Semen Indonesia (Persero) (SMGR IJ)

Slower Sales Volume Reflected on Bottom Line

4 May 2015
INDONESIA | BASIC INDUSTRY | FIRST QUARTER RESULTS

 Sales volume decreased 0.3% yoy, better than industry growth BUY (Upgraded)
 Revenue increased 2.6% to IDR 6.3 trillion and net income declined CMP IDR 12,500
9.1% to IDR 1.3 trillion for 1Q1514 TARGET IDR 15,600
 Price reduction, higher cost and tight competition lower profit margin POTENTIAL UPSIDE +24.80%
PREVIOUS TARGET IDR 15,600
 Upgraded to “Buy” and maintain its price target based on FY15’s EPS of
IDR 750 and WACC of 10.9%, due to better than expected results. COMPANY DATA
O/S SHARES (BN) : 5.93
MARKET CAP (IDR TN) : 74.14
What is the news? MARKET CAP (USDBN) : 5.73
52 - WK HI/LO (IDR) : 17,150/12,400
SMGR announced earnings for 1Q15 that decreased 9.1% to IDR 1.2
3M AVG. VOLUME (MN SHARES): 6.40
trillion from IDR 1.3 trillion in 1Q14. Although its earnings was hurt by PAR VALUE (IDR) : 100
declining sales volume and higher cost, SMGR financial result was better-
MAJOR SHAREHOLDERS, %
than our expectations. Government of RI 51.0%
Oppenheimerfunds Incorporated 2.7%
SMGR maintained its position as market leader with 44.4% market share, Lazard Ltd 1.7%
Vanguard Group Inc 1.5%
up 0.7% compared to 2014 market share of 43.7%. Sales volume in 3M15 Blackrock 1.1%
was at 6.2 million tons (-0.3% yoy). The declining sales volume was in-line Public, each less than 1% 42.0%
with slower demand in cement consumption which decreased 2.5% to 13.7
PRICE VS. JCI
million tons.
130
125
Heavy rainfall and flooding in the beginning of the year hampered demand 120
115
and supply of cement. Furthermore, the government infrastructure 110
projects which is expected to be the growth driver has not seen significant 105

realization. 100
95
90

Result at a glance Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15

SMGR JCI Rebased

(IDR bn) 1Q14 1Q15 Growth
Revenue 6,178 6,340 2.6% Source: Phillip Securities Indonesia Research

Cost of Revenue (3,483) (3,781) 8.6% KEY FINANCIALS

Gross Profit 2,695 2,560 -5.0% IDR bn FY14 FY15E FY16E FY17E
Operating Expense (1,011) (1,078) 6.6% Revenue 26,987 27,193 31,481 36,126
EBITDA 8,190 6,286 7,559 8,865
Operating Profit 1,684 1,482 -12.0% Net Profit 5,566 4,043 4,931 5,828
Net Profit 1,309 1,190 -9.1% EPS, IDR 938 750 915 1,081
Source: Company Data, PSI Research Est. PER, x 17.3 19.3 15,9 13.4
P/BV, x 3.8 3.1 2.8 2.6
ROE, % 23.2 14.9 16.8 18.3
How do we view this? Source: Phillip Securities Indonesia Research Est.
The government policy to cut cement price in January this year has not
increased demand. In reality, total domestic consumption slipped 3.2% Valuation Method: Discounted Cash Flow
yoy. SMGR 1.8% yoy domestic sales volume decrease was better than that
Martha Christina
of the industry. martha@phillip.co.id
(+62 57900800)
As expected, the cement price cut reduced SMGR’s profit margin. Until
March 2015, gross profit margin declined to 40.4% from 43.6% in 1Q14,
operating profit margin decreased to 23.4% from 27.3% and net profit
margin slipped to 18.8% from 21.2%.

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 The lower profit margin was not only caused by lower selling price and
higher cost, but also because of tight competition. Last year, the industry
faced 8 million tons oversupply. The oversupply is expected to rise to 9
million tons this year. The aggressive expansion by incumbents and new
players to add new plants and capacity to anticipate the surge of demand
was not offset by demand from infrastructure projects.

