Sign up to SahamTalk to save a watchlist for easy access to your favorite stocks
Handle
N/A
Handle
 
P H
Oct 13,2017 11:49:42

Building Materials – Infrastructure Projects Boost Bulk Cement Sales Growth

9M17 domestic cement sales came in at 47m tonnes (+6.6% YoY), driven by  bulk cement sales. We believe the main sales growth driver was the rampup  in infrastructure projects. Cement sales are cyclically higher in 2H of the  year, and our ground checks indicate that cement makers slowed down the  rate of their price reductions in 3Q17. However, in the long term, we expect  competition in the cement industry to remain intense. National un-utilised  production capacity is likely to increase, as production capacity is growing  faster than demand. Maintain NEUTRAL on the sector.

Bulk cement sales growth improves. We believe the ramping-up of  infrastructure projects is likely the main sales growth driver for Indonesia’s  cement industry. 9M17 domestic cement sales increased to 47m tonnes  (+6.6% YoY). This was driven by bulk cement sales – which accounted for  c.25% of 9M17 domestic cement sales – which grew 13.6% YoY.  In Java, cement sales, which accounted for 57% of 9M17 domestic sales,  grew faster (+11.3% YoY) than that of ex-Java, which were flat (+1% YoY).  3Q17 domestic cement sales jumped to 18.4m tonnes (+29.5% QoQ,  +21.1% YoY). We opine that this significant sales increase was partly driven  by the longer working days in the absence of the Lebaran holiday in June.

Indocement’s market share is stable, while Semen Indonesia’s (SI)  slipped. We estimate that Indocement was able to maintan its 3Q17 market  share at 25.4% (2Q17: 25.5%). During the quarter, it widened the sales  coverage of its second-tier brand, Rajawali, which is now available in 30  cities in Jakarta, Banten, West Java and Central Java. Previously, Rajawali  cement was only available in a few cities in Banten and West Java.  SI’s 3Q17 market share dipped to 40.3% (2Q17: 41.1%), likely due to the  slow rate of its ASP reduction.

Slower ASP reduction. Cement sales are cyclically high in 2H of the year  – which leads to easing competition. Hence, cement makers slowed down  in reducing their selling prices. SI’s ASP reduction decelerated – its domestic  ex-factory ASP declined by just 1.2% QoQ in 3Q17 (2Q17: -2.4% QoQ) This  is in line with on-the-ground checks we conducted on retail selling prices, at  building materials stores in Jakarta, Bali and Makasar. Our latest ground  checks suggest that cement retail selling prices were flat MoM in September.

Expect competition to remain intense in 2018. Despite the slower price  reduction in 3Q17, competition in Indonesia’s cement industry likely to  remain intense over the long term. In 2018, national cement production  capacity is estimated to reach 113m tonnes (+9% YoY), while we estimate  national cement demand to increase to 70m tonnes (+7% YoY).  In our calculation, the national cement overcapacity is likely to increase to  43m tonnes in 2018F (vs 39m tonnes in 2017F), while un-utilised production  capacity may rise to 38% in 2018F (vs 37.1% in 2017F).

Maintain NEUTRAL. The announcement of higher monthly cement sales in 4Q17 may improve investor sentiment on the cement companies’ respective share prices. However, we expect competition to remain tough over the long term. Premised on this, we keep our NEUTRAL weighting on the cement sector. (Andrey Wijaya)

$INTP $SMGR $SMCB $SMBR

hide
P H
Jan 16,2017 09:54:22

Cement, higher 4Q16 sales QoQ, as expected

Domestic cement sales increased to 17.3m tonnes in 4Q16 (+13.7% QoQ), inline with our expectation. On our calculation, Semen Indonesia’s domestic market shares fell to 40.7% in 4Q16 (from 42.4% in 3Q16), similarly Indocement also saw some compression on its market share, slightly declined to 25.5% (from 25.8%) in the same period.

$SMGR $SMCB $SMBR $INTP

hide
P H
Dec 14,2016 08:08:50

Semen Indonesia ($SMGR) Margins Likely To Narrow On Higher Coal Prices

Semen Indonesia expects its FY17 sales volume to grow 4-5% YoY, which is slower than our estimate. Meanwhile, higher coal prices are likely to lift production costs, while a sales price increase may not be easy amid the current overcapacity. We cut our earnings estimates, as well as our DCF-based TP to IDR9,800 (from IDR10,200, 6% upside, 12x FY17F P/E). Although the counter is trading at a low P/E, it is still not attractive, given strong headwinds. An upside risk in our call is faster-than-expected property sales on lower mortgaged rates. Maintain NEUTRAL.
 
¨ Moderate volume growth. Although the expected recovery in property sales and accelerated infrastructure projects should boost cement demand next year, Semen Indonesia expects national cement sales to grow by 5% YoY, faster than that of FY16F’s 2-3%. This, however, is slower than our 7% estimate. In our view, Semen Indonesia is likely to slowly reduce its selling price – albeit at the expense of sales volume growth, which may decelerate at a slower pace.

Notably, despite the slower selling price reduction, the company was able to maintain its market share. Other cement makers’ market shares have declined. We estimate that its 9M16 ASP declined by 3% YoY, slower than that of its closest peer, Indocement Tunggal ($INTP) whose ASP declined by 11% in the same period.

¨ Competition likely to remain intense. We expect the increase in supply to be faster than the growth in demand. We further anticipate the national utilisation rate (in terms of production) to decline to 69% FY17F (from 70% in FY16F). Total additional national capacity would be c.11m tonnes pa in 4Q16-2Q17, while additional national demand may be only 5m tonnes pain FY17. This situation should intensify competition in the industry.

¨ Margins may narrow on higher coal prices. Given the rising competition, it would not be easy to pass on the higher costs. Our ground checks suggest thatretail selling prices of cement continued declining in November. However, the average coal price increased to USD65/tonne in FY16F from USD60/tonne in FY15. We expect the price of coal to increase to USD75/tonne (+15% YoY) in 2017, which should increase production costs since coal accounted for around 20% of Semen Indonesia’s 9M16 COGS. In our sensitivity analysis, its earnings would decline by 6% for every 10% increase in coal prices.

¨ Paring down numbers. We cut our FY16F-17F earnings to IDR4.3trn-4.5trn (-3% and -14%) respectively on higher production costs and lower sales volume.

