Investment Considerations 1Q2018 Results

9 May 2018 Price

• As of 1Q2018, SMGR sales volume including Thang Long Cement in Vietnam reached 7.4 million tons +2.9% yoy. From that, Revenue increased +3.4% to IDR 6.62 trillion, while cost of revenue increased +10% to IDR 4.9 trillion mainly caused by the increase of coal prices which were 18.5% higher in 1Q2018 compared to 1Q2017.
• Net income decreased -44.9% to IDR 411.5 billion from IDR 746.5 billion in

• The increase in interest expense was related to commercialization of the

  ROE (%) 23.2% 17.8% 17.0% 7.0% 7.3% 7.4% ^{5 10 15 20 25 30 35 40 45 4,000 50 2,000 6,000 8,000 10,000 12,000 14,000 /2 5 /5 1 7 /2 6 /5 1 7 /2 7 /5 1 7 /2 8 /5 1 7 /2 9 /5 1 7 /2 1 /5 1 7 1 /2 1 /5 1 7 1 /2 2 /5 1 7 /2 1 /5 1 8 /2 2 /5 1 8 /2 3 /5 1 8 /2 4 /5 1 8 Last Price Volume (In Mn)}

  938 762 762 340 364 384 EBITDA Margin (%) 32.2% 28.4% 27.1% 19.6% 18.0% 17.6% ROA (%) 16.2% 11.3% 10.2% 4.1% 4.3% 4.4%

  Financial Highlights 2014A 2015A 2016A 2017A 2018F 2019F Revenue (IDR Bn) 26,987 26,948 26,134 27,814 30,799 32,496 EBITDA (IDR Bn) 8,697 7,648 7,085 5,456 5,543 5,729 Net Income (IDR Bn) 5,566 4,521 4,522 2,014 2,157 2,276 EPS (IDR)

  Source: Company and Binaartha BUY

  Valuation: TP 10,800 with 20% upside

  Supply chain optimization, 3) Centralized procurement, 4) Cost transformation, and 5) Enable corporate growth

  Efficiency is a key • SMGR business strategies in 2018 were 1). Centralized marketing, 2).

  Rembang and Indarung plants, where the project interest costs were previously capitalized into the project cost.

  1Q2017. Other than coal prices, increased interest expenses also caused the decrease in net income.

  1Q2018 Results

  Investment Considerations

  2017 13,480 2018F (6m-avg) 13,622 Analyst: Eka Rahmawati R eka.rahmah@binaartha.com

  IDR. 10,800 JKSE Index 5,774.716 Stock code Bloomberg code SMGR IJ Market cap (in Bn) 53,235.4 52-week high 11,775 52-week low 8,600 6-m avg.dail.val (IDR) 10,300 Free Float (%) 48.99% Major Share Holders (%) Government RI 51.01% Public 48.99%

  IDR. 8,975 Target

  Cement, Equity

• Efficiency is a key strategy. Efficiency in marketing, supply chain, procurement, and cost.
• SMGR is trying to maintain their cost by buying coal at lower prices and reducing coal use, optimizing purchasing of spare parts inventory by buying together as a group, and reducing electricity cost by operating a Waste Heat Recovery Power Generator with capacity of 30.6 MW in 2018, thereby reducing dependency on electricity supply and price from the national electricity company (PLN).
• To improve efficiency in distribution, SMGR is completing two packing plant projects in Maluku and Bengkulu which are set to start operation in the second quarter of 2018.
• We estimate the oversupply situation and tight competition will still exist in cement domestic market in 2018.
• Using a DCF valuation with WACC at 8.80%, we estimate SMGR shares will rise by 20% to IDR 10,800 within a year. We recommend BUY.

USD/IDR-YE

  Chart: SMGR’s Market Shares in March 2018 Table: SMGR’s Strategic Projects _{67.7% 63.7%} Strategic Construction Start up Capacity Investment Projects

  Commercial Start Completion _45.6% Packing Plant - 500,000 _43.4%

  IDR 66 Bio Jan-17 Q2-2018 Q2-2018 _40.7% North Maluku ton/year ^{39.0% 38.9%} Packing Plant - 300,000 bags

  IDR 75 Bio Feb-17

  1H2018

  1H2018 Bengkulu 200,000 bulk Waste Heat _16.8% Recovery Power

30.6 MW

  IDR 574 Bio Q2-2016 Q1-2018 Q2-2018 Generation - Tuban Plant _{Source: Company Sumatera West Java, Central Java East Java Kalimantan Sulawesi Bali & Nusa East DKI Jakarta & DIY Tenggara Indonesia & Banten Source: Company}