2015 Outlook
In 2015, we expect SMGR’s sales volume to increase 6.5% yoy. In the next
five years, we estimate sales volume to climb 7.3% CAGR per year. The
single-digit growth will be in line with industry expectations. In coming
years, infrastructure programs are expected become the growth driver for
domestic consumption.

Even though sales volume would increase, the price cut will offset revenue
growth. We expect SMGR revenue to slightly increase about 0.8% to IDR
27.2 trillion. We expect SMGR net income to decline 27.4% to IDR 4.0
trillion as higher cost will cut SMGR profit margin. In overall, we estimate
SMGR financial performance to decline. As long as SMGR has not increased
its ASP to balance its cost, its financials will underperform.

Investment Actions
In our last report on March 18, 2015, we downgraded Semen Indonesia’s
rating from "Buy" to “Accumulate" (due to disappointing results in FY14
and government policy to cut cement price by IDR 3,000 per pack). As the
1Q15 financial results was better-than-expected and as its recent market
valuation has plunged, we upgraded Semen Indonesia's rating from
"Accumulate" to "Buy" and maintain its target price of IDR 15,600 for
FY15E. We expected FY15E revenue of IDR 27.2 trillion and net income of
IDR 4.0 trillion.

Key Financial Summary FY12 FY13 FY14 FY15E FY16E FY16E

Revenue (IDR bn) 19,598 24,501 26,987 27,193 31,481 36,126
Net Income (IDR bn) 4,847 5,370 5,566 4,043 4,931 5,828
EPS (IDR) 817 905 938 750 915 1,081
P/E (x), adj 19.4 15.6 17.3 19.3 15.9 13.4
BVPS (IDR) 3,062 3,676 4,215 4,754 5,153 5,596
P/BV (x) 5.2 3.8 3.8 3.1 2.8 2.6
DPS (IDR) 368 407 422 307 416 491
Div. Yield (%) 2.3% 2.9% 2.6% 2.1% 2.9% 3.4%
Source: Company Data, PSI Research Est.
*Forward multiples and yields are based on current price and historical yields are based on historical price.

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 SEMEN INDONESIA (PERSERO) UPDATE REPORT

Figure 1: National Cement Consumption In First Quarter

Domestic Cement Consumption (mn tons) and its Growth (%)

Source: Indonesia Cement Association, PSI Research

Figure 2: Cement Consumption based on Area

Source: Indonesia Cement Association

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 SEMEN INDONESIA (PERSERO) UPDATE REPORT

FYE Dec 2013 2014 2015E 2016E 2017E

Valuation Ratios
P/E (X) 15.6 17.3 19.3 15.9 13.4
P/E (X). Adj 15.6 17.3 19.3 15.9 13.4
P/B (X) 3.8 3.8 3.1 2.8 2.6
EV/EBITDA (X), adj 10.5 11.7 13.5 11.3 9.9
Dividend Yield (%) 2.9% 2.6% 2.1% 2.9% 3.4%
Per Share data (IDR)
EPS, reported 905 938 750 915 1,081
EPS, adj. 905 938 750 915 1,081
DPS 407 422 307 416 491
BPS 3,676 4,215 4,754 5,153 5,596
Growth & Margins (%)
Growth
Revenue 25.0% 10.1% 0.8% 15.8% 14.8%
EBITDA 17.9% 1.1% -23.3% 20.3% 17.3%
EBIT 14.3% 1.3% -27.4% 21.7% 18.0%
Net Income, adj 10.8% 3.6% -27.4% 22.0% 18.2%
Margins
EBITDA Margin 33.1% 30.3% 23.1% 24.0% 24.5%
EBIT Margin 28.8% 26.5% 19.1% 20.1% 20.6%
Net Profit Margin 21.9% 20.6% 14.9% 15.7% 16.1%
Key Ratios
ROE (%) 25.7% 23.2% 14.9% 16.8% 18.3%
ROA (%) 17.4% 16.2% 10.6% 11.8% 12.8%
Net Debt (Cash) (139) (1,159) (2,139) (1,598) 118
Net Debt / Equity Net Cash Net Cash Net Cash Net Cash 0.4%
Debt / Equity 19.0% 15.7% 14.7% 14.3% 14.0%
Income Statement (IDR bn)
Revenue 24,501 26,987 27,193 31,481 36,126
EBITDA 8,099 8,190 6,286 7,559 8,865
Depreciation & Amortization 1,076 1,237 1,093 1,242 1,411
EBIT 7,063 7,156 5,193 6,318 7,454
Net Finance (Expense) / Income (177) (97) (164) (180) (198)
Associates & JVs 35 32 35 39 43
Profit Before Tax 6,920 7,091 5,064 6,176 7,298
Taxation (1,566) (1,517) (1,013) (1,235) (1,460)
Profit After Tax 5,354 5,574 4,051 4,941 5,839
Non-controlling Interest (16) 8 8 9 10
PATMI 5,370 5,566 4,043 4,931 5,828
Source: Company Data, PSI Research Est.