Our DCF-based TP drops to IDR9,800 from IDR10,200. It also implies as FY17F P/E of 12x. Although Semen Indonesia is trading at low P/Es, at close to-2SD from its average forward rolling P/E mean, we do not think it is an attractive option given strong headwinds in the industry. The summary of risks to our call is on page 3. Reiterate NEUTRAL. (Andrey Wijaya)

hide
P H
Nov 21,2016 09:20:00

Indocement Tunggal Prakarsa ($INTP): May Face Headwinds From Higher Coal Prices

Starting next year, Indocement is likely to face new challenges stemming from an increase in fuel costs. However, its new kiln, P14 – which consumes lower fuel–may likely partially offset the higher coal prices. To deal with rising competition, it recently launched its second-tier brand –Rajawali, which markets cement to selected areas – to strengthen market share. However, this would also incur a narrower EBIT margin. We lower our earnings estimates, while our new DCF-derived TP of IDR15,700 (from IDR17,900, 6% upside) is premised on 15x FY17F P/E.

¨ Higher coal prices. Indocement Tunggal Prakarsa (Indocement) is likely to face new challenges stemming from higher fuel costs from 1Q17 onwards. This year, it is still benefiting from relatively low fuel costs, as the majority of its coal purchases– which accounted for ~30% of 9M16 COGS – are made under 1- to 6-monthcontracts where prices are fixed. In addition, by running only its most efficient kilns and stopping production in old kilns that consume large amounts of coal, Indocement was able to reduce the proportion of its fuel and power costs to total manufacturing costs to 41% in 9M16 (9M15: 43%).

¨ New kiln to partially offset higher costs. Commencing operations of its new kiln, P14 – which is equipped with the latest technology and consumes less fuel – is likely to partially offset rising production costs caused by higher coal prices. Management said that P14 kiln’s cash cost is USD7-8/tonne (around IDR100,000/tonne) lower than that of its other kilns. Indocement’s 9M16 COGS was IDR550,000/tonne. P14 kiln’s production capacity is 4.4m tonnes pa, equivalent to 18% of its total production capacity.

¨ New second-tier brand, Rajawali. Rajawali was first launched in early October in Karawang, West Java. Going forward, it aims to sell Rajawali cement in other selected areas as well. Our ground checks suggest that Rajawali cement’s retail selling price is 15% lower than that of the Tiga Roda brand. This is to compete with cement produced by new cement makers which is selling at huge discounts. We think Indocement aims to increase its market share – even though this may lead to a narrower EBIT margin. Note that the company’s national market share declined to 25.8% in 3Q16 (from 26.2% in 3Q15).

¨ Lowering our earning estimates and TP. We cut our FY17F-18F earnings to IDR3.9trn-4.2trn (-13% and -12%) respectively, on the back of lower sales volumes and higher fuel prices. Our higher FY16F earnings are driven by tax benefits derived from asset valuations.

¨ We also reduced our dividend estimates since the company indicated that it will not be dishing out a special dividend in relation to its FY16F earnings. Indocement is now accumulating cash in preparation for acquisitions or expansion. We note that due to its strong balance sheet and operating cash flow, it paid a special dividend on FY15 earnings.

¨ Maintain NEUTRAL with a lower DCF-derived TP of IDR15,700 (from IDR17,900, 6% upside) implying 15x FY17F P/E. (Andrey Wijaya)

hide
P H
Nov 18,2016 10:38:38

Key highlight of conference call with Indocement management:

1. Higher coal price likely to affect Indocement production costs in 1Q17 since majority coal are purchased under contracts price. Coal accounted for around 30% of Indocement COGS.

2. Indocement expects the commencing of new P14 plant which has lower production costs would partially offset higher coal price.

3. Indocement launched second-tier brand, Rajawali which will be sold in selected areas. Indocement estimates that Rajawali sales to be small, around 20,000 tonnes in FY16 (Indocement sales were 13.5m tonnes in 10M16). Rajawali EBIT margin is lower than Tiga Roda.

4. Indocement may not distribute special dividend for FY16 earning since the company is accumulating cash in preparation for acquisition or expansion of cement grinding plant.

5. New cement plant construction in Pati likely to be delay.

 
We have not factored higher coal price in our forecast. Maintain Neutral with DCF-derived TP of IDR17,900 (21% upside), implying 14x FY17F P/E. (Andrey Wijaya)

$INTP

hide
P H
Nov 14,2016 10:00:51

Strategy: Currency Woes Dampen Sentiment

Sharp correction in JCI (down 4% on Friday) was mainly triggered by precipitous IDR weakening on external factors, while domestic macro improvements remain on track. We believe fundamentals still point to a resilient IDR, especially given Indonesia’s relatively high levels of growth among major EM economies. Consumer, pharmaceutical, poultry and high-end retailers would be at risk of IDR weakening, while commodities and heavy equipment players tend to benefit. High dividend yield stocks also offer protection in the current volatile market. Maintain LT positive view.

¨ Currency volatility is back on. Fears over potential Federal Reserve (Fed) rate hike resulted in IDR falling by up to 3% to IDR13,545/USD onFriday. Considerable IDR weakening could lead to higher production costs and potential cost overruns in certain infrastructure projects, which would lead to higher inflation and growth risks. Strong foreign fund inflows have also increased risks.

¨ Indonesia is still on track for macro improvement, in our view particularly with its rising forex reserve of USD115bn and potential influx of repatriated funds by end-2016. However, the weakening IDR is seen as the main spectre for investors and its occurrence could trigger a market melt-down due to panic selling, shifting focus away from real fundamentals. Thus, BI’s firm response and action would be critical in restoring stability and confidence, in our view. We opine that IDR volatility would still linger before it recovers to IDR13,200/USD by end-2016.

¨ Stronger fundamentals now. There have been several episodes of high IDR volatility, with the last one occurring during 2014-15, when IDR depreciated as much as 30% and JCI suffered 13% losses. In our view, the current situation is different especially given the positive macro environment, in contrast to the subdued economic situation during 2014-15,on BI’s tightening rate policy bias.

¨ BI is already in the market to stabilise the currency given considerable depreciation in IDR, and we view this intervention as plausible to show direction. Current account deficit also remains manageable at 2.1% in 9M16 (3Q16: 1.8%) vs peak of 4.3% in 2014.We expect IDR to weaken slightly to 13,600/USD by 3Q17 on the back of larger current account deficit and potential Fed rate hike.

¨ Resilient IDR. In summary, we opine that fundamentals point to a resilient IDR, underpinned by high yield differentials vs developed market (DM) economies and peers, relatively high levels of growth among major emerging market (EM) economies, and ongoing reforms. Domestic consumption and government-led infrastructure spending also continue to serve as supporting factors for economic growth improvements and we still expect the economy to grow at 5.3% in 2017.

