Semen Gresik, Limited upside this year, CLSA

With new capacity coming only in Apr and July, SMGR is likely to just be
able to maintain market share from last year. The company will also be
worst hit on margin given rising energy costs and depreciation despite
the 4% ASP growth assumption. SMGR also needs to gear up for
expansion and starts expensing higher interest in 2013 (previously
capitalized). Valuation is also more expensive vs peers. Maintain U-PF.


Hard to gain market share in 2012
With new capacity of 5m tonnes coming only in Apr and July, SMGR is likely to
just be able to maintain market share this year at 41%. We expect 9.5%
growth in FY12 SMGR domestic sales to 21.4m tonnes. 2M12 sales were 15%
of our FY expectation. SMGR will still run at a high 97% utilization rate.
SMGR will also have to start adding new capacity in 2015 to meet demand.

ASP increases but margin still pressured
We raised our ASP growth assumption to 4% from 3%, but GP marign of
SMGR will still contract to 44% from 46% in FY11, due to rising energy cost.
The delay of 10% electricity tariff hike does not impact SMGR too much given
the new plants are charged at market rate by PLN, higher than existing
plants. Higher depreciation expense from new plants is another hit to cost.

Needs to gear up for expansion
SMGR will need to gear up to finance expansion of +5m tonnes by 2015.
Nonetheless, low gearing level should enable this. We expect a substantial
increase in interest expense in 2013 to Rp196bn from current Rp30bn as the
company gears up and also starts expensing the previously capitalized
interest expense with the full operation of the new plants in 2013.

Maintain “U-PF”
We maintain our U-PF call on SMGR, with Rp12,000 Target Price. We think
upside to share price is limited given the cap on volume growth this year. At
17.6x PE12, SMGR trades at a 14% premium to its Indo peers, and at 35%
premium to peers’ EV/EBITDA. It is also trading at the upper ends of its PE
and PB bands.

Download file : Indonesia SMGR 020412