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FYE Dec 2013 2014 2015E 2016E 2017E

Balance Sheet (IDR bn)
PPE 18,863 20,221 22,546 25,138 29,167
Intangibles 1,158 1,104 1,269 1,396 1,536
Associates & JVs 128 147 176 212 254
Investments 49 183 220 253 291
Others 624 1,011 1,224 1,462 1,747
Total non-current assets 20,821 22,666 25,436 28,461 32,995
Inventories 2,646 2,812 2,863 3,065 3,280
Account Receivables 2,825 3,301 3,263 3,778 4,335
Investments 105 92 101 111 122
Cash 4,108 4,940 6,122 5,805 4,340
Others 288 504 454 516 586
Total Current Assets 9,972 11,649 12,803 13,275 12,663
Total Assets 30,793 34,315 38,239 41,736 45,658
Short Term Loans 321 82 90 99 109
Account Payables 2,502 3,032 3,143 3,582 4,071
Others 2,475 2,160 2,570 3,030 3,586
Total Current Liabilities 5,298 5,273 5,803 6,711 7,767
Long Term Loans 3,242 3,315 3,430 3,552 3,679
Others 449 724 810 909 1,022
Total non-current liabilities 3,691 4,039 4,240 4,460 4,701
Non Controlling Interest 921 960 1,056 1,162 1,278
Shareholder's Equity 20,883 24,042 27,139 29,402 31,912

Cashflow Statements (IDR bn)

CFO
Net Income 5,370 5,566 4,043 4,931 5,828
Adjustments 280 159 111 123 135
WC Changes 1,268 1,701 625 (436) (2,104)
Cash generated from ops 6,919 7,425 4,779 4,618 3,860
Taxes paid (106) (127) 14 14 15
Cashflow from ops 5,650 5,725 4,154 5,054 5,963
CFI
Capex, net (2,794) (4,000) (4,500) (4,000) (3,000)
Others 515 2,129 4,205 2,253 (300)
Cashflow from Investments (2,278) (1,871) (295) (1,747) (3,300)
CFF
Share Issuance 0 0 0 0 0
Loans, net of repayments 102 348 201 220 241
Dividens (2,417) (2,505) (1,819) (2,466) (2,914)
Others (9) (828) (1,059) (1,378) (1,455)
Cashflow from financing (2,324) (2,984) (2,677) (3,623) (4,129)
Net change in cash 1,048 869 1,182 (317) (1,465)
CCE, end 4,070 4,940 6,122 5,805 4,340
Source: Company Data, PSI Research Est.

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 SEMEN INDONESIA (PERSERO) UPDATE REPORT

Important Information

Rating for Sectors:

Overweight : We expect the industry to perform better than the primary market index (JCI) over the next 12
months.
Neutral : We expect the industry to perform in line with the primary market index (JCI) over the next 12
months.
Underweight : We expect the industry to under-perform the primary market index (JCI) over the next 12 months.

Rating for Stocks:

Buy : The stock is expected to give total return (price appreciation + dividend yield) of > +20% over the next 12
months.
Accumulate : The stock is expected to give total return (price appreciation + dividend yield) of +5% to +20% over the next
12 months.
Neutral : The stock is expected to give total return of between -5% and +5% over the next 12 months.
Reduce : The stock is expected to give total return of between -5% and -20% over the next 12 months.
Sell : The stock is expected to give total return of -20% or lower over the next 12 months.
Outperform : The stock is expected to do slightly better than the market return. Equal to “accumulate” or “moderate buy”
Underperform : The stock is expected to do slightly worse than the market return. Equal to “weak hold” or “moderate
sell”

Analyst Certification
The research analyst(s) primarily responsible for the preparation of this research report hereby certify that all of the views
expressed in this research report accurately reflect their personal views about any and all of the subject securities or issuers.
The research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed in this research report.