¨ Impact of weakening IDR. IDR weakening would impact corporate earnings through operational currency mismatch and/or forex debt translation. Consumer, pharmaceutical, poultry and high-end retailers have high importation costs and would be at risk. Conversely, exporters such as commodities and heavy equipment players would tend to benefit. Companies with high USD debt would also be negatively impacted if IDR weakening continues.

¨ All in, commodities and high dividend yield stocks offer some shield, in our view. We like London Sumatra and United Tractors as commodity plays, while Indocement Tunggal and Hexindo Adiperkasa offer highest dividend yields. Stocks with strong fundamentals for potential bottom-fishing include Bank Negara Indonesia, Astra International, Ciputra Development, Bumi Serpong Damai, Telekomunikasi Indonesia, Indofood Sukses Makmur and Waskita Karya. (Helmy Kristanto)

$BBNI $ASII $CTRA $ BSDE $TLKM $INDF $WSKT $UNTR $LSIP $INTP $HEXA

hide
P H
Nov 08,2016 18:29:18

MQQ Strategy – Nov 2016 update

- The Mansek Quant Quest (MQQ) strategy marked its debut with 2.9% return (vs JCI’s 1.1%) in October. We reshuffle the MQQ ten-stock portfolio for November by substituting $KREN and $LPPF with $BBNI and $BJTM.

- Top picks for November 2016. We reshuffle our MQQ ten-stock portfolio, adding $BBNI and $BJTM to replace $KREN and $LPPF. Estimated outperformance (equal-weighted) of the rebalanced portfolio is 1.8% relative to our Quant universe, with greatest contributions coming from Value and Profitability again this month. For a forecast of each stock in the universe, please refer to Figure 8 inside.

- Outperformed in October 2016. October is a boost to confidence. The MQQ’s recommendations (includes Mansek non-rated) managed to gain an equalweighted return of 2.9% (vs JCI’s 1.1%) in its debut. The biggest contributors were the coal-related stocks – $PTBA (+23.6%) and $UNTR (+22.2%), while the cement companies dragged on performance – $INTP (-5.2%) and $SMGR (-2.5%). Overall, it is a tougher month as the MQQ strategy tends to perform better in trending markets, while October is rather uneventful for the JCI.

- What investment styles worked? Momentum and Profitability worked spectacularly in October, with each recorded a long-only return of 8.3% mom and 11.4% mom respectively. Monthly style performance, however, can swing widely, and is thus a noisy indicator of future performance. The MQQ weighting to each style in November remains largely similar – 26% Value, 23% Profitability, 25% Growth and 26% Low Risk.

hide
P H
Sep 13,2016 08:27:16

Semen Indonesia: Likely Higher Sales In 2H

Semen Indonesia’s 2H16 sales are likely to increase, driven by:

1. Higher property sales on lower mortgage rates and relaxed LTV;

2. Seasonally high sales at year end, in line with the acceleration in infrastructure projects.

However, industry competition is likely to remain intense due to the overcapacity situation. Since we roll over valuation to FY17F’s cash flow, we lift our DCF-based TP to IDR10,300 (from IDR9,000, 3% upside), implying 12x FY17F P/E. Reiterate NEUTRAL.

¨ Higher property sales. After the 7-day repo rate was cut by 25bps in June, we expect the benchmark rate to decline to 5.25% by end-2016 and further reduce to 4.5% in 2017. This lower rate should trigger the lowering of banks and financing companies’ mortgage rates. In addition, loan-to-value (LTV) regulations have been relaxed by 5-15% for non-subsidised housing or apartments. Banks can also now allow homeowners to purchase a second property that is under construction with mortgage loans as well. Previously, such mortgages were only allowed after the construction process was completed. We believe the lower benchmark rates and more relaxed LTV policies should make properties more affordable and, hence, boost property sales. This, in turn, ought to increase Semen Indonesia’s sales.

¨ High 2H16 sales cycles. Based on our calculations, 2H16 cement sales volumes will account for 53% of full-year sales on average. This will be driven by the increase in infrastructure projects. The Government has plans to accelerate infrastructure and public transportation developments both within and out of Jakarta’s central business district (CBD). This includes the development of mass rapid transit (MRT) and light rail transit (LRT) networks. Outside Jakarta, state-owned construction firms have been tasked with accelerating the construction of toll roads, airports and seaports. These should create further demand on cement.

¨ However, competition is likely to remain intense. Based on our ground checks at building materials stores in Jakarta, we see continued pricing pressures for cement firms. The Indonesian Cement Association also stated the current cement supply remains high. Semen Indonesia is in a better position than its peers in dealing with current competition. In our calculation, its ASP fell a mere 2% YTD while Indocement Tunggal Prakarsa’s (Indocement) (INTP) ASP declined 4% YTD. However, the former’s domestic market share was marginally lower at 41.5% in 7M16 (7M15: 41.9%), while Indocement’s fell to 26.4% (from 27.9%) during the same period.

¨ Reiterate NEUTRAL, with a higher TP. Since we roll over valuation to FY17F cash flow, we lift our DCF-based TP to IDR10,300, implying 12x FY17F P/E. Key upside risks to our call are higher-than expected infrastructure projects from better government spending and elevated property sales driven by lower benchmark rates. The main downside risk is a national overcapacity situation that pressures selling prices. (Andrey Wijaya)

$SMGR $INTP $SMCB $SMBR

hide
P H
Sep 13,2016 08:26:27

Semen Indonesia: Likely Higher Sales In 2H

Semen Indonesia’s 2H16 sales are likely to increase, driven by:

1. Higher property sales on lower mortgage rates and relaxed LTV;

2. Seasonally high sales at year end, in line with the acceleration in infrastructure projects.

However, industry competition is likely to remain intense due to the overcapacity situation. Since we roll over valuation to FY17F’s cash flow, we lift our DCF-based TP to IDR10,300 (from IDR9,000, 3% upside), implying 12x FY17F P/E. Reiterate NEUTRAL.

¨ Higher property sales. After the 7-day repo rate was cut by 25bps in June, we expect the benchmark rate to decline to 5.25% by end-2016 and further reduce to 4.5% in 2017. This lower rate should trigger the lowering of banks and financing companies’ mortgage rates. In addition, loan-to-value (LTV) regulations have been relaxed by 5-15% for non-subsidised housing or apartments. Banks can also now allow homeowners to purchase a second property that is under construction with mortgage loans as well. Previously, such mortgages were only allowed after the construction process was completed. We believe the lower benchmark rates and more relaxed LTV policies should make properties more affordable and, hence, boost property sales. This, in turn, ought to increase Semen Indonesia’s sales.

