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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

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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

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P H
Nov 15,2016 22:48:50

SMCB inaugurates new terminal plant

On 11 November, Semen Holcim ($SMCB) inaugurated a cement terminal with a capacity of 1m tons pa (bags and bulk) in Rangai village, Southern Lampung. The facility cost USD26mn and will strengthen the presence of Holcim Indonesia brands to meet market needs, especially in Lampung and the surrounding areas. President of SMCB, Gary Schutz, stated that the terminal facilities are equipped with a shipping port and environmentally-friendly technologies.

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P H
Nov 14,2016 17:09:33

Indonesia: Currency update: IDR depreciation: Don’t panic
 
Effects of a shallow FX market; Buying opportunities exist
Based on Bank Indonesia’s data, ytd the average daily turnover for the IDR spot market is only USD1.7bn, which is shallow by regional standards, reflecting just 0.5x of GDP (exhibit 1), one of the lowest among its regional peers. Even worse is the 1M NDF market, which only trades at USD0.7bn a day ytd. Unfortunately, the NDF sometimes can influence the spot market, particularly on pressure stemming from the recent Trump election. However, given such illiquidity, we advise investors to remain calm, particularly as we believe the fundamentals in Indonesia remain largely unchanged. We note that, through years of balance sheet repair since the 1998 Financial Crisis, the Indonesian stock market’s net gearing has improved from more than 150% back then to 27.3% in 9M16. Furthermore, we believe Indonesia is currently in a good position given that its 3Q16 CAD of 1.86% is the lowest since 1Q12. In fact, we think the current situation presents buying opportunities for investors as we expect the IDR to become stronger by year-end. It is worth pointing out that there should still be around USD10bn to come in from tax amnesty repatriation between now and the end of 2016.

Sensitivity analysis: 1% weaker IDR = 0.9% market EPS
Given recent IDR gyrations, we present our latest currency sensitivity analysis on the IDR/1USD, in an effort to aid investors in better gauging their investments in Indonesia. Our study, based on 87 non-financial stocks under our coverage (62% of total JCI market capitalization), shows that each 1% IDR depreciation could lower the EPS of our covered stocks by 0.9% overall (exhibit 5). That said, it is not a surprise that a recent 3% negative swing in the NDF market spooked investors, as it could translate into a 3.6% wipeout in 2017 market EPS growth.  

Winners: Coal, Metals, Oil & Gas and Plantations

A stronger dollar should in general spell good news for sectors with dollar revenue such as Coal, Metals and Oil & Gas and Plantations (exhibit 5). By stock, our sensitivity analysis indicates that $SIMP, $WINS, $TBLA, $PTBA and $SGRO should be the major beneficiaries of IDR deprecation within our basket of stocks (exhibit 2).

Losers: Poultry, Property and Consumer Discretionary
Against a backdrop of a weaker IDR, sectors with large USD costs and borrowings should suffer: Poultry, Property and Consumer Discretionary (exhibit 5). Stock-wise, losers of a stronger dollar include heavily leveraged companies under our coverage: $SMCB, $LPKR and $MAPI (exhibit 3).

Safe havens: Mainly Construction and Telcos  

For investors seeking shelter from currency volatility, we point to the Construction and Telco sectors (exhibit 10 & 24). In terms of stocks, $JSMR, $SCMA, $SIDO and $WSKT (exhibit 4) should have their earnings relatively least altered by FX swings.


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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

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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

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P H
Jul 27,2016 08:50:25
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)

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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

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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
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P H
Mar 20,2016 22:46:53
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 22:46:50
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 22:46:50
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