Semen Gresik (SMGR) is in the right track

In the 1Q 2009 Semen Gresik (SMGR) shows a good performance. It has increased its net income to Rp 681 Billion, or 31.3% increased year on year. Even though it could not maintain its sales due to the though economic condition (-2.1% year on year), SMGR still capable to reduce its production cost. Its EPS for the 1Q 2009 has increased 33.3% to 116 compare to 87 in 1Q 2008. Here is the data:

(Bio Rupiah)	1Q-2008	1Q-2009	Change (%)
Revenue	2558	3228	26.19%
Cost of Revenue	1472	1850	25.68%
Gross Profit	1086	1378	26.89%
Operating Expense	382	512	34.03%
Operating Income	704	866	23.01%
EBITDA	881	974	10.56%
Net Income	519	681	31.21%
EPS	87	116	33.33%

	1Q-2008	1Q-2009
ROE	7.30%	7.80%
ROA	5.70%	6%
Debt to Equity	3.0	2.1

If we assumed that SMGR could maintain its EPS growth around 20-35% hence the full year Forecasted EPS would be:

Forecasted EPS

EPS 2008	20% Growth	35% Growth
	FY EPS 2009	FY EPS 2009
426	511.2	575.1

I would show you a scenario analysis with different PE ratio.

Scenario Analysis

	20% Growth	35% Growth
PE 8x	4089.6	4600.8
PE 10x	5112	5751
PE 12x	6134.4	6901.2

Based on this analysis with the price of SMGR closed at 4100 today (30 April 2009), I would recommend a “BUY” for SMGR.

Energi Mega Persada (ENRG)

I would like to recommend Energi Mega Persada (ENRG) stock. I have overweighted my position on this stock. I believe as a company ENRG has strong potential to grow. Even though oil prices went down lately, in the long run the oil price would tend to be higher. I believe the ideal price of oil which is around 75-80 dollar per barrel would be reached in year 2010 hence the stock would be more attractive in the coming year.

In the first three month of 2009, ENRG has increased its production to 13.9 mbopd and 94.3 bbtud, compare to 10.5 mbpod and 86 bbtud in 2008. The price to book value per today closed is 0.65. It is very attractive to collect this stock currently with this low P/BV ratio. Even though in 2008 ENRG has failed to make some profit due to the increased in the tax provision, it did manage to make some good operating profit.

Technical Analysis

If you look at this chart, you could notice that the stock has a significant move in mid-April 2009. The market has bought this stock in significant amount, due to the released of its 2008 financial report. The market realized that this stock was extremely undervalued, and since the beginning of April 2009 to today, this stock has given 142% return.

In April 20^th, the stock has a significant pull back. It was mainly due to the political issue in Indonesia when the market realized that Susilo Bambang Yudhoyono (The President of Indonesia) would not continue its partnership with Jusuf Kalla (Vice president). The market thought that the economic and political situation would not be in a good shape if the duet stops working together. The stock indicated a support at 160 levels.

When the political tension in Indonesia diminished and the market would say yes to the next government, I believe this stock would start the rally again. So I would recommend a “BUY” for this stock.

Agro Industry Analysis (LSIP, SGRO, AALI, UNSP)

Here is the analysis that I made based on four major agro industry companies which are London Sumatra Plantation (LSIP), Sampoerna Agro (SGRO), Astra Agro Lestari (AALI) and Bakrie Sumatra Plantations (UNSP).

Industry Analysis

	2008	2007	2006
Total Sales	17,226,934.00	12,438,893.00	8,049,105.00
growth	38.49%	54.54%
Market share
LSIP	22.33%	23.56%	26.75%
SGRO	13.28%	12.85%	12.14%
AALI	47.37%	47.92%	46.44%
UNSP	17.02%	15.67%	14.67%

From the table above the Agro Industry has grown about 38.49% in 2008. SGRO and UNSP have shown some good effort to expand their market share. LSIP has dropped its market share from 26.75% in 2006 to 22.33% in 2008. AALI market share relatively unchanged about 47%.

Company Analysis

I would show the fundamental data of each companies.

