Equity Research

Results note

Wednesday,01 November 2017

SELL Semen Baturaja (Persero)(SMBR IJ)

Maintain Lofty valuation
Last price (IDR) 2,790 SMBR reported net profits of IDR108bn in 9M17, down by 38.5%yoy. This
Target Price (IDR) 440 figure is only 65.3% of our full year net profits target (IDR165bn) and 44.9%
of the consensus (IDR239bn). While we remain confident on our revenues
Upside/Downside -84.2%
forecast, we trim our net profits target from IDR165bn to IDR150bn to take
Previous Target Price (IDR) 380 into account the recent increases in coal prices. We reiterate our SELL call on
SMBR with a higher target price of IDR470 as we: (i) roll over our valuation
Stock Statistics
to 2018, and (ii) lower our risk-free rate assumption from 7.3% to 7%.
Sector Cement
Bloomberg Ticker SMBR IJ 3Q17: lower net interest income to hamper net profit. SMBR reported net
No of Shrs (mn) 9,901 profits of IDR47bn in 3Q17, down by 34.9%yoy. The sluggish performance was
mainly attributable to: (i) 4.6%yoy lower sales volume in 3Q17, (ii) 64.8%yoy
Mkt. Cap (IDR bn/USDmn) 27,623/2,037
higher depreciation expenses owing to the commencement of the Baturaja II
Avg. daily T/O (IDR bn/USDmn) 35.2/2.6 plant, (iii) net interest expenses of IDR1.4bn in 3Q17 vs. net interest income of
IDR10.1bn in 3Q16. Although Indonesian Cement Association recorded
Major shareholders
SMBR’s sales volume in 3Q17 to reach 489,000tons, SMBR decided to strip out
Indonesian Government 76.2% 78,000tons sales volume (equivalent to IDR68.8bn) considering this volume
Public 23.8% was produced during the trial period of Baturaja II. Excluding this volume,
Estimated free float (%) 23.8 SMBR only record sales volume of 411,000tons, -4.6%yoy. Despite the flattish
ASP recognized in 3Q17, SMBR managed to improve its gross profit margin to
EPS Consensus(IDR) 38.1% in 3Q17, thanks to 3.7%yoy lower manufacturing cost per ton from the
2017F 2018F 2019F lower clinkers purchased.
Danareksa 15.0 15.2 17.2
9M17: Still below our forecast. SMBR recorded net profits of IDR108bn in
Consensus 18.0 18.7 22.0 9M17, down by 38.5%yoy. This figure is only 65.3% of our full year net profits
Danareksa/Cons (16.5) (18.8) (21.9) target (IDR165bn) and 44.9% of the consensus (IDR239bn). While we remain
confident on our revenues estimate, we trim our net profits target from
SMBR relative to JCI Index IDR165bn to IDR150bn as we use a higher coal price assumption of USD80/ton
for 2017 and USD75/ton for 2018 to take into account the recent increases in
coal prices.

Reiterate SELL. We reiterate our SELL call on SMBR with a higher target price
of IDR440 as we: (i) roll over our valuation to 2018, and (ii) lower our risk-free
rate assumption from 7.3% to 7% to take into account the declining trend in
government bond yields from 8.0% in early 2017 to 6.9% currently. To arrive
at our target price, we use DCF based valuation with WACC of 11.9% and
Terminal Growth of 3.0%. Our target price implies 29.0x 2018 P/E, below its
historical forward trailing PE of 52.8x. In our view, the stock’s current lofty
market valuation of 182.8x 2018 P/E cannot be justified.

Source : Bloomberg
Key Financials
Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Antonia Febe Hartono, CFA Revenue, (IDRmn) 1,461,248 1,522,808 1,537,823 1,648,684 1,782,052
EBITDA, (IDRmn) 422,503 412,447 421,218 459,237 505,364
(62-21) 29 555 888 ext.3504
EBITDA Growth, (%) 31.3 (2.4) 2.1 9.0 10.0
antonia.hartono@danareksa.com Net profit (IDRmn) 354,180 259,087 148,886 150,047 170,151
EPS (IDR) 36.0 26.2 15.0 15.2 17.2
Stefanus Darmagiri EPS growth (%) 5.4 (27.3) (42.5) 0.8 13.4
(62-21) 29 555 831 BVPS, (IDR) 299.8 315.2 326.5 337.8 350.7
stefanus.darmagiri@danareksa.com DPS, (IDR) 8.3 8.9 3.8 3.8 4.3
PER (x) 78.9 108.5 188.9 187.4 165.3
PBV (x) 9.5 9.0 8.7 8.4 8.1
Dividend yield (%) 0.3 0.3 0.1 0.1 0.2
EV/EBITDA (x) 63.2 68.9 68.2 62.3 56.4
Source : SMBR, Danareksa Estimates

www.danareksa.com See important disclosure at the back of this report 1

 Exhibit 1. REVENUE AND GROWTH Exhibit 2. NET PROFIT AND GROWTH

Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 3. MARGINS Exhibit 4. GEARING LEVEL

Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

Exhibit 5. SMBR’s PE band Exhibit 6. Cement sector’s PE band

(x ) (x )
250.0 41.0
200.0 2sd 36.0 2sd
150.0 1sd 31.0
1sd
100.0 26.0
Average: 52.80 Average:20.63
50.0 21.0

0.0 -1sd 16.0 -1sd

Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 11.0
-50.0 -2sd
-2sd
-100.0 6.0
Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17

Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates

www.danareksa.com See important disclosure at the back of this report 2

Exhibit 7. SMBR’s 9M17 Result
3Q16 2Q17 3Q17 qoq, % yoy, % 9M16 9M17 yoy, % 2017F* A/F,%** 2017F** A/F,%**
Revenue (IDRmn) 390,963 299,574 372,253 24.3 (4.8) 1,042,889 999,604 (4.2) 1,537,823 65.0% 1,661,945 60.1%
Gross profit (IDRmn) 137,358 98,160 141,918 44.6 3.3 331,638 331,606 (0.0) 504,093 65.8% 522,959 63.4%
Operating profit (IDRmn) 85,079 38,027 67,777 78.2 (20.3) 213,328 143,488 (32.7) 248,466 57.7% 280,956 51.1%
EBITDA (IDRmn) 107,358 60,267 104,501 73.4 (2.7) 281,868 224,860 (20.2) 441,281 51.0% 488,257 46.1%
Pretax income (IDRmn) 95,354 41,454 66,455 60.3 (30.3) 234,320 152,918 (34.7) 221,874 68.9% 312,992 48.9%
Net Income (IDRmn) 72,231 28,467 47,011 65.1 (34.9) 174,735 107,533 (38.5) 164,580 65.3% 239,464 44.9%

Margin
Gross profit margin (%) 35.1 32.8 38.1 5.4 3.0 31.8 33.2 1.4 32.8 31.5
Operating margin (%) 21.8 12.7 18.2 5.5 (3.6) 20.5 14.4 (6.1) 16.2 16.9
EBITDA margin (%) 27.5 20.1 28.1 8.0 0.6 27.0 22.5 (4.5) 28.7 29.4
Net margin (%) 18.5 9.5 12.6 3.1 (5.8) 16.8 10.8 (6.0) 10.7 14.4

Sales
Sales volume ('000 tons) 431,306 325,824 411,376 26.3 (4.6) 1,124,499 1,087,046 (3.3) 1,750,400 62.1%
Implied ASP (IDR/ton) 906,464 919,434 904,897 (1.6) (0.2) 927,426 919,560 (0.8) 936,211 98.2%

Days in working capital

Inventory 68.4 82.8 92.6 9.8 24.2 68.4 92.6 24.2
Account receivables 52.5 52.9 65.7 12.7 13.2 52.5 65.7 13.2
Account payables 52.2 57.6 64.4 6.8 12.1 52.2 64.4 12.1
CCC 68.6 78.1 93.9 15.7 25.2 68.6 93.9 25.2
* analyst number
** consensus number

Source: Bloomberg, Company, Danareksa Sekuritas estimates

Exhibit 8. Forecast changes

Previous New Changes (%)
2016 2017 2018 2017 2018 2017 2018
ASP (Rp/ton) 933,171 923,839 923,839 923,839 923,839 - -
Sales volume (mn ton) 1.6 1.8 1.9 1.7 1.8 (7.6) (8.0)
Coal price (USD/ton) 66.5 70.0 72.0 70.0 72.0 - -
Electricity cost (Rp/kWh) 1,079 1,087.6 1,131.1 1,088 1,131 - -

Revenue 1,523 1,664 1,792 1,538 1,649 (7.6) (8.0)

Gross profit 511 538 566 504 537 (6.3) (5.3)
Operating profit 321 281 288 248 260 (11.6) (9.9)
EBITDA 412 474 496 441 467 (6.9) (5.7)
Net profit 259 188 182 165 162 (12.6) (11.2)
Source: Company, Danareksa Sekuritas estimates

