SMSM - 9M23

Persistent Progress

Earnings Update 9M23

SMSM’s performance in 9M23 has been mostly positive, marked by higher revenues, better bottom line and improving margins. Domestic revenues were upbeat, having able to make up for the subdued revenues in the overseas market; whilst filters and trading segments have continued to be the mainstays of SMSM’s business. Continuing its solid track record in rewarding shareholders, SMSM has recently paid its third interim dividend based on FY22. To reflect the latest financial performance in 9M23, we have slightly adjusted our target price upwards. Going forward, key risks to our target price include heightened geopolitical tensions, higher interest rates and volatility in the commodity market.

Mostly Positive

SMSM posted higher revenues and core net profit in 9M23 compared to 9M22, accompanied with improving margins. The positive performance was mostly attributed to upbeat revenues from domestic market, in contrast to the ailing performance of the Company’s overseas markets, especially the American market. By products, two biggest segments – filter and trading – have managed to register higher revenues, sufficient enough to outperform the radiator segment which saw significant drop in 9M23 from 9M22. In addition, body maker segment also saw higher revenues in the same period, while others segment – the smallest segment by revenues – reported lower revenues in 9M23.

From another angle, quarter-to-quarter performance comparison was rather mixed. Revenues actually fell in Q3/23 vs. Q3/22 and so did gross profit and core operating profit. Core net profit was able to eke out a slight increase in Q3/23 vs. Q3/22, thanks to higher finance income. Comparing Q3/23 with Q2/23 however, performance in Q3/23 was actually better – from the top line to the bottom line and also in terms of profitability margins.

Third Interim Dividend Paid

On November 22nd 2023, SMSM has paid its third interim dividend based on FY23 amounting to Rp173 billion. It was the fourth dividend payment this year with the second one was based on FY22 and was paid on June 14th 2023. Overall, total dividend payments amounted to Rp605 billion with the fourth and the final one based on FY23 is likely to be paid sometime in mid-2024.

Company's Guidance for FY23

According to the Company’s guidance found on its latest presentation material, sales are expected to be up by 5% (yoy) this year vs. FY22 while net profit is expected to grow by 10% (yoy) this year vs. FY22. SMSM sees macroeconomic uncertainties to persist on the back of high inflation and rising interest rates. Prices of raw materials have been stable in 9M23 and are expected to remain stable at the moment. Energy costs are seen volatile amidst new geopolitical tensions in the Middle East. Assuming that no additional deterioration on the macroeconomic front, revenues and profit are seen to grow in line with the Company’s guidance.

Valuation Adjusted

We had adjusted our valuation on SMSM shares and had slightly raised our previous target price from Rp2,236 per share to Rp2,452 per share. The new target price is based on price-multiple and discounted cash flow methods, unchanged from our mid-October analysis when we recommended HOLD on SMSM shares. Compared to the latest price on November 24th 2023 at Rp1,890 per share, the upside potential for the new target price is around 30%.