Mar 27, 2010

The most profitable cement companies

If you have money and want to invest in stocks of Indonesia three largest cement producer, which stock do you want to pick? PT Semen Gresik Tbk (SMGR), PT Indocement Tunggal Prakarsa Tbk (INTP), or PT Holcim Indonesia Tbk (SMCB)?
If you consider their bottom lines, you may probably put your money in SMCB stocks, due to it posted a 217.39% jump in net profit last year (year on year/YoY). Is SMCB, Indonesia third largest cement maker, really the most profitable company? Let's check operating and net margin.
At glance, I think that investors will put their money in SMCB stocks because a fantastic performance in net profit. But, it could post a steep jump in net profit last year on the back of rupiah appreciation against US dollar. Holcim, the third largest cement manufacturer in the country, booked Rp372.20 billion of foreign exchange gain, a reversal of the previous year with forex loss of Rp532.04 billion. Thanks to forex gain.
What if rupiah depreciated against the US dollar last year? Did Holcim enable to provide a jump on net profit? I don't think so.
In operational level, Holcim reported a 39% increase in operating profit. In return, it enabled jack up operating margin from 18.73% in 2008 to 23.40 last year. Sales grew 11.24% from Rp5.34 trillion in 2008 to Rp5.94 trillion last year.
How about Semen Gresik that always provides around 50% dividend every year?
If you look sales growth, the state-owned enterprise SMGR will be the most growing cement company, despite maximum production capacity. I think Semen Gresik's debottlenecking program has been working since last year.   
Semen Gresik's sales growth last year ranked top with 17.85% jump from Rp12.21 trillion and Rp14.39 trillion last year, which was more important than operating and net profit.
But, I think Semen Gresik should improve cost efficiency. The company's operating margin only rose from 27.52% to 30.16% last year. If SMGR could control the cost, it would post higher operating margin. 
Indocement, that is controlled by Heidelberg Cemen AG Germany, just posted a 8.18% growth in sales last year (YoY), the lowest compared to SMGR and Holcim, from Rp9.78 trillion to Rp10.58 trillion. 
Despite the lowest sales growth, Indocement posted a 50% jump in operating profit from Rp2.46 trillion to Rp3.69 trillion last year, which was the highest compared to Semen Gresik and Holcim.
I estimate that Indocement was success implementing cost reduction program. On the back of higher operating income, INTP's operating margin made a steep increase from 25.15% to 34.88% last year, the highest operating margin. Indocement's net margin elevated from 17.89% in 2008 to 25.99% last year as well.       

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