Good morning,
Semen Indonesia: EBIT
Margin Likely To Narrow Further
We
expect cement demand to pick up in 2H16, but the national overcapacity to
continue. Given the high unutilised production capacity rate, new players are
selling cement at huge discounts. Thus, Semen Indonesia is likely to further
cut its selling price, which would lead to a narrower EBIT margin. To boost
earnings, it is focusing on cost efficiency and boosting sales volume by
growing its domestic and regional markets. Due to the lower EBIT margin, we cut
our earnings estimates. Maintain NEUTRAL, with a DCF-based IDR9,000 TP (from
IDR10,000, 1% downside).
¨ Overcapacity to rise. We expect national
demand for cement to increase in 2H16, driven by an increase in government
spending on infrastructure projects. Also, a lower benchmark interest rate and
the relaxation of mortgage policies should boost property sales – which would
lift demand for cement. However, new cement makers have aggressively built new
cement plants, which led to the nationwide overcapacity. We expect the utilised
production capacity rate to decline to 71% in FY16F (from 74% in FY15) in which
unutilised capacity could increase to 26m tonnes pa from 22m tonnes pa in the
same period.
¨ Lower selling prices
to continue.
We estimate the capacity utilisation rate of new cement makers at below 50%,
which is much lower than the national average capacity utilisation rate. The
substantial unitised production capacity among new cement makers caused them to
sell cement at huge discounts – ie prices were on par with Semen Indonesia’s
selling price. Semen Indonesia cut its selling price by 7.4% YoY (4% YTD) to
maintain its domestic market share. However, this was on the expense of lower
EBIT margin. Semen Indonesia’s EBIT margin declined to 20.5% in 1Q16 (from
23.4% in 1Q15).
¨ Cost efficiency and
regional market expansion. Management said there is still room to reduce
transportation- and energy-related costs which jointly account for ~50% of the
company’s cost per tonne. Hence, although its selling price is lower, its FY16F
EBIT margin may be level to that of FY15. To boost sales, in addition to its
domestic expansion, Semen Indonesia aims to increase its international sales
contribution to 15% of revenue (from 6% in 1Q16). Regional target markets
include Vietnam, Cambodia, Laos and Sri Lanka.
¨ Lower earnings
estimates and TP.
Given the narrower EBIT margin, we cut our FY16F-17F earning estimates to
IDR4.5trn/5.3trn (-9%/-7%).
Our IDR9,000 TP also reflects 12x/10x
FY16F-17F P/Es. Key upside risks are:
i. Accelerating
infrastructure projects from higher government spending;
ii. Higher property sales,
driven by lower benchmark rates.
The main downside risk is national over
capacity situation. (Andrey Wijaya)
Media Highlights:
|
Economics
Indonesia increased
non-taxable income threshold
Updated Tax Amnesty
draft
Corporates
BNI injected
IDR203bn capital to its multifinance unit
Summarecon realised
30% of total capex allocation
Waskita Beton and
ABMA Properties to raise fund from IPO
Clipan Finance set
new booking target amounted to IDR5trn
Total recorded
IDR900bn new contracts
|
Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia