.9% -19.7% 2,563 1,616 -37.0%
NP (IDRbn) 931 747 346 -62.8% -53.6% 1,965 1,093 -44.4%
NP margin (%) 14.4% 11.7% 5.5% 15.8% 8.6%
Note: NP refers to net profit attributable to controlling interests
Source: Company data, Mirae Asset Sekuritas Indonesia Research estimates

Table 2. SMGRs 1H17 performance vs. before revisions target

FY17 (F) FY17 (F) 1H17 (A) actual to FY17F (%)
FY (Dec.) Mirae Consensus Actual Mirae Consensus
Revenue (IDRbn) 28,424 27,387 12,714 44.7% 46.4%
Pre-tax profit (IDRbn) 4,640 4,609 1,494 32.2% 32.4%
NP (IDRbn) 3,560 3,570 1,093 30.7% 30.6%
Note: NP refers to net profit attributable to controlling interests
Source: Company data, Bloomberg, Mirae Asset Sekuritas Indonesia Research estimates

Table 3. Earnings forecast revisions

FY (Dec.) 12/17 (Old) 12/17 (New) 12/18 (Old) 12/18 (New)
Revenue (IDRbn) 28,424 28.424 31,591 31.591
Gross profit (IDRbn) 9,664 9.664 11,057 11.057
Operating profit (IDRbn) 4,832 4.662 5,686 5.560
NP (IDRbn) 3,560 3.487 4,220 4.082
Note: NP refers to net profit attributable to controlling interests
Source: Company data, Mirae Asset Sekuritas Indonesia Research estimates

Mirae Asset Sekuritas Indonesia Research 2

July 31, 2017 Semen Indonesia

Figure 1. SMGRs domestic cement sales volume Figure 2. SMGRs domestic cement sales volume, 6M17

(mn tonnes) 2017 2016 (mn tonnes)

June 17: -29.0% YoY; -29.6% MoM 12.2
2.1 2.1 2.2
2.1 12.2
1.9 -1.8%
1.5 12.1

1.0 12.0

0.5 12.0

6M16 6M17

Source: Company data, ASI, Mirae Asset Sekuritas Indonesia Research Source: Company data, ASI, Mirae Asset Sekuritas Indonesia Research

Figure 3. SMGRs revenue contributors in 1H16 Figure 4. SMGRs revenue contributors in 1H17

2% 1%

Cement Cement
Ready-Mix Concrete Ready-Mix Concrete
Clinker Clinker
Mining services Mining services
Others Others


Source: Company data, Mirae Asset Sekuritas Indonesia Research Source: Company data, Mirae Asset Sekuritas Indonesia Research

Figure 5. SMGRs historical quarterly GPM Figure 6. SMGRs historical TLCC quarterly revenue

(GPM, %)
1Q132Q133Q134Q131Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q17 -
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

Source: Company data, Mirae Asset Sekuritas Indonesia Research Source: Company data, Mirae Asset Sekuritas Indonesia Research

Mirae Asset Sekuritas Indonesia Research 3

July 31, 2017 Semen Indonesia

Semen Indonesia (SMGR/Hold/TP IDR9,000)

Statement of Financial Condition

Income Statement (Summarized)
(IDRbn) 12/15 12/16 12/17F 12/18F (IDRbn) 12/15 12/16 12/17F 12/18F
Revenue 26.948 26.134 28.424 31.591 Cash 3.989 2.848 3.454 2.856
Cost of Goods Sold 16.302 16.278 18.760 20.534 Trade Receivables 3.544 3.838 3.120 3.467
Gross Profit 10.646 9.856 9.664 11.057 Inventories 2.409 2.671 3.004 3.288
Operating Expenses -4.747 -4.882 -5.003 -5.497 Other CA 596 1.016 911 1.012
Operating Profit 5.899 4.973 4.662 5.560 PPE 25.168 30.847 33.869 37.651
other income/(Loss) -95 -142 -201 -336 Other Non-CA 2.447 3.007 2.581 2.868
Pretax Profit 5.851 5.085 4.546 5.319 Total Assets 38.153 44.227 46.938 51.143
Income Tax 1.325 550 1.045 1.223 Trade Payables 3.783 4.078 3.485 3.815
Non-Controlling Interest 4 13 13 13 ST debt 846 1.811 1.615 1.794
Total current
Net Profit 4.521 4.522 3.487 4.082 6.599 8.152 7.199 7.877
LT debt 3.156 4.450 6.477 7.204
Profitability ratio Total Liabilities 10.712 13.653 14.686 16.203
Gross Profit Margin 39,5% 37,7% 34,0% 35,0% Common Stock 593 593 593 593
Operating Profit Margin 21,9% 19,0% 16,4% 17,6% Paid in Capital 1.458 1.458 1.458 1.458
Net Profit Margin 16,8% 17,3% 12,3% 12,9% Retained Earnings 23.815 26.528 28.206 30.893
Return on Equity 17,1% 15,6% 11,4% 12,2% 1.021 1.539 1.539 1.539
Return on Asset 11,9% 10,2% 7,4% 8,0% Equity (ex minority) 26.420 29.035 30.713 33.400
Cash Flow (Summarized)
(IDRbn) 12/15 12/16 12/17F 12/18F
Operating Cash Flow
Net income 4.521 4.522 3.487 4.082
Depreciation and
1.366 2.111 1.978 2.218
in trade receivables 243 294 -718 348
in inventories -403 262 333 284
in others CA 0 419 -105 101
in trade payable 752 295 -592 330
in accrued expense 188 44 12 12
in others CL 140 249 -176 157
Net cash operating activities 7.374 7.209 5.002 6.244
Investing Cash Flow
in PPE 6.312 7.790 5.000 6.000
Net cash investing activities -6.297 -8.350 -4.574 -6.288
Financing Cash Flow
in other liability 218 93 -41 113
in equity 2.148 1.906 1.809 1.395
Net cash financing activities -2.027 0 177 -555
Net cash -950 -1.141 606 -598
beginning balance 4.940 3.989 2.848 3.454
ending balance 3.989 2.848 3.454 2.856
Source: Company, Mirae Asset Sekuritas Indonesia Research estimates

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July 31, 2017 Semen Indonesia


Important Disclosures & Disclaimers

As of the publication date, PT Mirae Asset Sekuritas Indonesia, and/or its affiliates do not have any special interest with the subject company and do not own
1% or more of the subject company's shares outstanding.

Stock Ratings Industry Ratings

Buy Relative performance of 20% or greater Overweight Fundamentals are favorable or improving
Trading Buy Relative performance of 10% or greater, but with volatility Neutral Fundamentals are steady without any material changes
Hold Relative performance of -10% and 10% Underweight Fundamentals are unfavorable or worsening
Sell Relative performance of -10%
* Ratings and Target Price History (Share price (----), Target price (----), Not covered (), Buy (), Trading Buy (), Hold (), Sell ())
* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months.
* Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material
* The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analysts estimate of
future earnings.
The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic

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