Feb 21, 2017 09:41:14

While Semen Indonesia ($SMGR)’s FY16 earning was flat at IDR4.5trn, it accounts for 105%/112% of our/consensus full-year estimates. Above expectation earnings was largely driven by lower-than-expected effective tax rate. Based on our calculation, the company’s effective tax rate declined to only 10.8% in FY16 (from 22.7% in FY15). On operational basis, the situation remains challenging with Semen Indonesia’s sales and EBIT declined to IDR26trn (-3% YoY) and IDR5trn (-16% YoY), respectively.

It is worth noting that, on QoQ basis, Semen Indonesia recorded the lowest EBIT margin of 15.6% in 4Q16, down from 19.8% in 3Q16 mainly dragged down by both lower ASP and higher expenses, in our view. The company’s domestic average ASP (excl. Thang Long Cement) declined to IDR766,000/tonne in 4Q16 (-3% QoQ).

Outlook: In January, Semen Indonesia slightly raised its domestic cement ASP to IDR763,000 (+0.3% MoM, from IDR761,000/tonne in Dec-16), which we believe mainly to maintain EBIT margin on the back of pressure from higher energy costs. We expect energy cost – which account for around 25% of COGS – to further increase, after the renewal of new coal purchase contract, inline with higher international coal price trend. The majority of coal purchase is under 3-or-6 months contract term.

We maintain Neutral on Semen Indonesia with DCF-based TP of IDR9,800 (7% upside), implies FY17F P/E of 12x. (Andrey Wijaya)