  Table: SMGR’s Sales Volume Domestic and Export 1Q2018 February March Year to Date 2018 2017 Chg (%) 2018 2017 Chg (%) 2018 2017 Chg (%)

  Domestic 1,835,118 1,919,138 (4.4) 2,067,506 2,077,613 (0.5) 6,192,555 6,115,418

  1.3 Export 106,629 74,701 42.7 288,845 272,973 5.8 597,889 412,702

  44.9 Total 1,941,747 1,993,839 (2.6) 2,356,351 2,350,586

  0.2 6,790,444 6,528,120

  4.0 TLCC

• Domestic 63,009 112,390 (43.9) 146,538 189,910 (22.8) 358,120 407,862 (12.2)
• Export 34,433 74,171 (53.6) 56,791 48,480 17.1 236,004 240,813 (2.0)

  Total Group 2,039,189 2,180,400 (6.5) 2,559,680 2,588,976 (1.1) 7,384,568 7,176,795 _{Source: Company}

  2.9

  Source: Company and Binaartha Source: Company and Binaartha

Cash Flow (In IDR Bn) 2014A 2015A 2016A 2017A 2018F 2019F 2020F

  Ending Balance 4,940 3,989 2,848 3,637 2,607 1,202 985

Income Statement (In IDR Bn) 2014A 2015A 2016A 2017A 2018F 2019F 2020F

  Net Income 5,566 4,521 4,522 2,014 2,157 2,276 2,402 EPS (In IDR) 938 762 762 340 364 384 405

  NIAT 5,574 4,525 4,535 2,043 2,188 2,309 2,436 Non-controlling Interest (8) (4) (13) (29) (31) (32) (34)

  Profit Before Tax 7,091 5,851 5,085 2,747 2,957 3,120 3,292 Taxes (1,517) (1,325) (550) (704) (769) (811) (856)

  Operating Profit 6,571 5,610 4,901 2,578 2,772 2,925 3,087 Other Income 520 241 184 169 185 195 206

  Gross Profit 11,599 10,646 9,856 7,960 8,008 8,449 8,917 Operating Expense (5,028) (5,036) (4,955) (5,382) (5,236) (5,524) (5,830)

  Revenue 26,987 26,948 26,134 27,814 30,799 32,496 34,297 Cost of revenue (15,388) (16,302) (16,278) (19,854) (22,792) (24,047) (25,380)

  Cash From Financing Activities (2,020) (2,009) (0) 2,070 (1,383) (1,200) (45)

Net Changes in Cash 832 (950) (1,141) 789 (1,031) (1,405) (217)

Beginning Balance 4,108 4,940 3,989 2,848 3,638 2,607 1,202

  Net Income 5,566 4,521 4,522 2,014 2,157 2,276 2,402 Depreciation 1,224 1,427 1,637 1,953 2,070 2,194 2,326

  Liabilities 294 261 396 500 206 122 130 Equity (2,367) (2,083) (1,388) (2,149) (1,491) (1,289) (1,334)

  2,993 Others Noncurrent

  Long-term liabilities 54 (186) 992 727 (98) (33) 1,159 Bonds Payable

  Cash From Investing Activities (3,069) (6,375) (7,877) (3,261) (4,404) (4,641) (4,871)

  Capex (3,069) (6,375) (7,877) (3,261) (4,404) (4,641) (4,871)

  Cash From Operating Activities 5,920 7,434 6,736 1,979 4,757 4,436 4,699

  Change in WC (869) 1,486 577 (1,987) 530 (34) (29)

  EBITDA 8,697 7,648 7,085 5,456 5,543 5,729 6,130 Table: Income Statement YoY in IDR Billion Table: Cash Flow YoY in IDR Billion

  Source: Company and Binaartha Statement of Financial Position (In IDR Bn) 2014A 2015A 2016A 2017A 2018F 2019F 2020F ASSETS CURRENT ASSETS

  Cash and Cash Equivalents 4,940 3,989 2,848 3,638 2,607 1,202 985 Trade Accounts Receivable 3,433 3,629 4,018 4,995 4,805 5,069 5,145

  Inventories 2,812 2,409 2,671 3,686 3,850 4,062 4,116 Others Current Assets 465 512 835 1,483 1,386 1,462 1,543

