Less Favorable Start

SMSM posted weaker revenues and core net profit in Q1/24 – both on quarter-to-quarter and year-on-year terms. On the other hand, profitability margins have mostly improved in Q1/24 from Q1/23, but still trailing behind compared to Q4/23. Geographically, revenues from both domestic and overseas markets have contracted notably – also in yoy and qoq terms – particularly in the Company’s dominating Asian market. Conversely, revenues from Australian market had registered increases on both qoq and yoy basis. Product-wise, revenues from radiator segment – the third-biggest contributing segment – has become the only product segment that managed to expand in Q1/24 vs. Q1/23 and vs. Q4/23. All other product segments – including the filter and trading segments which represent significant shares to overall revenues – have posted lower revenues in Q1/24.

Bumpy Road Ahead

SMSM did not state its guidance for FY24 in its Q1/24 corporate presentation nor in its latest annual report, but at the end of April 2024 the Company’s CFO was quoted as saying that the top and the bottom lines are expected to grow by 8% (yoy) and 10% (yoy), respectively in FY24. Still, based on the Company’s less favorable financial performance in Q1/24, these expectations are too optimistic and that this year is likely to be downbeat. Among key risks faced by SMSM in FY24 are sluggish global economic growth due to potential slowdown in manufacturing and consumption activities among major economies; persistently elevated inflation which has led to central banks keeping their monetary policies tight; and prolonged geopolitical tensions. Domestically, in addition to tight monetary policy, the automotive industry has also turned soft with lower sales at both wholesales and retail levels as well as lower production level based on the 4M24 data from Gaikindo. Overall, the aforementioned variables hint at a bumpy year ahead for SMSM.

Capex has Increased, IBD has Declined

For the first three months of FY24, SMSM had spent Rp58 billion in capital expenditures out of Rp150 billion allocated for FY24, of which Rp48 billion was spent for fixed assets while Rp10 billion was spent on right-of-use assets. The total amount spent was higher compared to Rp41 billion spent in Q1/23. On financing, SMSM’s interest-bearing debts (IBD) have declined 3% (qoq) from the end of FY23 and also lower by 13% (yoy) vs. the end of Q1/23.

Target Price Revised Lower

Previously, we had set the target price of Rp2,452 per share on SMSM shares. In light of the Company’s Q1/24 performance, we have made adjustments on our valuation which is based on price-multiple and discounted cash flows methods. Our new target price for SMSM is now at Rp1,929 per share, which implies 13.6x PER24F and 3.1x PBV24F and represents 21% upside potential from the reference price of Rp1,600 per share.