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SMBR - 3Q19 Result Update

TURNING POINT

SMBR saw its revenues rose by +43.7% (qoq) or +0.3% (yoy) to Rp590B in 3Q19 alone. Operating expenses increased by 50.1% (yoy), year-to-date; yet, its EBIT covered 92.7% of our FY19 estimate. Finance income indeed soared to Rp111B (yoy) as a result of Baturaja II plant. Bottom line, net profit reached Rp23B (-44.4% yoy), representing 90.7% of our FY estimate.

 

ASP CREEPING UP

We notice that SMBR’s gross profit margin improved to 43.3% in 3Q19, which was seen to be in an uptrend from 39.7% and 40.6% in 1Q19 and 2Q19, respectively. We think that rising ASP, coupled with weakening coal price, have resulted in lower cost of production for SMBR. Going forward, we are confident that SMBR will be able to post the better result in 4Q19 than that in 3Q19 amid benign interest rate environment, which could spur property sector. Moreover, as transportation-based infrastructure is now being developed in Sumatra, we believe it should improve accessibility, providing more opportunities for property developers to expand their businesses. As of 3Q19, SMBR revenues reached 66.3% of our FY estimate at Rp2.1T.

 

DIFFERENCE IN ACCRUAL

In 2019, SMBR started changing its cement transportation cost accrual, from previously incurred in cost of revenues to selling expenses, as a part of operating expenses. As of 3Q19, SMBR selling expenses soared by +117.7% (yoy), resulting a rise of +50.1% (yoy) for its overall operating expenses. In addition, EBIT margin also improved from 10% and 11% as of 1Q19 and 1H19, respectively, to 12% in the next quarter. In that being the case, we view that SMBR succeeded in implementing its cost-cutting plans. 

 

IT IS THICKER

SMBR’s net profit had been suppressed in light of soaring interest expenses that stemmed from Baturaja II plant construction. However, greater margin in the top line had provided cushion, resulting Rp15B of net profit in July – September period, vs. Rp3B in April – June period. 3Q19 result hit Rp23B, representing 90.7% of our FY19 estimate of Rp25B.

 

VALUATION

As we rollover our base year, we upgrade our recommendation to BUY with 12-month target price of Rp980/share (previous: Rp940/share). Despite the good result, we only slightly upped the TP, as we should closely monitor the 4Q19 result whether it is either greater sales volume or interest expenses that will prevail. The TP is based on its 2-year -0.5SD EV/EBITDA of 8.8x, which implies forward P/B of 1.0x. Current market price is significantly lower than the price during 2Q19 result release. Key risks include: lower sales volume growth and mounting interest expenses.

Mon November 4Th, 2019

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