Monday, April 18, 2011

Cement Sector

by Samuel Securities

The Java Supremacy 3M11 domestic consumption grew 8.6%. Domestic cement consumption showed a very strong figure in 3M11, grew by 8.6% YoY to 10.57mn tons vs 9.73mn tons in 3M10. In the meantime, domestic consumption on March ’11 was recorded at 3.77mn tons or surged by 11.3% YoY due to strong demand growth on Java and Sumatera regions. Export sales remain sluggish with 24% YoY drop in 3M11 as producer are more willing to fulfill the domestic demand growth which offers higher margins compared to export market.

The Java strikes back! In 3M11, cement consumption from Java region has surged by 12.3% YoY, outperforming other regions except Sumatera which also demonstrated a strong growth figure of 13.7% YoY. As such, until 3M10, Java region contribution to total domestic market has slightly risen to 54.3% from 53.8% in FY10. This strong figure is mainly due to substantial demand growth from Jakarta and West Java.

East Java came as the laggard among Java. Interesting story occurred in 3M11, unlike other Java regions, cement consumption in East Java region contracted by 9.6% YoY due to unusual heavy rainfall in the region causing floods in several northern cities. This could partly explained the Semen Gresik’s cement sales underperformance in 3M11 which only booked tepid growth of just 1.4% YoY as a group and a negative growth of 2.1% if we exclude Semen Tonasa and Semen Padang.

Holcim on the spot light. Holcim Indonesia (SMCB) outperformed its peers in 3M11 as its domestic cement sales surged by 24.4% YoY to 1.62mn tons. As a result, its market share expanded to 15.4% from 13.4% in 3M10. On the other hand, Semen Gresik (SMGR) lost a significant market share in 3M11 and recorded only 40.7% portion vs 43.6% in 3M10, while Indocement’s (INTP) market share remained stable at 30.7%.

Maintain Overweight. We maintained our Overweight rating on the sector as 3M11 cement sales data came higher than our expectation of 7% growth. In addition, we will evaluate our top picks selection on the sector as SMGR, being our current top pick, showed some underperformance in 3M11. The sector is currently trading at 15.5x ‘11F PER with average potential upside of 17%. Maintain OVERWEIGHT.

Target : INTP Rp 19,500 – SMGR Rp 11,200 – SMCB Rp 2,500

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