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Dear
Siti,
Good morning,
Building
Materials: Expect Better Sales, But Competition Rising
We see a further
boost in cement sales in 3Q16, but competition is likely to remain intense.
2Q16’s domestic cement sales rose to 14.8m tonnes (+1.5% QoQ, +1.6% YoY).
However, rising competition has caused Indocement and Holcim Indonesia’s
lower market share. Semen Indonesia is the only large cement maker to book a
higher market share, which was at the expense of a lower ASP. 2Q16’s export
sales doubled amid an overcapacity situation in the domestic cement industry.
Maintain NEUTRAL with Semen Indonesia as our Top Pick.
♦ Improved
sales.
Despite the low sales season during Ramadan in June, domestic cement
sales increased to 14.8m tonnes. This was a good indicator of better cement
demand. QoQ, Central Java cement sales were the main growth driver. On the
flip side, Sumatra, Kalimantan, and Sulawesi’s sales came in lower, which was
likely driven by weaker commodity prices, especially CPO, during the period.
However, CPO price started to recover in July. This should boost income
outside Java and increase cement demand in these areas. Despite a narrower
EBIT margin, Indonesia cement companies doubled their export sales in the
second quarter amid an overcapacity situation in the national cement
industry.
♦ Semen
Indonesia’s higher market share. Semen Indonesia (SMGR IJ, NEUTRAl, TP:
IDR9,000) was the only large cement company to book a higher market share
(42.3% in 2Q16 vs. 40.4% in 1Q16), which was at the expense of a lower
average selling price (ASP). New cement makers’ – which include Cemindo
Gemilang, Jui Shin Indonesia, Semen Jawa, Conch Cement Indonesia, and Semen
Bima – market shares have been rising, to 9.9% in 2Q16, from 8.5% in 1Q16.
Our ground checks at building materials outlets in Jakarta revealed that
these new cement makers are aggressively penetrating the domestic market by
selling their cement at around a 5-10% discount to that of the larger cement
producers.
♦ Reiterate
NEUTRAL.
We expect cement sales to grow 6-7% in 2016-2017 respectively. However, we
also expect the increase in supply to be faster than the growth in demand. We
further anticipate the utilisation rate (in terms of production) to decline
to 72% and 74% in FY16 and FY17 respectively (from 75% in FY15). Given
Indonesia’s cement overcapacity condition, we are seeing Indonesia cement
producers continue to reduce their selling price to boost sales volume and
maintain market share. We remain NEUTRAL on this sector, as we expect
competition in the domestic cement industry to intensify.
♦ Top
Pick: Semen Indonesia. The company is the biggest beneficiary of the recovery
in cement sales growth across the country. It has a dominant market share
both inside and outside Java. (Andrey
Wijaya)
Link to report: Expect Better Sales, But Competition Rising
Link
to Daily report: Indonesia Morning Cuppa 190716
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Media Highlights:
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Economics
Indonesia’s economy
poised to grow 5.2% this year according to ADB.
Corporates
Indofood CBP to conduct stock split
Soechi Lines obtained contract from
PetroChina
Wika Beton postpones new factory
construction in East Kalimantan
Bukit Asam to book +11% YoY revenue growth
in 1H16
Toba Bara obtained power plant project
worth USD200m
Indonesia to cut property transfer fee to
1% to boost investment
Indonesia to impose five-year moratorium on
new palm oil concessions
Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
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