Selamat Sempurna Well in Line

SMSM’s FY11 results were in line with our forecast, with net income and revenue coming in at IDR201bn (+34% y-o-y, +10% q-o-q) and IDR1,808bn (+16% y-o-y, +17% q-o-q), comprising 106% and 100% of our FY11 forecasts. Its full year gross margin and operating margin slightly beat our estimate, although these were partially offset by a slightly higher effective tax expense. We maintain our BUY recommendation and target price at IDR2,050, which implies 13.1x FY12 earnings. The counter is currently trading at a 11.3x FY12 PE, and a 7.1% FY12 based dividend yield.

Healthy results
Top-line grew by a healthy 16% y-o-y, equally driven by the export and domestic markets. Product-wise, sales of filters (75% of revenue) jumped 18% y-o-y while that for radiators (22% of revenue) rose 9% y-o-y. In term of sales volume, the company sold 58.2m units of filter (+10% y-o-y) and 865k radiators (+4% y-o-y), pretty much in line with our estimates of 59.2m filters and 916k radiators. In more detail, aluminum radiator sales grew 6% while copper brass radiator sales fell 18%, which was not surprising since consumers have been shifting from copper brass radiators to aluminum ones.

Margin better than estimated
The FY11 gross margin and operating margin expansion of 25.5% and 16.4% respectively (vs forecast of 24.0% and 15.6%) boosted the company’s pretax profit to IDR280bn, or 10% higher than our estimate. However, the effective tax rate of 22%, which was also slightly higher than our estimate of 20%, partially offset the net income to IDR201bn, but it still beat our forecast by 6%.

High dividend yield
As we expect SMSM to pay at least 80% of its net income as dividend, we expect its FY11 and FY12 dividend yields to reach 6.3% and 7.1%. The company paid a IDR50/share (a 2.8% dividend yield) interim dividend last November.

Not much impact from domestic headwinds
We are maintaining our forecast for 12% growth in the company’s top- and bottom-lines. We believe SMSM will not be impacted much by domestic headwinds in the automotive sector such as the fuel hike and higher downpayment rules since its exports contribute 73% of sales, and almost all of its sales are to the replacement market while the heavy equipment segment also plays a major part.

Maintain BUY
We also maintain our BUY recommendation and target price at IDR2,050, which implies 13.1x FY12 earnings. The counter is currently trading at a 11.3x FY12 PE.