Cement sector

Steady 2M12 Volume

2M12 cement demand grew by 19.4% YoY. Indonesia Cement Association reported that domestic cement consumption in February 2012 increased by 19.4% YoY to reach 4.06m tonnes. On a monthly basis, cement demand is 0.1% higher than in January 2012 of 4.05m
tonnes. In fact, the flat February volume exceeded our expectation, as we had anticipated a seasonally lower volume for the month. Further, we expect domestic cement demand to grow by 9% YoY in 2012. For February 2012, Kalimantan and Nusa Tenggara were the top performing regions, with respective MoM volume increases of 19% and 34%.

Lower market share, though the trend will reverse. Semen Gresik’s market share fell by 1.5ppts in 2M12 to 39.7%, while Indocement and Holcim Indonesia expanded their market shares by about 1ppt each. Nonetheless, we expect Semen Gresik that has a high market share outside the Java area and new capacity to expand its market share in 2012. Semen Gresik’s mill in Tuban, East Java, is expected to be completed by the end of March, while the new mill in Tonasa, South
Sulawesi, will be ready by mid-2012. Increased competition. Based on our knowledge, increased
competition with new capacity would likely arrive in 2014-15. Anhui Conh from China has stated that it plans to build a mill with 1m tonnes of capacity in South Kalimantan; construction should commence in 2012. Further, Siam Cement from Thailand plans to build new capacity of around 2m tonnes in West Java. Limited impact of increased fuel price. Moving forward, we expect the government’s plan to raise the fuel price to have a limited impact on demand. When the government raised the fuel price back in 2005 and 2008, cement demand still posted positive growth (4.2% and 11.4%, respectively). In addition, the government’s aggressive plan to allocate
more funds for infrastructure construction over the next five years should be positive for the cement industry.

Maintain OVERWEIGHT. We uphold our BUY call on Indocement at the TP of Rp20,750. In the case of Holcim, we raise our TP to Rp2,643 (from Rp2,525) as we adjust our assumptions in light of the company’s FY11 result; we maintain our HOLD call. Finally, our rating of Semen Gresik is still HOLD at the TP of Rp11,350. Overall, we continue to like the cement sector and maintain our OVERWEIGHT call. (to be continue.....)

source: KIMENG dated 13 March 2012