10 July 2013

EQUITY RESEARCH

Cement

Sector Update

Demand slows down, competition heats up

Neutral
Stocks

Ticker

Indocement
Holcim
Semen Gresik

INTP IJ
SMCB IJ
SMGR IJ

IP Cement Basket Index Performance

Absolute (%)
Relative to JCI (%)

3M

6M

12 M

-12.4

-5.0

19.4

-3.0

-5.8

8.2

160
150
140
130
120
110
100
90
9-Oct

9-Jan
JCI

9-Apr

IP Cement Index

IP Cement Basket is an index that consists of INTP,

SMCB and SMGR.
Source: Bloomberg

Agus Pramono, CFA

agus.pramono@ipc.co.id
+62 21 5793 1168

Competition in the Indonesia cement sector appears to have intensified

amid a demand slowdown and additional capacity coming on-stream
mainly from Semen Indonesia (SMGR). SMGR has aggressively taken
back market share (now at 43.6%) at the expense of smaller players.
Hence, we think cement producers are now unlikely to fully pass on the
impact of the recent fuel price hike, and expect prices to increase by only
2%-3% in 2H13. Maintain Buy on SMGR, and HOLD on INTP and SMCB.
1H13 cement sales rose by 7.5% yoy to 12.1mn tons; this is a significant
slowdown from the 15.1% yoy increase recorded a year ago. We attribute the
sales growth decline to delays in some infrastructure projects as well as the high
base of cement sales in 6M12 (10.3mn tons). On a monthly basis, June cement
sales grew 1.7% mom (+9.2% yoy) to 4.9mn tons, showing an early seasonal
pick-up ahead of 2H13.
SMGR leads with 43.6% market share. Although the sector remains an
oligopoly, we believe the completion of SMGRs new capacities has also
contributed to the intensifying competition. SMGR posted 18.0% yoy sales
growth in 1H13; in comparison, smaller players such as Semen Baturaja (SMBR,
Rp450, Not rated), Holcim (SMCB), and Semen Kupang (Not listed) posted yoy
sales declines of 12.8%, 1.3% and 4.5%, respectively, while Indocement (INTP)
booked only 0.6% sales growth. As a result, SMGRs market share improved to
43.6% in 1H13 from 39.7% in 1H12.

IP Cement Basket vs JCI

9-Jul

Cement sales growth declined in 1H13 to 7.5% yoy.

SMGR has gained market share at the expense of smaller players.
Infrastructure projects to further boost demand for cement.
Maintain SMGR as our top pick with TP of Rp20,700.

Java still the center of growth. Cement sales in Java grew by 9.2% yoy in
1H13, with Central Java and Yogyakarta combined posting the highest growth of
14.5% yoy. Infrastructure projects such as the Semarang-Solo toll road (total
length of 75km) accounted for a significant proportion of the demand. We believe
the commencement of infrastructure projects in the Jakarta area (subways and
elevated six-section toll roads) will be positive for cement demand going forward.
Expect moderate price increase. We expect the cement companies to increase
prices by a moderate 2%-3% in 2H13 in order to partially pass on the impact of
the fuel price hike; this could mean smaller margins and hence lower profitability
for the companies. We estimate that, to fully pass on the impact of the fuel price
hike, cement producers would need to increase selling prices by around 5%-6%
in 2H13 (our economist estimates FY13 inflation at 8.6%). However, we believe
increased competition will prevent the producers from raising their prices
accordingly. Based on data from the Ministry of Trade, while cement prices in
Java Island increased by 3%-4% in 5M13, prices on other islands in fact
remained flat or even declined.
We maintain our Neutral call on the sector and prefer SMGR given its spare
capacity and aggressive strategy of competing for market share. Our SMGR
target price is Rp19,900, implying 19.1x FY13F PE. We maintain our cement
domestic sales growth estimate of 10% and forecasts, and maintain our HOLD
ratings on INTP and SMCB given their tight production capacity and declining
market shares.
Ticker

Price

Target

(Rp)

(Rp)

FY12

FY13F

P/E

EV/EBITDA

ROE

Rec
FY14F

FY12

FY13F

FY14F

FY12
24.6%

INTP

Hold

22,550

25,000

17.3

15.7

14

11.2

10.1

9.1

SMCB

Hold

2,650

3,200

20

16.8

14.3

10.9

7.1

6.5

16.0%

SMGR

Buy

15,600

20,700

18.3

14.9

13.3

12.4

9.8

8.7

27.9%

Note: Share prices are as of 8 July 2013.