  Total Current Assets 11,649 10,539 10,373 13,802 12,648 11,796 11,789 NONCURRENT ASSETS

  Fixed Assets 20,221 25,168 30,847 32,523 34,593 36,787 39,113 Other Noncurrent Assets 2,445 2,447 3,007 2,638 2,903 3,156 3,375

  

Total Noncurrent Assets 22,666 27,614 33,854 35,162 37,496 39,943 42,488

TOTAL ASSETS 34,315 38,153 44,227 48,964 50,144 51,739 54,277

LIABILITIES AND EQUITY LIABILITIES CURRENT LIABILITIES

  Short-term Bank Loans 82 139 819 602 568 611 650 Trade Account Payable 3,247 3,978 4,383 4,927 4,484 4,731 4,802

  Others Current Liabilities 1,945 2,483 2,950 3,274 4,158 4,387 4,459

  

Total Current Liabilities 5,273 6,599 8,152 8,804 9,210 9,729 9,910

NONCURRENT LIABILITIES

  Long-term bank 3,183 2,997 3,988 4,715 4,618 4,584 5,743 Bond Payable

  2,993 2,993 2,993 2,993 Others Noncurrent Liabilities 856 1,116 1,512 2,012 2,218 2,340 2,469

  

Total Noncurrent Liabilities 4,039 4,113 5,501 9,721 9,828 9,917 11,206

TOTAL LIABILITIES 9,312 10,712 13,653 18,524 19,038 19,646 21,116

  Non-controlling interest 960 1,021 1,539 1,524 1,385 1,509 1,667

  EQUITY 24,042 26,420 29,035 28,915 29,721 30,583 31,494 TOTAL LIABILITIES & EQUITY 34,315 38,153 44,227 48,963 50,143 51,738 54,277 Table: Statement of Financial Position YoY in IDR Billion

  Table: Ratio Highlights YoY Growth (% YoY) 2014A 2015A 2016A 2017A 2018F 2019F 2020F

  Sales 10.1% -0.1% -3.0% 6.4% 10.7% 5.5% 5.5% OP -1.5% -14.6% -12.6% -47.4% 7.5% 5.5% 5.5% EBITDA 6.1% -12.1% -7.4% -23.0% 1.6% 3.4% 7.0% NP 3.6% -18.8% 0.0% -55.5% 7.1% 5.5% 5.5% EPS 3.6% -18.8% 0.0% -55.5% 7.1% 5.5% 5.5%

  Profitability

  Operating Margin(%) 24.3% 20.8% 18.8% 9.3% 9.0% 9.0% 9.0% EBITDA margin(%) 32.2% 28.4% 27.1% 19.6% 18.0% 17.6% 17.9% NET Profit margin(%) 20.6% 16.8% 17.3% 7.2% 7.0% 7.0% 7.0% ROA(%) 16.2% 11.3% 10.2% 4.1% 4.3% 4.4% 4.4% ROE(%) 23.2% 17.8% 17.0% 7.0% 7.3% 7.4% 7.6%

  Stability

  Net debt/ equity (x)

  0.1

  0.1

  0.2

  0.3

  0.3

  0.3

  0.3 Int. Coverage (x)

  14.6

  12.2

  12.5

  2.7

  4.2

  5.6

  4.8 Current Ratio (X)

  2.2

  1.6

  1.3

  1.6

  1.4

  1.2

  1.2 Per Share data (IDR) EPS 938 762 762 340 364 384 405 BV 4,053 4,288 4,478 4,875 5,011 5,156 5,310 SPS 4,550 4,543 4,406 4,689 5,192 5,479 5,782 EBITDA/share 1,466 1,289 1,195 920 934 966 1,033

  Stock Ratings: Buy : a recommendation to purchase the security with upside potential of 20% or greater Hold : a recommendation to neither buy nor sell a security with upside potential of 0-19%.

  Sell : a recommendation to close out a long position in a security with upside potential below 0% or negative.

  

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Disclaimer; PT Binaartha Sekuritas has compiled this report in good faith, using information believed to be reliable. PT Binaartha Sekuritas and its analysts take no responsibility for the accuracy of the information contained in this report. This report has been produced for distribution to clients of PT Binaartha Sekuritas only. This report is not an invitation to buy or sell any security. PT Binaartha Sekuritas may have used the information in this report prior to publication. The company or its clients may have positions in or may from time to time buy or sell the securities mentioned in this report or other related securities.