LSIP	2008	2007	2006
Total Asset (Mio IDR)	4,921,310.00	3,938,140.00	2,985,212.00
Book Value (Mio IDR)	3,197,059.00	2,315,027.00	1,345,901.00
Net Cash Flow (Mio IDR)	475,985.00	301,305.00	104,762.00
CAPEX (Mio IDR)	-343,318.00	282,727.00	99,049.00
Sales (Mio IDR)	3,846,154.00	2,929,993.00	2,153,200.00
Operating Income	1,314,416.00	990,900.00	454,648.00
Net Income	927,555.00	564,034.00	303,105.00
Dividend	0.00	0.00	102,003.85
Total Share	1,360.05	1,360.05	1,360.05
Profitability
ROE	29.01%	24.36%	22.52%
ROA	18.85%	14.32%	10.15%
Operating Profit Margin	34.17%	33.82%	21.11%
Net Profit Margin	24.12%	19.25%	14.08%
Financial Risk
Debt / Equity	53.93%	70.11%	121.80%
Valuation
BV per share	2350.69	1702.16	989.60
EPS	682.00	414.72	222.86
Sales per share	2827.95	2154.33	1583.18
Cash Flow per share	349.98	221.54	77.03
SGRO	2008	2007	2006
Total Asset (Mio IDR)	2156160	2088000	615444
Book Value (Mio IDR)	1552960	1471240	408247
Net Cash Flow (Mio IDR)	183989.9	394450	41091.5
CAPEX (Mio IDR)	-306124	-144318	-27225
Sales (Mio IDR)	2288140	1598930	977295
Operating Income	609602.3	402543.8	192124.4
Net Income	439516.2	215083	112670
Dividend
Total Share	1860.85	1860.85	1860.85
Profitability
ROE	28.30%	14.62%	27.60%
ROA	20.38%	10.30%	18.31%
Operating Profit Margin	26.64%	25.18%	19.66%
Net Profit Margin	19.21%	13.45%	11.53%
Financial Risk
Debt / Equity	38.84%	41.92%	50.75%
Valuation
BV per share	834.54	790.63	219.39
EPS	236.19	115.58	60.55
Sales per share	1229.62	859.25	525.19
Cash Flow per share	98.87	211.97	22.08
AALI	2008	2007	2006
Total Asset (Mio IDR)	6519790	5352990	3496960
Book Value (Mio IDR)	5156240	4060600	2748570
Net Cash Flow (Mio IDR)	-145096	817332	-117367
CAPEX (Mio IDR)	-1279410	-796016	-642758
Sales (Mio IDR)	8161220	5960950	3737990
Operating Income	3370970	2900340	1194270
Net Income	2631020	1973430	787318
Dividend	-1535300	-661374	-661330
Total Share	1755.524	1755.524	1755.524
Profitability
ROE	51.03%	48.60%	28.64%
ROA	40.35%	36.87%	22.51%
Operating Profit Margin	41.30%	48.66%	31.95%
Net Profit Margin	32.24%	33.11%	21.06%
Financial Risk
Debt / Equity	26.44%	31.83%	27.23%
Valuation
BV per share	2937.15	2313.04	1565.67
EPS	1498.71	1124.13	448.48
Sales per share	4648.88	3395.54	2129.27
Cash Flow per share	-82.65	465.58	-66.86
UNSP	2008	2007	2006
Total Asset (Mio IDR)	4700320	4310900	1783000
Book Value (Mio IDR)	2470180	2385210	642485
Net Cash Flow (Mio IDR)	-11125	276195	72959
CAPEX (Mio IDR)	-387871	-164776	-139222
Sales (Mio IDR)	2931420	1949020	1180620
Operating Income	759697	487322	291017
Net Income	173569	206575	172898
Dividend
Total Share	3387	2900	2650
Profitability
ROE	7.03%	8.66%	26.91%
ROA	3.69%	4.79%	9.70%
Operating Profit Margin	25.92%	25.00%	24.65%
Net Profit Margin	5.92%	10.60%	14.64%
Financial Risk
Debt / Equity	90.28%	80.73%	177.52%
Valuation
BV per share	729.31	822.49	242.45
EPS	51.25	71.23	65.24
Sales per share	865.49	672.08	445.52
Cash Flow per share	-3.28	95.24	27.53

From the fundamental data, we could conclude that AALI obviously still capable in managing its business as a leader in the industry. It has strong improvement in ROE. In 2008 its ROE is 51.03%. LSIP and SGRO both are also relatively capable in managing their businesses with 29% and 28% ROE. UNSP ROE relatively small, around 7%. Its cash flow also negative in 2008 which means it might has some problem in its liquidity.

Price to Book Value

UNSP	AALI	LSIP	SGRO
0.56	5.19	1.80	1.93

Price to Earnings

UNSP	AALI	LSIP	SGRO
8.00	10.18	6.20	6.82

While we could conclude that AALI has stronger fundamental performance, the price is just too expensive right now. The price to book ratio is 5.19. It is more than twice of LSIP and SGRO. I believe it should be around 4. The PE ratio is also too high, around 10. I believe it should be around 9. The LSIP and SGRO both relatively fair valued. LSIP is a little bit under price compare to SGRO. If I have to choose between these two stocks, I would choose LSIP.

I have some interesting data with UNSP. The Price to Book ratio is less than one which means it is relatively very cheap. Even though as a company it has been struggling to make some profit in this tough year, I believe UNSP is very attractive right now. You could see the sales data, which relatively improve significantly, compare to its peers. With the palm oil price trend to be higher this year, I believe UNSP would be able to make some improvement this year in the term of income.

Based on this analysis, I would recommend STRONG BUY for UNSP and BUY for LSIP.