Sector update:
Building Materials (Neutral)
Despite Flat In December, Selling Price Likely To Decline
Building Materials (Neutral)
Despite Flat In December, Selling Price Likely To Decline
Given
supply growth is estimated to be faster than that of demand, we see cement
selling price likely to remain under-pressured in 2017. Our ground checks
suggested that December cement retail-selling prices were flat MoM. This was
driven by higher demand, which cyclically peaks at end of year. However, on an
cummulative basis, cement selling price is still in a decliningtrend, in which
the steepest decline was in 2H16. We maintain NEUTRAL on Indonesia cement with
Semen Indonesia is our Top Pick.
¨
Better
sales in 2017.
We expect cement sales to pick up, driven by:
i. The ramping up of government infrastructure
projects, given the abundant revenue from the tax amnesty,which provides more
funds for government spending;
ii. An increase in property sales on the back of
lower mortgage rates and relaxation of the loan-to-value (LTV) threshold.
These factors should lead to increased cement
sales. We expect the sector’s cement sales volume to grow by 7% YoY in FY17F.
¨ However, competition
likely to remain intense. Despite better sales ahead, we expect the increase in
supply to be faster than growth in demand. 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 an overcapacity in production
capacity, we note that Indonesia’s cement producers are likely to continue
reducing their selling prices to boost sales volume and maintain market share.
¨ December cement
retail-selling prices flat MoM. Our ground checks on some building material
stores located in South Jakarta suggested that December cement retail-selling
prices were flat MoM. In our view, stable monthly cement selling price was
driven by higher cement demand, which cyclically peaks at the end of year. This
was boosted by accelerated infrastructure projects near to the closing of the
government’s spending budget period.
¨ In 2016, on
cumulative basis, cement selling price declined. The most cement
retail-selling price declined was in 2H16 when new cement brands – such as Semen
Bima, Semen Conch, and Semen SCG – started aggressively
penetrating the domestic market. In 4Q16, on the 40kg cement bag, Semen
Gresik recorded the steepest selling price decline (-5.3% QoQ); while for
the 50kg cement bag, Indocement Tunggal Prakarsa’s (Indocement) selling price
declined the most (-4.5% QoQ). In December, ofthe building materials stores
under our survey, Semen Gresik cement selling price was the cheapest for
the 40kg bag and Holcim for the 50kg bag.
¨ NEUTRAL. Although Indonesia
cement companies are trading at attractive valuations, near to -2SD of
their3-year average rolling forward P/E, we expect competition in the domestic
cement industry to intensify. Hence, we are NEUTRAL on the sector. Our Top Pick
is Semen Indonesia (SMGR IJ, NEUTRAL, TP: IDR9,800) 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: Despite Flat In December, Selling Price Likely To Decline
Andrey Wijaya
Senior Vice President
Research Analyst – Auto,
Consumer, Cement
PT. RHB Securities
Indonesia
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