RHB Indonesia Morning Cuppa - 24 June 2016- (Semen Indonesia) Unknown Jumat, 24 Juni 2016

 



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:
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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