¨ High 2H16 sales cycles. Based on our calculations, 2H16 cement sales volumes will account for 53% of full-year sales on average. This will be driven by the increase in infrastructure projects. The Government has plans to accelerate infrastructure and public transportation developments both within and out of Jakarta’s central business district (CBD). This includes the development of mass rapid transit (MRT) and light rail transit (LRT) networks. Outside Jakarta, state-owned construction firms have been tasked with accelerating the construction of toll roads, airports and seaports. These should create further demand on cement.

¨ However, competition is likely to remain intense. Based on our ground checks at building materials stores in Jakarta, we see continued pricing pressures for cement firms. The Indonesian Cement Association also stated the current cement supply remains high. Semen Indonesia is in a better position than its peers in dealing with current competition. In our calculation, its ASP fell a mere 2% YTD while Indocement Tunggal Prakarsa’s (Indocement) (INTP) ASP declined 4% YTD. However, the former’s domestic market share was marginally lower at 41.5% in 7M16 (7M15: 41.9%), while Indocement’s fell to 26.4% (from 27.9%) during the same period.

¨ Reiterate NEUTRAL, with a higher TP. Since we roll over valuation to FY17F cash flow, we lift our DCF-based TP to IDR10,300, implying 12x FY17F P/E. Key upside risks to our call are higher-than expected infrastructure projects from better government spending and elevated property sales driven by lower benchmark rates. The main downside risk is a national overcapacity situation that pressures selling prices. (Andrey Wijaya)

$SMGR $INTP $SMCB $SMBR

hide
P H
Jul 27,2016 08:50:24
EARNINGS CALENDAR (Half Year 2016 - Estimated)

JULY 2016

Jul 25, 2016 :
$BBTN (Bank Tabungan Negara (Persero) Tbk PT)

Jul 26, 2016
$BDMN (Bank Danamon Indonesia Tbk PT)
$BMRI (Persero) Tbk PT Earnings Release - 4:00PM GMT+7

Jul 27, 2016
$AALI (Astra Agro Lestari Tbk PT)
$HMSP (Hanjaya Mandala Sampoerna Tbk PT)
$LPPF (Matahari Department Store Tbk PT)
$MPPA (Matahari Putra Prima Tbk PT)
$PTBA (Bukit Asam (Persero) Tbk PT)

Jul 28, 2016
$ASII (Astra International Tbk PT)
$BEST (Bekasi Fajar Industrial Estate Tbk PT)
$BJBR (PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk)
$DOID (Bloomberg)
$NCO (Vale Indonesia Tbk PT)
$JPFA (Bloomberg)
$PSAB (Bloomberg)
$SSMS (Bloomberg)
$SMGR (Semen Indonesia (Persero) Tbk PT)
$UNTR (United Tractors Tbk PT)
$UNVR (Unilever Indonesia Tbk PT)

Jul 29, 2016
$ASRI (Alam Sutera Realty Tbk PT)
$ADHI (Bloomberg)
$BSDE (Bumi Serpong Damai Tbk PT)
$BNGA (Bloomberg)
$BNLI (Bloomberg)
$BNII (Bloomberg)
$BKSL (Bloomberg)
$BHIT (Bloomberg)
$BISI (Bloomberg)
$CPIN (Bloomberg)
$CTRA (Ciputra Development Tbk PT)
$CTRP (Bloomberg)
$ELSA (Bloomberg)
$GIAA (Bloomberg)
$GJTL (Bloomberg)
$GGRM (Gudang Garam Tbk PT)
$NKP (Bloomberg)
$INTP (Indocement Tunggal Prakarsa Tbk PT)
$INDF (Indofood Sukses Makmur Tbk PT)
$ICBP (Indofood CBP Sukses Makmur Tbk PT)
$INDY (Bloomberg)
$KARW (Bloomberg)
$KAEF (Bloomberg)
$KIJA (Bloomberg)
$KLBF (Kalbe Farma Tbk PT)
$KRAS (Bloomberg)
$LPKR (Lippo Karawaci Tbk PT)
$LSIP (Perusahaan Perkebunan London Sumatra Indonesia Tbk PT)
$MAPI (Bloomberg)
$PWON (Bloomberg)
$PNBN, $PNLF, $PNIN (Bloomberg)
$PTPP (Bloomberg)
$RALS (Bloomberg)
$SMRA (Bloomberg)
$TBLA (Bloomberg)
$TLKM (Telekomunikasi Indonesia (Persero) Tbk PT)
$TOTL (Bloomberg)
$WSKT (Bloomberg)

AUGUST 2016
Aug 1, 2016
$HRUM (Harum Energy Tbk PT)
$SSIA (Surya Semesta Internusa Tbk PT)

Aug 10, 2016
$ITMG (Indo Tambangraya Megah Tbk PT)

Aug 12, 2016
$EXCL (XL Axiata Tbk PT)

Aug 29, 2016
$ADRO (Adaro Energy Tbk PT)
$ANTM (Aneka Tambang (Persero) Tbk PT)
$BBRI (Bank Rakyat Indonesia (Persero) Tbk PT)
$ISAT (Indosat Tbk PT)
$PGAS (Perusahaan Gas Negara (Persero) Tbk PT)

SEPTEMBER

Sep 13, 2016
$SMCB (Holcim Indonesia)

hide
P H
Jul 18,2016 12:24:06
Indonesia cement: June volumes: No major surprises

-  Domestic volumes pick up pace, +4.2% y-y and -0.4% m-m: The Indonesian Cement Association (ASI) reported steady +4.2% y-y growth in domestic cement volumes or -0.4% m-m growth in June, bringing 1H16 volumes to 29.2mn tons (+4.0% y-y). However, if we exclude additions from new players, June volumes saw a slight contraction of -1.0% y-y (1H16: -0.1% y-y). The bulk vs bag cement proportion in Jun-16 was higher driven by the ongoing government infra-related projects, with bulk cement contributing 25.8% of total sales (May-16: 24.1%), suggesting margin pressure for the industry.

-  Outer Java outpaces Java on y-y volume growth: Sulawesi (+26.4% y-y) and East of Indonesia (+14.0 y-y) were the main growth drivers for Outer Java volumes, which grew +9.9% y-y in June, bringing 1H16 figure to 13.0mn tons (+7.0% y-y), accounting for 44.6% of total cement volumes (1H15: 43.3%). Java saw a relatively flat volume growth of +0.2% y-y in June, due to underperforming sales volumes in Banten (-15.2% y-y) and Jakarta (-10.6% y-y), while Central Java (+13.2% y-y) and East Java (+7.8% y-y) were the outperformers. This resulted in 1H16 Java volume of 16.2mn tons (+1.7% y-y).

