Selamat Sempuma Notable Dividend Player

Company Profile
Founded in 1976, Selamat Sempurna (SMSM) is a part of ADR Group and currently one of the largest filter and radiator manufacturers in the region. The Company manufactures filters, radiators, oil coolers, condensers, brake pipes, fuel pipes, fuel tanks, exhaust systems, and press parts for passenger vehicles and heavy equipment.

Highlights
A dividend player. SMSM’s significant dividend payout ratio (DPR) of 65% for 2012 earnings makes the stock one of the most interesting dividend payers. Its payout ratio had ranged between 65% and 98% in the last six years, given the Company’s policy to pay a minimum 45% DPR if its net income exceeds IDR30bn. Going forward, we expect its dividend yield to reach 5.1%-5.9% for 2013-2014 earnings.

On track for moderate growth
SMSM’s sales have been growing steadily over the last 19 years, chalking up a CAGR of 15% in the last five years, mostly driven by its overseas market penetration and rising domestic demand. More than three-fourths of the Company’s consolidated revenue goes to the replacement market, which is quite resilient in nature. Last year, amid challenges in the export market, SMSM switched to its alternate growth strategy – inorganic growth. We view this positively as the acquired entities had operations that were within its core competencies and the acquisitions were concluded at attractive prices, despite having been purchased from related companies.

Having acquired Hydraxle (a dump truck and hoist producer) last year, SMSM took over its supplier Selamat Sempana Perkasa (SSP) and its sole domestic distributor Pratpat Tunggal Cipta (PTC) this year. SSP was valued at 9.0x FY12 earnings (12% ROAE for FY12, 50% net income CAGR in the last four years), while PTC at 3.9x FY12 earnings (23% ROAE for FY12, 34% net income CAGR in the last four years). Apart from acquisitions, SMSM has been developing new joint ventures and adding ownership in existing joint ventures.

Strong profitability
SMSM is adept at maintaining margins even amid raw material price fluctuations. In the last five years, its gross margin was in the range of 22%-25%, giving rise to a net income CAGR of 23%. The steady margin had been driven by solid inventory management and cost reduction measures, which lifted the Company’s ROE from 15.4% in FY06 to 37.3% in FY12.