Semen Indonesia (SMGR)

Trimming our FY24-26F estimate further amid lower LT volume growth

• SMGR reported Rp720bn earnings in 9M24 (a miss at 44%/37% of our/cons FY24F est.), as higher ASP failed to offset higher tax expenses.
• We cut our sales vol. growth to -6%/+2.5%/+3% in FY24F/FY25F/ FY26F, amid weak domestic and export markets.
• We trimmed our EPS by 29%/22%/16% in FY24F/FY25F/FY26F and reiterate our Hold rating, with a 5% lower TP of Rp3,900.

9M24: Weak Achievement due to non-operating items

9M24 net profit reached Rp720bn (-58% yoy), a miss at 44%/ 37% of FY24F our/cons, and even lower than our 3Q24E preview. 3Q24 net profit improved to Rp218bn (vs. Rp30bn in 2Q24). 9M24 sales volume reached 26.8 Mt (-5% yoy), with 3Q24 sales vol. at 9.9 Mt (+22% qoq), while ASP improved by 4% qoq in 3Q24. 3Q24 GPM/EBIT margin showed improvement by 130 bps/220 bps. Higher ASP offset a 1% qoq increase in COGS/t (Rp754k), whereas opex-to-revenue remained stable at 15% in 3Q24, in line with the past eight quarters' average. However, the overall improvement failed to offset non-operating (below EBIT) items and slightly higher tax bracket (~32% in 3Q24).

Trimming our FY24-26F estimate further due to Lower LT Vol

We cut our sales volume growth est. from +1%/+3%/+3.5% in FY24F/FY25F/ FY26F to -6%/+2.5%/+3%, due to weak domestic and export markes despite recovery in Sep24. SMGR admitted the export market is more challenging as China has entered the clinker export market, although mgmt. believes it could find another market, such as the US and Latin America. Nevertheless, we think export vol. would remain at risk, at least in the medium term. In the domestic market, we have not seen any near-term catalyst for recovery, with the 3mn house scheme still under discussion, and management tends to take a conservative approach on this. This led us to downgrade our revenue est. by -5%/-6%/-7% in FY24F/FY25F/FY26F, and our EPS by 29%/22%/16%. We keep our ASP growth assumption conservative at -3%/+0.5%/+0.5% growth, as we see limited change in Semen Merdeka's positioning despite mgmt's claim that it has increased prices three times YTD and expects more increases in Nov24.

Maintain Hold Rating with 5% lower TP of Rp3,900

We maintain a Hold rating with a 5% DCF-based TP of Rp3,900, amid weaker sales vol and less cost improvement initiatives. SMGR currently trades at EV/t of US$60.6, -1.5 std dev of its 5-year mean. Upside risks: 1) potential sales vol upside from 3m houses program; 2) Semen Merdeka’ positioning moves to Tier-2. Downside risks: 1) Entry of new players; 2) Rising material price.

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