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 Exhibit 9. Income Statement
Year to 31 Dec (IDRmn) 2015A 2016A 2017F 2018F 2019F
Revenue 1,461,248 1,522,808 1,537,823 1,648,684 1,782,052
COGS (967,669) (1,011,810) (1,054,820) (1,123,042) (1,217,720)
Gross profit 493,579 510,998 483,003 525,642 564,333
EBITDA 422,503 412,447 421,218 459,237 505,364
Oper. profit 330,835 320,692 227,309 248,465 270,880
Interest income 120,302 27,978 20,219 31,716 32,879
Interest expense (151) (7,119) (54,927) (86,016) (82,489)
Forex Gain/(Loss) 0 0 0 0 0
Income From Assoc. Co’s 0 0 0 0 0
Other Income (Expenses) (7,572) 7,729 8,116 8,116 8,116
Pre-tax profit 443,414 349,281 200,716 202,281 229,385
Income tax (89,234) (90,190) (51,828) (52,232) (59,231)
Minority interest 0 (4) (2) (2) (2)
Net profit 354,180 259,087 148,886 150,047 170,151
Core Net Profit 354,180 259,087 148,886 150,047 170,151

Exhibit 10. Balance Sheet

Year to 31 Dec (IDRmn) 2015A 2016A 2017F 2018F 2019F
Cash & cash equivalent 1,251,360 336,979 251,714 438,381 429,660
Receivables 39,417 212,743 235,907 252,913 273,372
Inventory 185,853 174,238 169,583 181,816 193,357
Other Curr. Asset 461,886 114,149 114,882 120,301 126,820
Fixed assets - Net 787,024 3,480,075 3,898,456 3,884,015 3,845,857
Other non-curr.asset 543,077 50,570 50,117 52,640 55,866
Total asset 3,268,668 4,368,877 4,720,783 4,930,190 4,925,055

ST Debt 0 15,619 20,000 174,861 174,861

Payables 109,968 153,672 174,654 185,950 201,627
Other Curr. Liabilities 146,027 122,947 114,524 119,872 126,307
Long Term Debt 0 624,678 847,976 773,340 618,479
Other LT. Liabilities 63,320 331,204 331,204 331,204 331,204
Total Liabilities 319,315 1,248,119 1,488,358 1,585,228 1,452,477
Shareholder'sFunds 2,949,353 3,120,729 3,232,396 3,344,933 3,472,550
Minority interests 0 29 29 29 29
Total Equity & Liabilities 3,268,668 4,368,877 4,720,783 4,930,190 4,925,055

www.danareksa.com See important disclosure at the back of this report 4

 Exhibit 11.Cash Flow
Year to 31 Dec (IDRmn) 2015A 2016A 2017F 2018F 2019F
Net income 354,180 259,087 148,886 150,047 170,151
Depreciation and Amort. 91,668 91,755 193,909 210,772 234,485
Change in Working Capital (321,724) 215,627 (6,684) (18,014) (16,408)
OtherOper. Cash Flow (119,446) 270,782 34,708 54,300 49,611
Operating Cash Flow 4,678 837,250 370,820 397,105 437,839

Capex (320,153) (2,783,888) (611,371) (195,411) (195,411)

Others Inv. Cash Flow (388,603) 519,493 19,752 28,273 28,737
Investing Cash Flow (708,755) (2,264,394) (591,619) (167,138) (166,674)

Net change in debt 0 639,738 227,680 80,225 (154,861)

New Capital (5,835) 857 0 0 0
Dividend payment (82,084) (88,539) (37,219) (37,509) (42,535)
Other Fin. Cash Flow (10,567) (39,293) (54,927) (86,016) (82,489)
Financing Cash Flow (98,486) 512,763 135,534 (43,300) (279,886)

Net Change in Cash (802,564) (914,381) (85,265) 186,667 (8,721)

Cash - begin of the year 2,053,924 1,251,360 336,979 251,714 438,381
Cash - end of the year 1,251,360 336,979 251,714 438,381 429,660

Exhibit 12. Key Ratios

Year to 31 Dec 2015A 2016A 2017F 2018F 2019F
Growth (%)
Sales 20.3 4.2 1.0 7.2 8.1
EBITDA 31.3 (2.4) 2.1 9.0 10.0
Operating profit 34.3 (3.1) (29.1) 9.3 9.0
Net profit 5.4 (26.8) (42.5) 0.8 13.4
Profitability (%)
Gross margin 33.8 33.6 31.4 31.9 31.7
EBITDA margin 28.9 27.1 27.4 27.9 28.4
Operating margin 22.6 21.1 14.8 15.1 15.2
Net margin 24.2 17.0 9.7 9.1 9.5
ROAA 11.4 6.8 3.3 3.1 3.5
ROAE 12.6 8.5 4.7 4.6 5.0
Leverage
Net Gearing (x) (0.4) 0.1 0.2 0.2 0.1
Interest Coverage (x) 2,192.1 45.0 4.1 2.9 3.3

Source : SMBR, Danareksa Estimates

See important disclosure at the back of this report 5