Sources: Bloomberg, INTP, SMCB, SMGR, IndoPremier

1
Refer to important disclosures on the last of this report

Sector Update

Exhibit 1. Company Sales Volume

FYE Dec ('000 tonnes)

May-13

Jun-13

Semen Andalas*

160.2

Semen Baturaja

107.9

Indocement Tunggal P

Change MoM

Jun-12

Jun-13

Change YoY

6M12

6M13

169.8

6.0%

140.6

96.0

-11.1%

109.8

Change MoM

169.8

20.8%

818

945

15.5%

96.0

-12.6%

631

550

-12.8%

1,480.3

1,508.3

1.9%

1,476.1

1,508.3

2.2%

8,551

8,599

0.6%

Holcim Indonesia

680.8

724.4

6.4%

735.8

724.4

-1.5%

4,063

4,010

-1.3%

Semen Bosowa Maros*

272.7

258.0

-5.4%

224.6

258.0

14.9%

1,437

1,489

3.6%

Semen Kupang*

13.4

16.2

21.3%

24.3

16.2

-33.2%

100

96

-4.5%

Semen Gresik**

1,094.0

1,098.5

0.4%

892.0

1,098.5

23.1%

5,152

6,289

22.1%

Semen Tonasa**

438.8

430.7

-1.8%

324.4

430.7

32.8%

1,996

2,462

23.3%

Semen Padang**

569.4

598.5

5.1%

561.1

598.5

6.7%

3,143

3,395

8.0%

2,102.3

2,127.7

1.2%

1,777.6

2,127.7

19.7%

10,290.5

12,145.2

18.0%

4,817.6

4,900.4

1.7%

4,488.7

4,900.4

9.2%

25,890.6

27,833.0

7.5%

Jun-13

Change MoM

Jun-12

Jun-13

Change YoY

6M12

6M13

Change MoM
6.2%

Total Semen Gresik

Total
*) Not-listed
**) Consolidated subsidiaries of SMGR
Source: Indonesia Cement Association

Exhibit 2. Sales Volume by province/island

FYE Dec ('000 tonnes)
Jakarta
West Java
Central Java
Yogyakarta

May-13
459.0

461.0

0.4%

451.3

461.0

2.2%

2,485

2,638

1,012.4

1,046.5

3.4%

992.9

1,046.5

5.4%

5,288

5,718

8.1%

579.9

594.3

2.5%

528.5

594.3

12.4%

2,785

3,173

13.9%

81.9

84.8

3.6%

71.1

84.8

19.2%

382

453

18.7%

623.2

608.7

-2.3%

573.9

608.7

6.1%

3,221

3,478

8.0%

Java

2,756.3

2,795.3

1.4%

2,617.7

2,795.3

6.8%

14,160

15,460

9.2%

Sumatra

1,025.8

1,046.0

2.0%

925.4

1,046.0

13.0%

5,822

5,978

2.7%

Kalimantan

332.5

344.9

3.7%

302.2

344.9

14.2%

1,981

2,148

8.4%

Sulawesi

353.5

364.0

3.0%

275.3

364.0

32.2%

1,893

1,987

4.9%

Others

349.4

350.1

0.2%

368.1

350.1

-4.9%

2,035

2,260

11.1%

4,817.6

4,900.4

1.7%

4,488.7

4,900.4

9.2%

25,891

27,833

7.5%

East Java

Total
Source: Indonesia Cement Association

Exhibit 3. Market share

May-13

Jun-13

Jun-12

Jun-13

6M12

6M13

Semen Andalas

3.3%

3.5%

3.1%

3.5%

3.2%

3.4%

Semen Baturaja

2.2%

2.0%

2.4%

2.0%

2.4%

2.0%

Indocement Tunggal P

30.7%

30.8%

32.9%

30.8%

33.0%

30.9%

Holcim Indonesia

14.1%

14.8%

16.4%

14.8%

15.7%

14.4%

Semen Bosowa Maros

5.7%

5.3%

5.0%

5.3%

5.6%

5.4%

Semen Kupang

0.3%

0.3%

0.5%

0.3%

0.4%

0.3%

22.7%

22.4%

19.9%

22.4%

19.9%

22.6%

Semen Gresik
Semen Tonasa

9.1%

8.8%

7.2%

8.8%

7.7%

8.8%

Semen Padang

11.8%

12.2%

12.5%

12.2%

12.1%

12.2%

Total Semen Gresik

Total
Source: Indonesia Cement Association

43.6%

43.4%

39.6%

43.4%

39.7%

43.6%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

Sector Update

Exhibit 4. Median price change in 5M13 (ytd)

8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
-10.0%
Source: Ministry of Trade

Exhibit 5. Semarang Solo Toll road built in hilly areas

Source: Jasa Marga

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Head of Equities

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Equity Sales

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Equity Sales

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Equity Sales

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Equity Sales

jdarmawan@ipc.co.id

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Equity Sales

henry.sutanto@ipc.co.id

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Sales Trader

thomas.samuil@ipc.co.id

INVESTMENT RATINGS
Buy : Expected total return of 10% or more within a 12-month period
Hold: Expected total return between -10% and 10% within a 12-month period
Sell : Expected total return of -10% or worse within a 12-month period
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in the report.
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any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared
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