Good morning,
Indocement Tunggal
Prakarsa : Competition In Markets On The Rise
Indocement had to
reduce its selling price to deal with rising competition, yet its 5M16 sales
volume was lower than we expected. We anticipate the rivalry to stay fierce
as new cement companies continue to expand market share, especially in
Western Java – Indocement’s stronghold. We remain NEUTRAL, and after lowering
our earnings estimates, cut our DCF-derived TP to IDR17,900 (from IDR20,400,
9% upside).
¨ Competition
to intensify. This
year we expect Indonesia’s total cement capacity to be at ~91m tonnes pa with
the annual national cement consumption at ~65m tonnes (a 26m tonnes in overcapacity
which we expect for FY16-17, higher than the 22m tonnes in FY15). New players
such as Semen Merah Putih, Semen Jawa, Semen Bima and Conch Cement Indonesia
are likely to produce at their respective full capacities of ~9m tonnes pa,
ie ~10% of total national capacity. However, their sales account for just ~5%
of national sales.
¨ Battlefield
in Indocement’s markets. Five new cement companies are aggresively expanding
their market shares in Western Java and Kalimantan, where Indocement Tunggal
Prakarsa’s (Indocement) markets are based. As a result, its May sales volume
declined YoY while national cement sales volume increased. This was the main
reason for its domestic market share slipping to 26.5% in May, from 29.7% in
May 2015. Its 5M16 domestic sales declined by 3.2% YoY.
¨ Industry
overcapacity leading to lower selling prices. By our
calculations, Indocement has cut its ex-factory average sales price by 12% in
the last 12 months; this is steeper than its closest peer’s – Semen Indonesia
(SMGR IJ, NEUTRAL, TP: IDR10,000) – which reduced its sales price by 1.8% in
the same period. Our ground checks at building materials stores suggest that
Indocement significantly cut its retail sales price in 1Q16.
¨ Cutting
our numbers. We
lower our FY16F-17F earnings to IDR4trn and IDR4.6trn (-11%/-11%)
respectively, driven by the lower sales volume and average sales price. As
such, we reduce our DCF-derived TP to IDR17,900, which implies 17x/14x
FY16F/FY17F P/Es respectively as well. We expect competition in the cement
industry to remain intense, and thus, stay NEUTRAL on the stock.
¨ Key
risks
to our call include:
i. A relaxation in mortgage payments to developers;
ii. Faster-than-expected reduction in interest rates;
iii. Swifter realisation of infrastructure spending. (Andrey Wijaya)
Link to report: Indocement Tunggal Prakarsa : Competition In Markets On The
Rise
Link
to Daily report: Indonesia Morning Cuppa - 140616
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Media Highlights:
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Economics
Three coordinating
ministries budget cut approved by the HoR
Investment
realisation is targeted to reach IDR631.5trn in 2017
Indonesia Micro
credit program (KUR) disbursement reach IDR46trn
Corporates
First Media aims 30%
market share in Malang
First Media, the
subsidiary of Link Net (LINK IJ, BUY, TP: IDR5,500) will expand its services
in Malang, East Java. With total population around 800k people, First Media
targets to obtain 30% of market share in Malang by the end of 2016. According
to its President Director, Irwan Djajaa, Malang is the second largest city in
East Java and it has potential for more internet development. (Investor
Daily)
Comments: In our view, it is
positive for Link Net as it would give an additional number of subscribers
for broadband and pay TV from the expansion in Malang. Furthermore, it is
also inline with their strategy to expand in high GDP cities. In 1Q16, the
company’s net adds for broadband and pay TV was at 32,000 new subs. We expect
the company’s to grow their additional subs by 20% YoY in FY16.(David
Hartono)
Erajaya to disburse
dividend amounted IDR58bn
Surya Semesta
Internusa to issue IDR750bn bonds
United Tractors
consortium and Indika consortium finalised USD4.8bn financing
Waskita to prepare
IDR5trn for land clearing
Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
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