Every company always has a dream to realize, and so does PT Semen gresik (Persero) Tbk (SMG). This company is still committed to being the biggest national cement producer with its biggest cement market share by way of performing new expansion projects. What about the trend of its share?
Semen Gresik was established as NV Semen Gresik on 25th March 1953. It later became a state-owned company, exactly on 17th April 1961. The latest change took place on 24th October 1969 when the government made it into PT Semen Gresik (Persero).
The total of the company share reaches 5.93 billions as per 31st August 2010. As a state-owned company listed in Indonesia Stock Exchange, 3.02 shares (51.10%) are still owned by the government. The remaining 2.90 billions (48.99%) are owned other shareholders and public.
Semen Gresik and its subsidiaries have operated a number of industrial business activities, with cement industry as its core business. The company with its 99% share ownership has two cement making subsidiaries, namely; PT Semen Padang and PT Semen Tonasa. The plants of this state-owned cement making company are located in Tuban of East Java. Meanwhile, PT Semen Padang’s plants are in Indarung of West Sumatera and PT Semen Tonasa’s plants are in Pangkep of South Sulawesi.
As the biggest national cement producer, the company has an installed production capacity of 19 million ton per year in 2009, or contributes 38.15% of national production capacity which is 49.8 million ton. Semen Gresik as the holding company of the group has 9-million-ton production capacity, Semen Padang has 5.9-million-ton production capacity, and Semen Tonasa’s production capacity reaches 4.1 million ton per year.
The company’s production capacity is still bigger than other cement producers listed in Indonesia Stock Exchange; PT Indocement Tbk (INTP) has 17.1 million production capacity per year; and PT Holcim Indonesia Tbk has 8.5 million ton production capacity per year. The year production capacity is predicted to reach 41.7 million tons per year.
The company is consistently performing its expansion projects in effort to keep its position as the biggest cement producer in the country. At the moment, its two new cement making plants are still under construction, namely; Tuban IV and Tonasa V plants respectively having 2.5 million ton production capacity. The two new plants started their construction in 2009 and are completed in 2011-2012.
Up to mid-August of the year, the construction progress of Tonasa V plant reached 41.5% and Tuban IV plant reached 31.7%. The company is also constructing two new power generating plants with a combined capacity of 70 MW with US$ 114 million investment value. And currently, the construction progress reaches 4.44%.
Semen Gresik has production capacity improvement target to reach 27 million ton per year in 2013. The production improvement will be carried out in stages; 19.5 million ton in 2010, 20.5 million ton in 2011, 24 million ton in 2012, and 27 million ton in 2013. For the above production capacity improvement target, the company’s planned capital expenditure will have reached US$ 1.26 billion from 2008 to 2014.
“Part of the capital expenditure is allocated to improve the company’s production capacity as well as to construct new power generating plants,” said Director of Finance Cholil Hasan in his presentation to a number of fund managers in Singapore and Tokyo a couple of days ago.
The biggest national cement producer is predicted to dominate around 43% market share. It also has one big packing plant for its nation-wide distribution network and 4 jetties (in Padang, Tuban, Gresik and Biringkasi) to support its marketing and distribution sectors.
At the same time, Indonesia Cement Association data states, domestic cement sales volume up to the third quarter of 2010 grew 7.2% from 27.19 million ton to 29.5 million ton. For Semen Gresik alone, its sales volume reached 12.69 million ton, a 2.4% increase from the prior year. The utilization of the three other cement producers still reach 78%, Semen Gresik’s plant utilization has reached 91%. It is the highest level of all.
At the same time, Cholil predicts, the company will achieve lower revenue and net profit in the end of the third quarter in 2010, compared to that of the same period in the prior year. Up to the end of September 2010, Semen Gresik reached Rp2 trillion net income from its revenue of over Rp9 trillion. In the end of the third quarter of 2009, Semen Gresik reached Rp10.40 trillion revenue, Rp3.06 operating income, and Rp2.41 trillion net income.
The flat cement price from the end of the prior year to the end of September 2010 has also affected the company’s revenue of the year. In average, cement price of Semen Gresik’s products reaches Rp750,000 per ton. The company’s growth target of the 2010 revenue and net income is 7% - 8%.
