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SMAR, set to become a net capital payer
🎯 🌴 📈 Rp8,625
Last 12-month cashflow +Rp 2.13 trillion ⬆️⬆️

November 19th, 2020
⏰ 1 minute read
Sales
Sales declined -3% in the third quarter from the second & were 6% below forecast at Rp 9.13 trillion, despite a rise in upstream oil production of +4%. Like most plantations, production is still lower than a year ago. We expect double digit growth this fourth quarter & sales to rise to Rp 10.34 trillion by the third quarter 2021.

Cashflow
Despite the slight decline in sales, cashflow bounced back to a very positive Rp 1 trillion in the third quarter as investment spending slowed down & costs were low. We use almost the same investment spending which when combined with our higher sales gives a more modest average quarterly free cashflow of Rp 330 billion in the next 12 months.

Higher sales, stronger cashflow, lower debt ahead & SMAR will turn to a net capital payer, shares to rerate...

Data file & model
Balance sheet
Despite the positive cashflow, negative working capital & a weaker rupiah meant that the large balance sheet net debt was flat at Rp 13.2 trillion. With our forecast for positive cashflow & including a dividend payment of Rp 297 billion, the net debt will improve to Rp 12.2 trillion in 12 months time (not including effect from a stronger rupiah).

Profit
Net profit was lower again at Rp 204 billion in the third quarter because of FX losses. The cash cost ratio of net profit add back non cash costs minus sales as a a % of sales was a very strong 90%. We use the average 94% to predict a much stronger next 12 months profit of Rp 1.486 billion.

Value
SMAR has raised capital of Rp 2.1 trillion but is set to become a net capital payer this 12 months. At Rp 8.9 trillion current value, it’s 0.22X sales, 0.3X assets, 0.72X equity with a 12% profitability & a 3.3% yield. Our cashflow forecast is Rp 1.32 trillion. At 1.6% with a 0.3X adjustment gives a much higher target Rp8,633.
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