Cement sector (Overweight)

A bright start

Robust start to the year. The Indonesia Cement Association reported January 2012 domestic cement consumption at 4.06m tonnes, up 15.2% YoY. On a monthly basis, it is 10.9% MoM lower than December 2011 consumption of 4.56m tonnes. January volumes were in line with
our expectations, as we anticipated rainy weather in the first two months of 2012. Consumption this January is at a new high compared with that of previous years. On average, January volumes account for 7.8% of full-year volume.

Fierce competition is still evident. Semen Gresik posted a slight gain in market share in January 2012, at 40.6% vs. 39.3% in December. We believe market share gains will continue in upcoming quarters as its new capacity comes onstream in 2Q12. In contrast, Indocement saw its market share decline to 30.8% in January vs. 32.3% in December, due to slower activity in greater Jakarta during the Chinese New Year. However, we expect a strong full-year performance from Indocement, since it has ample capacity to capture more demand in the greater Jakarta area. In addition, Holcim also gained some market share (Jan 2012: 16.8%; Dec 2011: 16.0%).

Rising consumption in East Indonesia. Cement consumption in East Indonesia posted robust growth of 68.1% YoY and 23.0% MoM in January 2012, outpacing growth in other regions. Despite making up just 2% of total cement consumption, the numbers indicate that there
may be a possibility of an emerging market for cement in East Indonesia. Semen Gresik is seeking to exploit this opportunity; it is planning to build a cement plant in the region over the next 2-3 years, and has started the exploration phase in Papua. In addition, growth in Sumatra (21.4% YoY) and Sulawesi (20.8% YoY) also outpaced growth in Java (9.8% YoY).

Maintain OVERWEIGHT. We uphold our BUY call on Indocement with a TP of Rp20,750 on the back of its exposure to the high-growth Java market. In addition, we are placing the rest of our coverage under review. In the meantime, we retain our HOLD calls on Semen Gresik and Holcim, with TPs of Rp11,350 and Rp2,525, respectively. Overall, we continue to like the cement sector and maintain our OVERWEIGHT call.


Dazzling early result
Strong numbers in January. The Indonesia Cement Association reported January 2012 domestic cement consumption at 4.06m tonnes, up 15.2% YoY. On a monthly basis, it is 10.9% MoM lower than December 2011 consumption of 4.56m tonnes. January volumes were in line with our expectations, as we anticipated rainy weather early in the year, especially in the first two months. Over the past ten years, January volumes have accounted for 7.8% of full-year consumption volumes. If the same ratio applies, FY12 volume growth would be around 8.5%, in line with our expectations of 8.8% cement consumption growth this year.

Capacity is the name of the game. We believe the performance of the cement companies will be highly dependent on their production capacities, as the company with the greatest potential to capture demand will be the winner in terms of earnings. Our top pick is Indocement, as the company plans to add 2m tonnes of capacity in early 2013 while keeping its current utilisation of 85%. We also like Semen Gresik given its plan to boost capacity in 2Q12. Holcim is least favoured, as further performance will be limited by capacity constraints.

Maintain OVERWEIGHT. We uphold our BUY call on Indocement with a TP of Rp20,750 on the back of its exposure to the high-growth Java market. In addition, we are placing the rest of our coverage under review. In the meantime, we retain our HOLD calls on Semen Gresik and Holcim, with TPs of Rp11,350 and Rp2,525, respectively. Overall, we continue to like the cement sector and maintain our OVERWEIGHT call.

source: KIMENG dated 14 February 2012