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Good morning,
Semen Indonesia –
ASP Sees a Slower Reduction In May
Semen Indonesia
slowed its domestic selling price reduction thanks to it remaining in a
strong position in the domestic market. Despite the tough competition, it has
succeeded in increasing its market shares in the last six months. We cut our
earnings estimates, driven by higher production costs, but maintain our
DCF-based IDR9,800 TP (1% downside) implying a 14x FY18F P/E as we roll
forward our valuation. Although this year’s domestic overcapacity situation
is likely to remain, its sales, which cyclically high in 2H should ease competition.
Maintain NEUTRAL.
¨ Slower
ASP reduction in May. Semen Indonesia slowed its domestic selling price
reduction thanks to it remaining in a strong position in the domestic market
despite the tough competition. After aggresively lowering its domestic ASP to
IDR754,000/tonne (-10% YoY) in 1Q17, Semen Indonesia maintained its domestic
ASP at IDR739,000 per tonne (+0.1% MoM) in May (same with April ASP).
We see this slower ASP trend as a good
indication that the company is likely to shift its strategies to boost its
EBIT margin which has been narrowed to 14% in 1Q17 (versus 4Q16: 15.6%, 1Q16:
20.5%).
¨ Relatively
robust market share. Despite the tough competition, Semen Indonesia has
managed to increase its market shares to 41.2% in April-May 2017 (from 40.6%
in 4Q16), supported by the strong cement demand in East Java and Sumatra, its
home-based markets. While, YTD-May cement demand growth in Sulawesi – another
Semen Indonesia home-based market – was still negative. However, we see it
should recover in the 2H, driven by higher government infrastructure
projects.
In the same period, new cement players’ –
Conch Cement Indonesia, Semen Jawa, Semen Bima (Star), and Jui Shin Indonesia
– cumulative market share increasing to 12.1% in April-May 2017 (from 10.6%
in 4Q16). This was driven by higher Conch Cement Indonesia’s market share,
which increased to 3.5% in April-May 2017 from 2% in 4Q16 on the back of its
aggresive expansion in Western Java (Banten, Jakarta, West Java) and
Kalimantan markets.
¨ Reduced
earnings estimates, but maintain TP. We cut our earnings estimates to IDR3.9trn
(-14%) and IDR4.1trn (-14%) in FY17F and FY18F, respectively, driven by
higher production costs. However, we maintain DCF-based TP at IDR9,800 (1%
downside) implying a 14x FY18F P/E since we roll forward our valuation to
FY18F cash flow.
Although this year’s domestic overcapacity
situation is likely to remain, its sales, which are cyclically high in 2H,
should ease competition in the domestic cement market. We maintain our
NEUTRAL call on Semen Indonesia. (Andrey
Wijaya)
Link to report: Semen Indonesia : ASP Sees a Slower Reduction In May
Link
to daily report: Indonesia Morning Cuppa 201617
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Media Highlights:
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Economics
Government projects
IDR50trn shortfall in 2017
Corporate
Electricity sales
grew by 2.4% in 1H17
Bank
Negara Indonesia projects 17% loan growth in 1H17
Bank
Tabungan Negara channels loans to 302,000 homes in 4M17
Adhi
Karya seeks to raise IDR2.73trn from bond sale
Kirana Megatara
targets 50% net income growth
Astra Otoparts books
5% YoY growth in 5M17
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Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT RHB Sekuritas Indonesia
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