On Tuesday, Semen Indonesia Persero Tbk PT (SMGR:IJ) (OTC: PSGTY) stock faced a significant downgrade by Citi from a 'Buy' to a 'Sell' status, with a drastic price target reduction to IDR3,150.00 from the previous IDR5,200.00.
The revision by the analyst is based on a structural shift within the company's operations, which is anticipated to result in a sustained period of EBITDA margins remaining below historical levels.
The company's expansion into lower-margin, non-cement segments this year has been robust, but this has been offset by weaker performance in its cement business, attributed to sluggish retail and export demand.
The analyst's forecast for a modest recovery in demand for the fiscal year 2025, with an estimated growth of only 2% year-over-year, suggests that EBITDA margins are likely to stay below the 20% mark.
The potential for growth exists with the possibility of increased cement demand spurred by the government's 3 million housing program. However, the analyst has not included the potential impact of this program in their financial estimates due to ongoing discussions regarding margins, pricing, and receivable collection.
In light of these factors, Citi has applied a lower valuation multiple of 5.5 times EV/EBITDA, which is two standard deviations below its year-to-date mean during the period of non-cement segment expansion. The new target price reflects a 39% decrease from the previous target, indicating a bearish outlook on the company's stock performance in the near future.
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