Selamat Sempuma Committed Dividend Player

We like SMSM as a committed dividend player with a solid dividend payout ratio track record. We also view positively SMSM attempt to grow inorganically through acquisitions and joint ventures. However we keep our NEUTRAL recommendation due to current rich valuation of 14.3x FY14 PE. Our DCF based fair value is at IDR2,750 (12.6x FY14 PE)

A consistent dividend player
Closest incoming dividend at IDR25/share (cum date 30 Sept 2013) put total FY12 payout ratio at 65%, adding SMSM track record to pay more than 60% payout ratio in the last seven years. We expect SMSM to maintain the 65% payout ratio which will result in 4.0% and 4.6% dividend yield for FY13 and FY14 respectively.

Inorganic growth
We view positively SMSM attempt to grow inorganically seeing that SMSM only acquired business that within its value chain with an attractive price. For the latest addition, in early 3Q13, SMSM took over its supplier Selamat Sempana Perkasa (SSP) at 9.0x FY12 earning and its domestic sole distributor Prapat Tunggal Cipta (PTC) at 3.9x FY12 PE. An interesting investment considering SSP posted 12% ROAE in FY12 with 50% net income CAGR in the last four years, while PTC posted 23% ROAE with 34% net income CAGR in the same period.

Maintain forecast
While the new addition hypothetically may add IDR17bn (based on FY12 net income) to this year net income, weakening Hydraxle performance (67% y-o-y drop in 1H13 net income) and 2.3% y-o-y drop in gross margin of filter and radiator business cause us to maintain our forecast.

Valuation
We rolled over our DCF based valuation and found our new TP at IDR2,750, reflecting 12.6x FY14 PE, therefore we keep our NEUTRAL recommendation.