Semen Indonesia (SMGR)

Trimming Forecasts Post 4Q24 Earnings Miss; Upgrade to Buy on Depressed Valuation

• SMGR reported 4Q24 net profit of almost Rp0, leading to FY24 net profit of Rp720bn (-67% yoy, 62%/59% of ours/cons hence, a miss).
• Due to market share strategy, we expect SMGR vol to grow by 2%/3% in FY25F/FY26F (higher than INTP), yet we expect ASP to grow by 0.5%.
• We cut our FY25F/FY26F EPS by 23%/23%. Despite this and ASP risk, we upgrade our rating to Buy amid buyback and depressed valuation.

Weak FY24 performance due to operating leverage

SMGR reported net profit of almost Rp0 in 4Q24, leading to FY24 net profit of Rp720bn (-67% yoy, 62%/59% of ours/cons, hence a miss). Revenue was flattish at Rp9.9tr in 4Q24, leading to FY24 revenue of Rp36.2tr (-6% yoy, 100%/98% of ours/cons estimate, in line). Earnings were under pressure due to weak margin: 4Q24 GPM at 19.4% (-250 bps qoq/-560 bps yoy), which led to FY24 GPM at 21.9% (-440 bps yoy). Better 4Q24 ASP (Rp859k/t, or +1% qoq) failed to support GPM, with FY24 ASP at Rp840k/t (-2.5% yoy).

Trimming our estimate further due to expectation of weak ASP

SMGR indicated its aim to increase market share through main and fighting brands, with additional room for fighting brands by another 100-200 bps to 27%-28% of total bag sales. However, due to weak domestic and export markets, we downgrade our vol growth ests. from 2.5%/3.3% to 2%/3% in FY25F/FY26F. Nevertheless, this growth rate is still higher than our INTP growth expectation (1.5%/2%). Due to market share strategy, we reiterate our ASP growth assumption by 0.5%/0.5% in FY25F/FY26F. We think the cost-saving strategy on fuel and electricity will take a while to support margins, while we see the near-term downside on material and packaging cost due to heightened USD. Thus, we lower our FY25F/ FY26F EBITDA margin assumption by 80/100 bps and net profit estimates by 23%/ 23%. On US tariff, management commented that it could lower profitability of cement export to US by half, although the outcome will depend on final tariff decision and profit-sharing scheme between SMGR-Taiheiyo.

Upgrade rating to Buy post share price correction, with lower TP of Rp3,400

We upgrade our SMGR rating from Hold to Buy due to already-depressed valuation, with buyback (~Rp300bn) as catalyst. However, we lower our DCF-based TP by 13% to Rp3,400 to reflect our lower forecast. We reiterate our preference for INTP over SMGR in the sector. Downside risks: 1) Fighting brand portion increased more than guidance; 2) New capacity addition on industry.

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