PT Semen Baturaja (Persero) Tbk is an Indonesia-based company primarily engaged in cement manufacturing.
Cement manufacturing is a capital-intensive business. The manufacturers have to built the fixed plant in order to produce the cement. The top 3 dominant players in Indonesia are 1. Semen Indonesia, 2. Indocement Tunggal Prakarsa and 3. Holcim Indonesia
This post will not study Semen Baturaja in details, but just to highlight that it’s speculative and overpriced. Detail study will have to cover overall cement supply and demand (S&D), regional demand, new capacity, utilisation rate, average selling price (ASP), infrastructure and property development, cost of materials, etc. This will take many pages. It will just take simple comparison to detect that Semen Baturaja is overpriced.
Looking at the table below, we see that Semen Baturaja is making revenue and earning just 8-9% of what Indocement is making, but it’s worth nearly 1/3 of Indocement. Its net margin is the highest but its ROE, a more important measure, is the lowest. Its high P/E of 66.9x is enough to raise red flag.
Semen Baturaja may have a higher growth prospect with its plan expansion to increase capacity significantly. But all big 3 cement players are facing margin compression in the last few years as the overall cement industry is experiencing oversupply now. Foreign players, such as Anhui Conch, has also entered Indonesia. So, competition is intensifying. Given current high margin and decently attractive ROE of cement players, ASP will remain under pressured.
The chart below compares the share price of SMGR (Semen Indonesia), INTP (Indocement) and SMBR (Semen Baturaja) since start of January 2014 until today. The share prices of the Big 2 are down 17% to 33%. Semen Baturaja did similarly until start of this year, which saw it more than quintuple.
Source: Google Finance
My friend told me about this stock. He bought at the start of the year and made 40% in short time. But looking back, he sold too early as the price continued to rise to nearly 6x. Momentum has gathered and became unstoppable for a short time. We certainly can’t time when it will reach the peak. So, 40% return in a short time is a very good result.
Semen Baturaja itself is doing ok as a company, but it just does not justify such valuation. Price correction can occur any time but we don’t know when. It can continue its momentum to rise further, but can plunge by more than half in a few days. Stay away from this stock!
Source: Google Finance