DEPOK (eNBe Indonesia) - Shares of state cement maker Semen Indonesia (SMGR) ended lower by 2.2% to Rp6,625 on Monday (Mar 13) even when the company reported Rp2.36 trillion of net profit last year 2022, grew 15.7% year on year (y/y), thanks to lower expenses.
The last quoted price reflected market capitalization of Rp39.3 trillion, way below equity (Rp47.2 trillion), among others because of persistent low profit margin related to oversupply in the domestic market. The stock is currently traded with PE multiple 16.7 on 2022 earnings, which is quite fair.
SMGR, the largest in the country, saw its revenues slipped 0.8% y/y to Rp36.4 trillion. The Company’s cost of revenues rose 3.2% y/y to Rp25.7 trillion, then gross profit declined 9.4% y/y to Rp10.67 trillion.
SMGR, however, cut selling expenses by 12% and finance costs by 22.2%, which then supported the bottom line. Still, net profit margin was only 6.5%.
Noting that, Government of Indonesia has integrated or consolidated SMGR with small cement firm Semen Baturaja (SMBR).
This integration would benefit SMBR in boosting cement sales for its main market–south part of Sumatra, and the logistic cost will be reduced, then making it more profitable ahead.
SMBR booked net profit of Rp94.8 billion in 2022 on revenues of Rp1.88 trillion. Its assets reached Rp5.2 trillion.
For SMGR, based on the review, the potential integration or synergy with SMBR would help it to gain Rp1.66 trillion value added potential for 2022-2026 period, through optimizing revenue and cost efficiency in all the supply chains.
Meanwhile SMGR Supply Chain Director Adi Munandir said that currently the national cement industry is still overshadowed by some challenges–competitive market and oversupply.
SMGR will optimize production facilities and strengthen its extensive distribution network to maintain dominance in the national cement market.
Strengthening this extensive distribution network also contributes to logistics cost efficiency to increase profitability.
After integration with SMBR in December 2022, SMGR now has a factory integrated cement in 9 locations, packaging plants in 31 locations, 7 cement mills, 40 ports, and supported by 460 distributors, both in Indonesia and in Vietnam (TLCC), and 70,000 retail stores in Indonesia.
Overall, cement industry has started to recovering. The development of new capital city Nusantara (IKN) in East Kalimantan is seen a catalyst for a growth of between 2% and 4% this year.
The challenges are the production capacity oversupply, export drop, and higher coal price for domestic mandatory obligation (DMO).
Export can solve the oversupply in domestic market, but margins might be limited due to high cost of transportation.***