-  SMGR and SMBR saw solid growth; INTP and SMCB underperformed:  Among the big 3 cement players, SMGR booked the strongest June sales of 2.2mn tons (+4.6% y-y), mainly driven by its Semen Tonasa (+11.0% y-y) and Semen Padang (+4.3% y-y) performance. In contrast, INTP (1.3mn tons -6.4% y-y) and SMCB (627k tons -14.6% y-y) continued the disappointing trend stemming from the volume pressure due to the ongoing price wars especially in Java region, which deteriorated their domestic market share (exhibit 14). For SMBR, support from the government infra-related projects boosted its sales volume to 140k tons (+6.0% y-y), reflecting a ytd market share outperformance (exhibit 5).

Outlook: Relying on the impact of the government relaxation policies
On seasonality, entering the 3Q-4Q, the cement industry domestic sales volumes should start to pick up, although this year’s Lebaran festival, which fell in early-July is likely to halt momentum with resumption in performance pick-up only to be expected in August. Thus, we reiterate our call for 3-4% cement growth in 2016F. Several incentives from the government on relaxation of the LTV regulation and enactment of the tax amnesty law should provide positive impact to cement demand in 2017, in our view. On a more negative note, we remain concerned on the oversupply condition still overshadowing the industry, forcing cement players to eye other markets in the region to boost volumes. Note that export volumes accounted for 2.1% in 1H16 (1H15: 1.2% of total).

Rating: Sector UNDERWEIGHT; Prefer SMGR with INTP as top sell
Given the challenging industry outlook, we retain our sector UNDERWEIGHT rating on continued intense competition and oversupply condition. At this stage, we retain HOLD on SMGR, while remaining bearish on other cement players; hence, our REDUCE call on INTP, SMCB and SMBR. Risks to our call: increasing ASPs on a higher-than-expected property demand and stronger IDR.

$INTP $SMGR $SMBR $SMCB

hide
P H
May 13,2016 09:03:03
Today INTP reported Apr16 sales volume of 1.1mt (-10% m/m and -15% y/y) which prompted the stock to fall by 5.2% (JCI: 0%). While we think the price has accounted for the lower sales volume announcement, we see near term downside risk on selling prices as major players are launching a fresh price competition. Our price survey suggests May16 price is now - 1.8% mom for INTP making the YTD price reduction 3%. Combined with lower dividend yield and ROE, we see de-rating potential in INTP and therefore reduce our recommendation to UW from N. Our new PT is Rp15,700 down from Rp21,000.

$INTP

hide
P H
May 02,2016 16:27:17
Indocement (INTP) 1Q16 earnings: in line

Competitive pressures remain; Reiterate HOLD
Despite INTP’s ability to maintain its EBITDA margin at ~34% in 1Q16, the results suggest that competition will remain intense in the domestic industry. One positive thing is that costs should be more manageable this year than last due to the more stable IDR/USD rate. The 2016 PER of 16.3x is expensive as it is only 5% lower than the three-year mean of 17.1x, while many new supplies come to the market which have changed the industry a lot. That said, we maintain our HOLD rating and DCF-price target of IDR18,500, which implies a PER of 15.3-14.7x 2016-17.

In line results
INTP’s 1Q16 earnings reached IDR958b, which were -16.3% YoY and in line with our full-year forecast of IDR4,460b. The YoY decline was largely due to an ASP drop and lower interest income, based on our analysis.

Costs cutting lagging falling ASP’s…
1Q16 top line of IDR3,929b was down 9.2% YoY driven by lower cement and other sales. Cement volume was up slightly by 1.7% YoY to 3.9m tonnes, but the ASP/ton, based on our estimate, was down 9.7% YoY to IDR868k. A stable currency and lower commodity and energy prices helped the company to lower cost by 9.4% YoY and maintain EBITDA margin at 33.8%, which was in line with our full-year assumption of 33.9%. The cost decline, however, was insufficient to offset lower ASP, as suggested by the 12.5% YoY EBIT drop. Another pressure on earnings came from a 24% decline in interest income.

Volume and margin to support recovery
For the remaining quarters in 2016, we are of the view that any recovery in earnings will weak, dependent on a volume recovery, driven by a better economic outlook, and slightly higher margins. We maintain our 2016 earnings forecast at IDR4,460b, which suggests a relatively flat (+2.4%) YoY growth. Competition in the industry and INTP’s response will be the main risk factors for our earnings forecast.

$INTP

Bear
P H
Apr 16,2016 13:09:03
Indonesia cement: March 2016: Slowing down
 
-  Domestic volume decelerates, up only 2.0% y-y: The Indonesian Cement Association (ASI) recorded 7.1% m-m growth in March, but this was due mainly to shorter working days in February. We do not think the 2.0% y-y increase reflects a fair comparison due to the inclusion of Semen Bima and Semen Jawa in ASI data starting in February 2016, affirmed by the daily adjusted volume contraction of 0.5%. March domestic cement volume translated into 3M16 volume growth of 4.3% y-y to 14.4m tons. This was in line with our expectation, accounting for approximately 23.0% of our full-year 2016 estimate and flat with our year-ago figure of 22.9%. The four newest cement producers – Semen Bima (Sinar Tambang Artha Lestari), Semen Jawa (Siam Cement group), Semen Garuda (Jui Shin) and Semen Merah Putih (Cemindo Gemilang) – yielded 3M16 volume of 927K tons, accounting for approximately 6.7% of 3M16 total domestic volume.

-  Outer Java outpaces Java on y-y volume growth: Sulawesi (+21.1% y-y) and Nusa Tenggara (+28.5% y-y) were the growth drivers for Outer Java volume, which grew by 5.0% y-y in March, bringing 3M16 volume growth to 5.8% y-y, reaching 6.5m tons and accounting for 45.1% of total cement volume (3M15: 44.4%). Java saw a volume contraction of 0.3% y-y in March, due to slowdowns in Jakarta (-13.8% y-y) and Banten (-10.9% y-y). Yogyakarta and Central Java were the outperformers, with 3M16 Java volume of 7.9mn tons (+3.0% y-y).

-  In contrast to SMGR, INTP sees solid growth: INTP booked strong March sales of 1.3m tons (+3.4% y-y) due to changes in its pricing policy and a focus on volume growth given its additional 4.4mn tonnes of capacity this year. Ironically, SMGR posted a contraction in March volume due to maintenance and a slowdown in Semen Padang volume (-7.2% y-y). Likewise, SMCB suffered from tight competition in Java, resulting in a slight 0.4% y-y contraction in March volume. SMBR continued to see growth, benefiting from project development for the upcoming ASEAN games.   