Disclaimers
This document has been prepared for general circulation based on information obtained from sources believed to be reliable.
But we do not make any representations as to its accuracy or completeness. Phillip Securities Indonesia (PSI) accept no liability
whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or
sell any securities. PSI and its directors, officials and/or employees may have positions in, and may affect transactions in
securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as
principal or agent in dealing with respect to these companies. PSI may also seek investment banking business with companies
covered in its research reports. As a result investors should be aware that the firm may have a conflict of interest that could
affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment
decision.

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Contact Information (Indonesia Research Team)

Management
Gunawan Sutanto +62 21 57 900 800
(Head, Research - Equities) gunawan.sutanto@phillip.co.id

Automotive | Strategy Cement | Construction | Property | Toll Road Banking | Telecommunication

Gunawan
Sutanto +62 21 57 900 800 Martha Christina +62 21 57 900 800 Milka Mutiara +62 21 57 900 800
gunawan.sutanto@phillip.co.id martha@phillip.co.id milka@phillip.co.id

Agriculture | Consumer Goods Retail Trade | Poultry Gas | Mining | Heavy Equipment
Edward Lowis +62 21 57 900 800 Muhamad Farhan +62 21 57 900 800 Destya Faishal +62 21 57 900 800
edward.lowis@phillip.co.id farhan@phillip.co.id deta@phillip.co.id

Research Assistant
Fardini Dewi +62 21 57 900 800
fardini.dewi@phillip.co.id

Contact Information (Regional Member Companies)

SINGAPORE MALAYSIA HONG KONG

Phillip Securities Pte Ltd Phillip Capital Management Sdn Bhd Phillip Securities (HK) Ltd
Raffles City Tower B-3-6 Block B Level 3 Megan Avenue II, 11/F United Centre 95 Queensway
250, North Bridge Road #06-00 No. 12, Jalan Yap Kwan Seng, 50450 Hong Kong
Singapore 179101 Kuala Lumpur Tel +852 2277 6600
Tel +65 6533 6001 Tel +603 2162 8841 Fax +852 2868 5307
Fax +65 6535 6631 Fax +603 2166 5099 Websites: www.phillip.com.hk
Website: www.poems.com.sg Website: www.poems.com.my

JAPAN INDONESIA CHINA

Phillip Securities Japan, Ltd. PT Phillip Securities Indonesia
4-2 Nihonbashi Kabuto-cho Chuo-ku, ANZ Tower Level 23B,
Tokyo 103-0026 Jl Jend Sudirman Kav 33A
Tel +81-3 3666 2101 Jakarta 10220 – Indonesia
Fax +81-3 3666 6090 Tel +62-21 5790 0800
Website:www.phillip.co.jp Fax +62-21 5790 0809
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Tel +86-21 5169 9200
Fax +86-21 6351 2940
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THAILAND FRANCE UNITED KINGDOM

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UNITED STATES AUSTRALIA SRI LANKA

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 SEMEN INDONESIA (PERSERO) UPDATE REPORT

ANZ Tower Level 23B, Jl. Jendral Sudirman Kav 33A, Jakarta, 10220 - Indonesia
Telp. (62-21) 57 900 800, Fax. (62-21) 57 900 809, Email : customercare@phillip.co.id
Website: www.phillip.co.id | www.poems.co.id | www.poems.web.id

Jakarta
Komp. Ruko Mega Grosir Cempaka Mas Mangga Dua
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Blok D No. 7 Jakarta, 10640 Jl. Mangga Dua Selatan Jakarta 10730
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Rukan Sentra Latumenten Roxy

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Tanah Abang Kelapa Gading

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Abang - Jakarta Pusat 10250 Telp. (62-21) 7070 0050/4587/9264; Fax. (62-21) 453 2939; E-
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Citra Garden 2 Alam Sutera

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Jawa Tengah
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Semarang Tegal
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Jawa Barat Batam

Komp.Paskal Hypersquare Blok C-21 Kompleks Mahkota Raya
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Jawa Timur Kalimantan Barat

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Lampung
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E-Mail: medawati@phillip.co.id

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