Meanwhile, up to the end of September 2010, the company’s revenue declined by 1.6% to Rp6.66 trillion from the same period of the previous year which was Rp6.76 trillion. On the contrary, Semen Gresik succeeded to record Rp1.62 trillion net income, a 7.5% increase from the same period of the prior year which was Rp1.51 trillion. It was due to being supported by its strengthening operating expenses. Therefore, its earning per share has increased by 6.3% to Rp274.
Semen Gresik had very convincing annual growth from 2005 to 2009; its revenue growth rate reached 18% per year; EBITDA increased by 24%; net income rose by 35%; asset total grew 15%; and total of equity increased by 23%. Its revenue in the end of 2009 reached Rp14.777 trillion, and its net income reached Rp3.32 trillion.
Other financial indicators also showed convincing growth of the company. Within the period of 2005 and 2009, the company’s cash and cash equivalent in average increased by 39% per year, reaching Rp5.28 trillion in the end of 2009. And ratio of return on investment toward its assets also kept increasing from 13.7% in 2005 to 25.7% in 2009.
On the contrary, the company’s liabilities in average declined 35% to Rp151 billion in the end of 2009 from Rp854 billion in 2005. In line with it, ratio of liabilities toward EBITDA also decreased from 0.40 times in 2005 to 0.03 times in the end of 2009.
Semen Gresik also succeeded to distribute bigger dividend yield compared to other cement companies. The company distributed 2.5% dividend yield in 2005 but 4.1% in 2009. This percentage was much higher than that of distributed by Indocement which was only 1.1% and Holcim even failed to pay the dividend of 2009.
An analyst from Deutsche Bank, Verdana Rachman Kuswanto has the price target of Rp12,000 price target for Semen Gresik share and recommend ‘buy’. He determines the share price by using the ’10-Year Discounted Cash flow’ method, resulting 14.3% WACC and 5% growth. WACC is determined by 10.8% risk free level; 5.3% equity risk premium; 8.3% cost of liabilities; equity toward capital of 78.4%; and 0.98% beta,” he stated as written in his research issued on 5th October 2010.
The above price has calculated the long-term profit growth of Semen Gresik. And the investment risks include failure to increase the price of cement due to the increase in power price, since cost of power contributes about 36% of total production cost. Beside, failure to increase business synergy will also hinder better gain of revenue and profitability.
At the same time, an analyst from CIMB Securities Lidya Toisuta has the price target of Rp11,650 for SMGR. However, she recommends ‘neutral’ for SMGR share.
SMGR price experienced an Rp100 decline to Rp9,850 at the closing of Wednesday’s trading (October 20th, 2010), with transaction volume of 6.04 million units. The share price happened to reach Rp9,950 during the trading of the same day, but declined to its lowest level of Rp9,800.
Cement market has indicated recovery in the end of the year. Although it has not grown sharply, cement consumption has gradually increased.
Indonesia Cement Association (ASI) records national cement sales up to September or the end of the third quarter of 2010 reached 9.94 million ton, a slight increase of 0.6% compared to that of the second quarter of the same year which was 9.85 million ton.
Nevertheless, this cement sales was still 2.6% higher than that of the same period in the prior year which only reached 9.68 million tons.
Chairman of Indonesia Cement Association Urip Trimuryono acknowledges, the domestic cement sales has not reached its maximum growth yet. Urip states, cement sales of the third quarter of 2010achieved a slight increase compared to that of the prior year due to some influencing factors. One of them was the long ‘lebaran’ holiday in the end of September.
“During the long ‘lebaran’ holiday, cement transportation activities totally stopped for almost two weeks, since it would disturb human transportation activities before and after the ‘lebaran’ holiday,” he said October 20th, 2010.
“Another influencing factor which caused cement sales to decline was the slow infrastructure construction activities up to the end of September 2010. As a result, Cement sales only relied on property sector only,” he said.
However, Urip predicts, cement sales up to the end of the year will reach 42 million ton, an increase from the prior year which only reached 38.4 million ton.
According to Urip, cement sales in the fourth quarter of the year commonly experiences upwards trend. In October alone, he predicts that domestic cement sales will increase by 10% compared to that of in September which reached 3.56 million tons.
Therefore, he is quite optimistic that the year cement sales target can be achieved. Let alone, cement production now can keep up with the increase of cement demand.
This year, Indonesia cement Association (ASI) predicts national cement production will reach 44 million tons, a big increase compared to that of the previous year which only reached 36.9 million tons.