Outlook: Pricing pressure should continue
Tight competition in Java has continued given limited consumption and additional cement players, which should trigger price competition. For example, the price of bulk cement has declined to as low as IDR860,000 per tonne from 1,030,000 a year earlier. The bag cement ASP has widened amongst brands by up to IDR15,000 per 50kg bag, around a 25% price difference. Despite lower energy and oil prices, this price downtrend may lead to increased margin pressure for cement companies.

Recommendation: Reiterate UNDERWEIGHT
At this stage, we believe the outlook for cement remains challenging, and hence maintain our UNDERWEIGHT sector rating. We like INTP for its high market share, but maintain our REDUCE rating on INTP (expensive valuation), and SMCB. SMGR remains a HOLD, and we downgrade SMBR to REDUCE from HOLD. Risks to our call: increasing ASPs on a turnaround in the property market, a stronger-than-expected IDR and an accelerated impact of the infrastructure-multiplier effect.

$SMGR $SMCB $INTP $SMBR
hide
P H
Mar 20,2016 22:46:52
Indonesia cement: February 2016: Cooling down

- Domestic volumes +3.4% y-y on February leap year: The addition of Semen Bima (owned by Sinar Tambang Artha Lestari) into the Indonesia Cement Association (ASI) calculation has brought Feb-16 domestic cement volumes to 4.5mnt (+3.4% y-y, -14.6% m-m). This translated into 2M16 volumes of 9.7mnt (+5.4% y-y) or 15.4% of our total full-year 2016 volumes assumption (2M15: 15.3%). However, if we exclude Semen Bima and Semen Jawa (another new addition in 2016), 2M16 volumes only grew by 2.2% y-y during a relatively wet season and the February leap year. The bag vs. bulk cement proportion in Feb-16 was stable, with bulk cement contributing 22.7% of total sales (Jan-16: 22.4%).

- Outer Java sales growth greatly outpaces Java growth: Due to the sales drop in Banten (-12.9% y-y) and Yogyakarta (-11.9% y-y), Java’s Feb-16 sales dropped to 2.4mnt (-0.7% y-y, -19.3% m-m). This was despite the addition of the two new players with plants located in Java (Semen Bima - Banyumas, Central Java; and Semen Jawa – Cikarang, West Java). On the other hand, Outer Java showed solid growth, with Feb-16 sales of 2.1mnt (+8.4% y-y, -8.6% m-m) due to high demand in Sulawesi (417k, +33.5% y-y) and Sumatra (1mnt, +17.1% y-y).

- $SMGR and $INTP underperforms, $SMCB shows solid growth: In Feb-16, $SMGR booked soft sales of 1.8mnt (-5.8% y-y) which we believe was attributed to increased competition in Java, which led to a 12.3% y-y sales decline. This also affected $INTP, although the company fared slightly better by recording Feb-16 volumes of 1.2mnt (-2.4% y-y) on solid growth in Outer Java. Meanwhile, the aggressive marketing strategy by $SMCB, especially in Sumatra, resulted in solid Feb-16 sales of 630kt (+14.6% y-y). Combined with soon-to-be-acquired Semen Andalas, $SMCB had a 17.4% Indonesia market share ($SMGR: 40.7%; $INTP: 26.6%) in Feb-16. Lastly, $SMBR recorded flattish Feb-16 sales of 101kt (+0.4% y-y).

Outlook: Lower prices required to penetrate new areas
Facing tougher challenges in Java, large cement companies such as $INTP and $SMCB have turned to Outer Java areas in search for greater volume growth, even though most of their plants are located in Java. Based on our market survey, most consumers and distributors are still loyal to locally produced cement due to their familiarity to the brand and product availability. As a result, we believe that new entrants into the market would be required to offer more attractive prices, which, combined with higher transportation costs, would diminish the impact of margin savings from lower energy and oil prices.

Recommendation: Reiterate UNDERWEIGHT and TPs
At this stage, we await news of increased demand due to property development to offset the wide oversupply gap prior to making changes to our UNDERWEIGHT sector rating. Company-wise, we downgrade SMBR to REDUCE from Hold on the recent surge in its share price, while retaining our call on the other stocks ($SMGR – HOLD, $INTP and $SMCB – REDUCE). Risks to our call are increasing ASPs on a turnaround in the property market and a stronger-than-expected IDR.
Bear
P H
Mar 20,2016 22:46:52
Indonesia cement: February 2016: Cooling down

- Domestic volumes +3.4% y-y on February leap year: The addition of Semen Bima (owned by Sinar Tambang Artha Lestari) into the Indonesia Cement Association (ASI) calculation has brought Feb-16 domestic cement volumes to 4.5mnt (+3.4% y-y, -14.6% m-m). This translated into 2M16 volumes of 9.7mnt (+5.4% y-y) or 15.4% of our total full-year 2016 volumes assumption (2M15: 15.3%). However, if we exclude Semen Bima and Semen Jawa (another new addition in 2016), 2M16 volumes only grew by 2.2% y-y during a relatively wet season and the February leap year. The bag vs. bulk cement proportion in Feb-16 was stable, with bulk cement contributing 22.7% of total sales (Jan-16: 22.4%).

- Outer Java sales growth greatly outpaces Java growth: Due to the sales drop in Banten (-12.9% y-y) and Yogyakarta (-11.9% y-y), Java’s Feb-16 sales dropped to 2.4mnt (-0.7% y-y, -19.3% m-m). This was despite the addition of the two new players with plants located in Java (Semen Bima - Banyumas, Central Java; and Semen Jawa – Cikarang, West Java). On the other hand, Outer Java showed solid growth, with Feb-16 sales of 2.1mnt (+8.4% y-y, -8.6% m-m) due to high demand in Sulawesi (417k, +33.5% y-y) and Sumatra (1mnt, +17.1% y-y).

- $SMGR and $INTP underperforms, $SMCB shows solid growth: In Feb-16, $SMGR booked soft sales of 1.8mnt (-5.8% y-y) which we believe was attributed to increased competition in Java, which led to a 12.3% y-y sales decline. This also affected $INTP, although the company fared slightly better by recording Feb-16 volumes of 1.2mnt (-2.4% y-y) on solid growth in Outer Java. Meanwhile, the aggressive marketing strategy by $SMCB, especially in Sumatra, resulted in solid Feb-16 sales of 630kt (+14.6% y-y). Combined with soon-to-be-acquired Semen Andalas, $SMCB had a 17.4% Indonesia market share ($SMGR: 40.7%; $INTP: 26.6%) in Feb-16. Lastly, $SMBR recorded flattish Feb-16 sales of 101kt (+0.4% y-y).

