Good morning,
Building Materials –
Infrastructure Projects Boost Bulk Cement Sales Growth
9M17 domestic cement
sales came in at 47m tonnes (+6.6% YoY), driven by bulk cement sales. We
believe the main sales growth driver was the ramp-up in infrastructure
projects. Cement sales are cyclically higher in 2H of the year, and our
ground checks indicate that cement makers slowed down the rate of their price
reductions in 3Q17. However, in the long term, we expect competition in the
cement industry to remain intense. National un-utilised production capacity
is likely to increase, as production capacity is growing faster than demand.
Maintain NEUTRAL on the sector.
¨ Bulk cement sales
growth improves. We
believe the ramping-up of infrastructure projects is likely the main sales
growth driver for Indonesia’s cement industry. 9M17 domestic cement sales
increased to 47m tonnes (+6.6% YoY). This was driven by bulk cement sales –
which accounted for c.25% of 9M17 domestic cement sales – which grew 13.6%
YoY.
In
Java, cement sales, which accounted for 57% of 9M17 domestic sales, grew
faster (+11.3% YoY) than that of ex-Java, which were flat (+1% YoY).
3Q17
domestic cement sales jumped to 18.4m tonnes (+29.5% QoQ, +21.1% YoY). We
opine that this significant sales increase was partly driven by the longer
working days in the absence of the Lebaran holiday in June.
¨ Indocement’s market
share is stable, while Semen Indonesia’s (SI) slipped. We estimate that
Indocement was able to maintan its 3Q17 market share at 25.4% (2Q17: 25.5%).
During the quarter, it widened the sales coverage of its second-tier brand, Rajawali,
which is now available in 30 cities in Jakarta, Banten, West Java and Central
Java. Previously, Rajawali cement was only available in a few cities
in Banten and West Java.
SI’s
3Q17 market share dipped to 40.3% (2Q17: 41.1%), likely due to the slow rate
of its ASP reduction.
¨ Slower ASP
reduction.
Cement sales are cyclically high in 2H of the year – which leads to easing
competition. Hence, cement makers slowed down in reducing their selling
prices. SI’s ASP reduction decelerated – its domestic ex-factory ASP declined
by just 1.2% QoQ in 3Q17 (2Q17: -2.4% QoQ) This is in line with on-the-ground
checks we conducted on retail selling prices, at building materials stores in
Jakarta, Bali and Makasar. Our latest ground checks suggest that cement
retail selling prices were flat MoM in September.
¨ Expect competition
to remain intense in 2018. Despite the slower price reduction in
3Q17, competition in Indonesia’s cement industry likely to remain intense
over the long term. In 2018, national cement production capacity is estimated
to reach 113m tonnes (+9% YoY), while we estimate national cement demand to
increase to 70m tonnes (+7% YoY).
In
our calculation, the national cement overcapacity is likely to increase to
43m tonnes in 2018F (vs 39m tonnes in 2017F), while un-utilised production
capacity may rise to 38% in 2018F (vs 37.1% in 2017F).
¨ Maintain NEUTRAL. The announcement of
higher monthly cement sales in 4Q17 may improve investor sentiment on the
cement companies’ respective share prices. However, we expect competition to
remain tough over the long term. Premised on this, we keep our NEUTRAL
weighting on the cement sector. (Andrey
Wijaya)
Link to report: Infrastructure Projects Boost Bulk Cement Sales Growth
Link to daily
report: Indonesia Morning Cuppa 121017
|
Media Highlights:
|
Corporate
Indonesia revises up
2018 investment target
Matahari Dept Store
has no plan to close more shops this year
Sido Muncul to buy
Nyonya Meneer assets
Blue Bird receives
IDR1trn loan facility
Garuda optimistic on
3Q17 profits
|
Our
Recent Publication:
|
Company Update: Ciputra Development – Toning Down Our
Forecasts
|
Corporate News Flash: Summarecon Agung –
9M17 Marketing Sales Are In Line With Estimates
|
Regional Thematic: Halal – An Earnings
Boost Strategy
|
Economics Update: September Inflation
Remains Moderate
Link to report: September
Inflation Remains Moderate
|
Company Update: Nippon Indosari Corpindo –
Details On Rights Issuance
Link to report: Nippon
Indosari Corpindo : Details On Rights Issuance
|
Sector Update: Coal Mining - Energy
Minister Does Not Agree With Cost-Plus Margin
Link to report: Energy
Minister Does Not Agree With Cost-Plus Margin
|
Company update: Tower Bersama Infrastructure – Not
Our Preferred Exposure In The Sector
|
Corporate News Flash: United Tractors –
Mining Equipment Sales To Stay Robust
Link to report: United
Tractors : Mining Equipment Sales To Stay Robust
|
Economics Update: BI Cuts Key Policy Rate
Further In September
Link to report: BI
Cuts Key Policy Rate Further In September
|
Economics Outlook: Stronger Growth in 2018
But Capped By Spending Constraint
Link to report: Stronger
Growth in 2018 But Capped By Spending Constraint
|
Best regards,
Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT RHB Sekuritas Indonesia
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