Holcim Indonesia (TP Rp2,525)

Strongest cement performer in 9M11

What’s New
􀂃 Holcim Indonesia reported 9M11 net profit of Rp740b, an increase of 20% y/y, as sales grew strongly by 26% y/y to Rp5.41t. On a quarterly basis, net profit rose by 14% q/q to Rp283b.
􀂃 The company’s domestic sales volume surged by 33.6% y/y to 5.37m tonnes during the period, far above the industry growth rate of 16.3%. Holcim’s market share rose by 2ppts to reach 15.6%. Total shipment, including exports, however, only grew modestly by 4% y/y, as exports tumbled by 74% y/y to just 294k tonnes.

Our View
􀂃 Holcim’s performance was slightly lower than our estimate, achieving 70% of our forecast. However, given the seasonality of the business, we think the company is still on‐track to meet our target, more so because Holcim’s fourth‐quarter figure is usually exceptionally strong.
􀂃 Cement sales in bulk form flourished in 9M11, and Holcim benefited from having the strongest ready‐mix concrete (RMC) business among cement producers. RMC sales surged by 37% y/y in 9M11 to Rp804b. RMC’s margin was also relatively more resilient than cement, with GPM increasing by 70bps to 14.4%. In contrast, the gross margin of its cement division contracted by 140bps to 37.9%.
􀂃 Holcim managed to keep its margin relatively stable, despite rising costs. 9M11 EBITDA margin dropped by only 20bps to 29.3%. The company has shown steady quarterly improvement, with EBITDA margin in 3Q11 almost 7 ppts higher than in 1Q11 (30.9% vis‐à‐vis 24.1%). Holcim accomplished this feat by focusing on domestic sales,
where margin is better.

Action & Recommendation
􀂃 We reiterate our BUY recommendation on Holcim with TP of Rp2,525, pegging the stock at 2012F PER of 15.3x.

Source: KIM ENG dated 1 November 2011