A Long Shot

SMSM’s revenues were 5.3% (yoy) lower at Rp2.35 trillion in 6M24 vs. 6M23, while on quarterly basis they were just 0.7% (yoy) lower in Q2/24 at Rp1.19 trillion vs. Rp1.20 trillion in Q2/23. Compared to Q1/24 however, revenues were 3.2% (qoq) higher. Conversely, core net profit has increased by 4.3% (yoy) in 6M24 at Rp448 billion vs. Rp429.3 billion in 6M23, while in Q2/24 it was up by 12.1% (yoy) to Rp233 billion from Rp207.8 billion in Q2/23 as well as higher by 8.3% (qoq) vs. Q1/24. The drop in revenues corresponds to the tendency that first half revenues have been weaker than those in the second half based on the data from FY19, and we assume that this will be no different this year. Still, against the Company’s CFO statement that we mentioned in our previous report, we believe the 8% (yoy) revenues growth expectation is seemingly difficult to attain at the moment – even based on our most upbeat expectation. See the notes section on the next page for more detailed explanation on this.

Margins have Improved

In terms of profitability margins, SMSM has posted better margins in 6M24 vs. 6M23 as well as in Q2/24 vs. Q2/23. Gross profit margin (GPM) has ticked higher to 35.2% in 6M24 vs. 34.3% in 6M23, while in Q2/24 it has inched higher to 34.0% vs. 34.4% in Q2/23. Meanwhile core operating profit margin (cOPM) has increased from 24.8% in 6M23 to 25.0% in 6M24, while in Q2/24 it was at 24.9% vs. 24.5% in Q2/23. At the bottom line, core net profit margin (cNPM) was up from 17.3% in 6M23 to 19.1% in 6M24, whilst in Q2/24 it was up to 19.5% vs. 17.3% in Q2/23. Compared to Q1/24 however, only cNPM has continued to improved whilst GPM and cOPM have both drifted lower.

Risks on the Table

The subdued performance in 6M24 has been attributed as well to the geopolitical tensions, particularly the one involving Russia & Ukraine. This has impacted SMSM’s sales to Russia. Previously one of the top countries contributing to overseas sales, now Russia has been replaced by Japan. Struggling domestic automotive sales also contributed to the Company’s weaker revenues. According to the Gaikindo’s most recent data, automotive sales in 7M24 have been broadly lower vs. 7M23 in terms of wholesales, retail as well as production. We believe higher interest rates in addition to political uncertainties in 6M24 were among the negative catalysts to the domestic automotive industry. Another risk comes from the weaker mining sector which has impacted SMSM’s subsidiary Hydraxle Perkasa of which most of its products are used by the mining industry. 

Target Price Adjusted

Based on the three valuation approaches that we are using, SMSM’s target price has been revised higher to Rp2,128 per share vs. Rp1,929 in our previous report. The new target price implies 6.4% upside potential from the reference price of Rp2,000 per share (9 August 2024) and implies 12.7x PER (TTM), 2.5x P2R (TTM) and 3.5x PBV (MRQ). See the notes section for more detailed explanation.