Sector update:
Building Materials,
Sales To Pick Up Despite Intensified Competition
Building Materials,
Sales To Pick Up Despite Intensified Competition
We expect domestic
cement sales to pick up, driven by:
1. Accelerated government infrastructure
projects;
2. Higher property sales, driven by lower
mortgage rates and the relaxation of the LTV threshold.
Still, competition is
likely to remain intense, triggered by the overcapacity situation. The potential
delay in the opening of a new Rembang plant may only slightly impact the
competitive landscape. Meanwhile, 3Q16 cement sales indicate that new players’
market shares are still rising. We remain NEUTRAL on the sector, with Semen
Indonesia as our Top Pick.
¨ Better sales ahead. We expectcement sales
to pick up, driven by:
i.
The
ramping up of government infrastructure projects, which intensifies at the end
of year (a cyclical factor). In addition, abundant revenue from the tax amnesty
providesmore funds for government spending;
ii.
An
increase in property sales on the back of lower mortgage rates and the
relaxation of the loan-to-value (LTV) threshold;
iii. Rising prices of
commodities such as coal and CPO – the mainincome sources of people outside
Java – should boost consumer spending.
These factors should lead to increasedcement
sales. We expect the sector’s cement sales volume to grow by 6% and 7% YoY in
FY16F-17F respectively.
¨ Competition likely to remain intense. Despite better sales
ahead, we expect the increase in supply to be faster than the growth in demand.
Hence, the delay in the commencement of Semen Indonesia’s(SMGR IJ, NEUTRAL, TP:
IDR10,300) new Rembang plant should not change the competitive landscape. We
further anticipate the utilisation rate (in terms of production) to decline to
70% and 69% in FY16 and FY17 respectively (from 75% in FY15).
¨ Given the overcapacity in production, we note
that Indonesia’s cement producers continue to reduce their selling prices to
boost sales volume and maintain market share. We estimate that the combined new
cement players’ market shareincreased to 9.8% in 3Q16 (2Q16: 9.5%, 1Q16: 8.3%).
¨ In-line 3Q16 sales. Domestic cement sales
rose 2.8% QoQ (to 15.2m tonnes), while MoM, base domestic cement sales declined
by 5.7% MoM (to 5.6m tonnes). This was driven by trucking/logistics activities
being temporarily banned for four days, by the Government, during the Eid
al-Adha holiday.
¨ Semen Indonesia gained market share, which
slightly improved to 42.4% in 3Q16 (2Q16: 42.2%). The market share of its
closest peer, Indocement (INTP IJ, NEUTRAL, TP: IDR17,900), slipped to 25.8% in
3Q16 (2Q16: 25.9%). Semen Indonesia cut its ASP by 2% QoQ to IDR790,000/tonne
in 3Q16. Indocement has not reported its ASP, although we think the trend will
be in line with that of Semen Indonesia.
¨ Reiterate NEUTRAL. We expect competition
in the domestic cement industry to intensify. Our Top Pick is Semen Indonesia
since the company is the biggest beneficiary of the recovery in cement sales
growth across the country. It has a dominant market share both in and ex-Java.
Kindly click the following link for the full report: Sales To Pick Up Despite Intensified Competition
Andrey Wijaya
Senior Vice President
Research Analyst – Auto,
Consumer, Cement
PT. RHB Securities Indonesia