Outlook: Lower prices required to penetrate new areas
Facing tougher challenges in Java, large cement companies such as $INTP and $SMCB have turned to Outer Java areas in search for greater volume growth, even though most of their plants are located in Java. Based on our market survey, most consumers and distributors are still loyal to locally produced cement due to their familiarity to the brand and product availability. As a result, we believe that new entrants into the market would be required to offer more attractive prices, which, combined with higher transportation costs, would diminish the impact of margin savings from lower energy and oil prices.

Recommendation: Reiterate UNDERWEIGHT and TPs
At this stage, we await news of increased demand due to property development to offset the wide oversupply gap prior to making changes to our UNDERWEIGHT sector rating. Company-wise, we downgrade SMBR to REDUCE from Hold on the recent surge in its share price, while retaining our call on the other stocks ($SMGR – HOLD, $INTP and $SMCB – REDUCE). Risks to our call are increasing ASPs on a turnaround in the property market and a stronger-than-expected IDR.
Bear
P H
Mar 20,2016 22:46:51
Indonesia cement: February 2016: Cooling down

- Domestic volumes +3.4% y-y on February leap year: The addition of Semen Bima (owned by Sinar Tambang Artha Lestari) into the Indonesia Cement Association (ASI) calculation has brought Feb-16 domestic cement volumes to 4.5mnt (+3.4% y-y, -14.6% m-m). This translated into 2M16 volumes of 9.7mnt (+5.4% y-y) or 15.4% of our total full-year 2016 volumes assumption (2M15: 15.3%). However, if we exclude Semen Bima and Semen Jawa (another new addition in 2016), 2M16 volumes only grew by 2.2% y-y during a relatively wet season and the February leap year. The bag vs. bulk cement proportion in Feb-16 was stable, with bulk cement contributing 22.7% of total sales (Jan-16: 22.4%).

- Outer Java sales growth greatly outpaces Java growth: Due to the sales drop in Banten (-12.9% y-y) and Yogyakarta (-11.9% y-y), Java’s Feb-16 sales dropped to 2.4mnt (-0.7% y-y, -19.3% m-m). This was despite the addition of the two new players with plants located in Java (Semen Bima - Banyumas, Central Java; and Semen Jawa – Cikarang, West Java). On the other hand, Outer Java showed solid growth, with Feb-16 sales of 2.1mnt (+8.4% y-y, -8.6% m-m) due to high demand in Sulawesi (417k, +33.5% y-y) and Sumatra (1mnt, +17.1% y-y).

- $SMGR and $INTP underperforms, $SMCB shows solid growth: In Feb-16, $SMGR booked soft sales of 1.8mnt (-5.8% y-y) which we believe was attributed to increased competition in Java, which led to a 12.3% y-y sales decline. This also affected $INTP, although the company fared slightly better by recording Feb-16 volumes of 1.2mnt (-2.4% y-y) on solid growth in Outer Java. Meanwhile, the aggressive marketing strategy by $SMCB, especially in Sumatra, resulted in solid Feb-16 sales of 630kt (+14.6% y-y). Combined with soon-to-be-acquired Semen Andalas, $SMCB had a 17.4% Indonesia market share ($SMGR: 40.7%; $INTP: 26.6%) in Feb-16. Lastly, $SMBR recorded flattish Feb-16 sales of 101kt (+0.4% y-y).

Outlook: Lower prices required to penetrate new areas
Facing tougher challenges in Java, large cement companies such as $INTP and $SMCB have turned to Outer Java areas in search for greater volume growth, even though most of their plants are located in Java. Based on our market survey, most consumers and distributors are still loyal to locally produced cement due to their familiarity to the brand and product availability. As a result, we believe that new entrants into the market would be required to offer more attractive prices, which, combined with higher transportation costs, would diminish the impact of margin savings from lower energy and oil prices.

Recommendation: Reiterate UNDERWEIGHT and TPs
At this stage, we await news of increased demand due to property development to offset the wide oversupply gap prior to making changes to our UNDERWEIGHT sector rating. Company-wise, we downgrade SMBR to REDUCE from Hold on the recent surge in its share price, while retaining our call on the other stocks ($SMGR – HOLD, $INTP and $SMCB – REDUCE). Risks to our call are increasing ASPs on a turnaround in the property market and a stronger-than-expected IDR.
Bear
P H
Mar 20,2016 22:46:50
Indonesia cement: February 2016: Cooling down

- Domestic volumes +3.4% y-y on February leap year: The addition of Semen Bima (owned by Sinar Tambang Artha Lestari) into the Indonesia Cement Association (ASI) calculation has brought Feb-16 domestic cement volumes to 4.5mnt (+3.4% y-y, -14.6% m-m). This translated into 2M16 volumes of 9.7mnt (+5.4% y-y) or 15.4% of our total full-year 2016 volumes assumption (2M15: 15.3%). However, if we exclude Semen Bima and Semen Jawa (another new addition in 2016), 2M16 volumes only grew by 2.2% y-y during a relatively wet season and the February leap year. The bag vs. bulk cement proportion in Feb-16 was stable, with bulk cement contributing 22.7% of total sales (Jan-16: 22.4%).

- Outer Java sales growth greatly outpaces Java growth: Due to the sales drop in Banten (-12.9% y-y) and Yogyakarta (-11.9% y-y), Java’s Feb-16 sales dropped to 2.4mnt (-0.7% y-y, -19.3% m-m). This was despite the addition of the two new players with plants located in Java (Semen Bima - Banyumas, Central Java; and Semen Jawa – Cikarang, West Java). On the other hand, Outer Java showed solid growth, with Feb-16 sales of 2.1mnt (+8.4% y-y, -8.6% m-m) due to high demand in Sulawesi (417k, +33.5% y-y) and Sumatra (1mnt, +17.1% y-y).

- $SMGR and $INTP underperforms, $SMCB shows solid growth: In Feb-16, $SMGR booked soft sales of 1.8mnt (-5.8% y-y) which we believe was attributed to increased competition in Java, which led to a 12.3% y-y sales decline. This also affected $INTP, although the company fared slightly better by recording Feb-16 volumes of 1.2mnt (-2.4% y-y) on solid growth in Outer Java. Meanwhile, the aggressive marketing strategy by $SMCB, especially in Sumatra, resulted in solid Feb-16 sales of 630kt (+14.6% y-y). Combined with soon-to-be-acquired Semen Andalas, $SMCB had a 17.4% Indonesia market share ($SMGR: 40.7%; $INTP: 26.6%) in Feb-16. Lastly, $SMBR recorded flattish Feb-16 sales of 101kt (+0.4% y-y).

Outlook: Lower prices required to penetrate new areas
Facing tougher challenges in Java, large cement companies such as $INTP and $SMCB have turned to Outer Java areas in search for greater volume growth, even though most of their plants are located in Java. Based on our market survey, most consumers and distributors are still loyal to locally produced cement due to their familiarity to the brand and product availability. As a result, we believe that new entrants into the market would be required to offer more attractive prices, which, combined with higher transportation costs, would diminish the impact of margin savings from lower energy and oil prices.

Recommendation: Reiterate UNDERWEIGHT and TPs
At this stage, we await news of increased demand due to property development to offset the wide oversupply gap prior to making changes to our UNDERWEIGHT sector rating. Company-wise, we downgrade SMBR to REDUCE from Hold on the recent surge in its share price, while retaining our call on the other stocks ($SMGR – HOLD, $INTP and $SMCB – REDUCE). Risks to our call are increasing ASPs on a turnaround in the property market and a stronger-than-expected IDR.
Bear
P H
Mar 20,2016 22:46:49
Indonesia cement: February 2016: Cooling down

- Domestic volumes +3.4% y-y on February leap year: The addition of Semen Bima (owned by Sinar Tambang Artha Lestari) into the Indonesia Cement Association (ASI) calculation has brought Feb-16 domestic cement volumes to 4.5mnt (+3.4% y-y, -14.6% m-m). This translated into 2M16 volumes of 9.7mnt (+5.4% y-y) or 15.4% of our total full-year 2016 volumes assumption (2M15: 15.3%). However, if we exclude Semen Bima and Semen Jawa (another new addition in 2016), 2M16 volumes only grew by 2.2% y-y during a relatively wet season and the February leap year. The bag vs. bulk cement proportion in Feb-16 was stable, with bulk cement contributing 22.7% of total sales (Jan-16: 22.4%).

- Outer Java sales growth greatly outpaces Java growth: Due to the sales drop in Banten (-12.9% y-y) and Yogyakarta (-11.9% y-y), Java’s Feb-16 sales dropped to 2.4mnt (-0.7% y-y, -19.3% m-m). This was despite the addition of the two new players with plants located in Java (Semen Bima - Banyumas, Central Java; and Semen Jawa – Cikarang, West Java). On the other hand, Outer Java showed solid growth, with Feb-16 sales of 2.1mnt (+8.4% y-y, -8.6% m-m) due to high demand in Sulawesi (417k, +33.5% y-y) and Sumatra (1mnt, +17.1% y-y).

- $SMGR and $INTP underperforms, $SMCB shows solid growth: In Feb-16, $SMGR booked soft sales of 1.8mnt (-5.8% y-y) which we believe was attributed to increased competition in Java, which led to a 12.3% y-y sales decline. This also affected $INTP, although the company fared slightly better by recording Feb-16 volumes of 1.2mnt (-2.4% y-y) on solid growth in Outer Java. Meanwhile, the aggressive marketing strategy by $SMCB, especially in Sumatra, resulted in solid Feb-16 sales of 630kt (+14.6% y-y). Combined with soon-to-be-acquired Semen Andalas, $SMCB had a 17.4% Indonesia market share ($SMGR: 40.7%; $INTP: 26.6%) in Feb-16. Lastly, $SMBR recorded flattish Feb-16 sales of 101kt (+0.4% y-y).

Outlook: Lower prices required to penetrate new areas
Facing tougher challenges in Java, large cement companies such as $INTP and $SMCB have turned to Outer Java areas in search for greater volume growth, even though most of their plants are located in Java. Based on our market survey, most consumers and distributors are still loyal to locally produced cement due to their familiarity to the brand and product availability. As a result, we believe that new entrants into the market would be required to offer more attractive prices, which, combined with higher transportation costs, would diminish the impact of margin savings from lower energy and oil prices.

Recommendation: Reiterate UNDERWEIGHT and TPs
At this stage, we await news of increased demand due to property development to offset the wide oversupply gap prior to making changes to our UNDERWEIGHT sector rating. Company-wise, we downgrade SMBR to REDUCE from Hold on the recent surge in its share price, while retaining our call on the other stocks ($SMGR – HOLD, $INTP and $SMCB – REDUCE). Risks to our call are increasing ASPs on a turnaround in the property market and a stronger-than-expected IDR.
Bear
P H
Feb 19,2016 08:38:28
January domestic cement sales came in line with our expectation, reaching 5.1m tonnes (+4.4% YoY), driven by higher Java cement sales. Indocement and Holcim Indonesia gained market share, since Semen Indonesia’s plants were under maintenance in January. We expect domestic cement sales to recover and grow by 6% YoY to 65m tonnes this year. However, the faster growth in production capacity (+10% YoY, to 91m tonnes) is likely to tighten competition in the industry. We remain NEUTRAL on the sector, with Semen Indonesia as our Top Pick.

¨ Within estimates. January’s cement sales were in line with our expectation as we anticipate cement demand to accelerate in the second half of the year, driven by accelerating government infrastructure projects and higher property sales. Java cement sales, which accounted for 56% of national cement sales, was the main sales growth driver. Java cement sales increased 5.3% YoY, driven by sales recorded in East Java and Central Java. Outer island cement sales grew just 3.3% YoY. Accelerated infrastructure projects boosted Sumatra and Sulawesi cement sales. However, total sales in Indonesia were partly offset by lower sales from Kalimantan which fell 30.6% YoY (to 305,000 tonnes), dragged by weakened commodity prices which lowered income in the island.

¨ Indocement and Holcim gain market share. Indocement’s ($INTP) market share increased to 28.4% in January, while that of Holcim Indonesia ($SMCB) increased to 15% in the same period. We note that the decline in Semen Indonesia’s ($SMGR) market share – which dropped to 41.9% in January – was driven by maintenance works in its Padang and Tonasa plants.

¨ NEUTRAL, with Semen Indonesia as our Top Pick. We expect cement sales to recover and grow by 6% YoY to 65m tonnes this year. However, the faster growth in production capacity (+10% YoY, to 91m tonnes) is likely to tighten competition in the industry. This year, new cement players – Semen Merah Putih, Semen Jawa, Semen Bima, and Anhui Conch – will be in full operation. Their cement production capacity is around 9m tonnes pa, equivalent to ~10% of total national capacity. Our Top Pick is Semen Indonesia. Given its diversified markets and plant locations, we think that the company is set to face less competition than its peers. The majority of new players are setting up new plants in West Java – which is outside Semen Indonesia’s market bases. Furthermore, as the firm is state-owned, it is a key beneficiary of accelerated government infrastructure projects, especially those built by state-owned contractors.

Source: RHB Securities
Bull
Quotes delayed, except where indicated otherwise.
INTP
22,175.00 275.00 (1.22%)
Indocement Tunggal Prakarsa Tbk
Last Update 02:54:11