Cement

Please read carefully the important disclosures at the end of this publication.
QUICK TAKES
14 October 2010
NEUTRAL Maintained Cement
Holiday interruptions
INDONESIA
Lydia Toisuta +62(21) 30061724 - lydia.toisuta@cimb.com
9M10 formed 70% of our FY10 forecast
Maintain Neutral on cement sector. Data released by the Indonesia Cement
Association point to volume sales of 2.5m tonnes in Sep 10, bringing 9M10 sales to
29.5m tonnes. Growth, as expected, decelerated on the back of: 1) a high base in
2H09; and 2) Lebaran holidays. However, the sales were consistent with our
expectations and we maintain our 10% yoy growth outlook for domestic cement
volume in 2010, sill assuming government spending will be mainly disbursed in 4Q10.
We maintain FY10 our earnings estimates for all our three cement companies,
assuming earnings growth would come mainly from margin expansion. Our preference
is still Indocement, given its better positioning to capture future demand at higher
prices. Maintain Neutral on Indocement with an unchanged target price of Rp22,250,
set at 16x CY12 earnings.
Comments
8.5% yoy growth in 9M10. Sep 10 domestic sales were the weakest in the year, at
only 2.5m tonnes vs. an average of 3.3m tonnes in 8M10. According to the producers,
transportation of sales was stopped a week before Lebaran, which fell on 11 Sep.
Growth was flat during the month as the holiday fell in the same month in 2009.
Among the producers, Indocement was the only one with positive growth of 11% yoy.
Market share vs. capacity utilisation. Annualised capacity utilisation for the top
three producers now stands at 78% with Semen Gresik running at 91%, the highest.
Under the expectation that Semen Gresik could only grow as much as 4% to 20.1m
tonnes next year vs. 8% yoy domestic growth, the company’s market share may
weaken to the benefit of Indocement, in our view.
Figure 1: 9M10 cement sales: 29.5m tonnes, +8.5% yoy
Market share Monthly growth
44.3 45.2 46.5 44.4 43.7 44.7 43.6 43.0
30.1 29.7 30.5 30.9 31.6 30.2 30.7 31.1
15.1 15.2 12.7 14.5 14.1 13.7 13.4 13.6
10.5 9.8 10.3 10.2 10.5 11.4 12.3 12.2
0%
25%
50%
75%
100%
2004 2005 2006 2007 2008 2009 3M10 9M10
SMGR INTP SMCB Other
-50%
-25%
0%
25%
50%
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
SMGR INTP
SMCB Domestic 3MM y oy (%)
Source: ASI, CIMB Research
[ 2 ]
Figure 2: Geographical breakdown
Sep-10 Sep-09 % mom % yoy Sep-10 Sep-09 % yoy
monthly monthly Cum Cum
Jav a 1,275,     852 1 ,358,326 -37.0% -6.1% 15,817,211 14,748,774 7.2%
Sumatra 616,149 561,043 -27.1% 9.8% 6 ,973,767 6 ,358,287 9.7%
Kalimantan 190,544 167,829 -21.7% 13.5% 2 ,116,864 1 ,777,867 19.1%
Sulaw esi 221,729 246,656 3.0% -10.1% 2 ,173,545 2 ,163,698 0.5%
Others 251,543 211,266 -12.0% 19.1% 2 ,426,185 2 ,142,850 13.2%
Total 2,555,818 2 ,545,120 -29.3% 0.4% 29,507,571 27,191,476 8.5%
Domestic sales
Semen Gresik 1,125,350 1 ,163,370 -29.3% -3.3% 12,691,279 12,394,627 2.4%
Holcim 328,430 365,027 -33.9% -10.0% 4 ,014,534 3 ,533,506 13.6%
Indocement 781,768 702,495 -29.4% 11.3% 9 ,191,200 8 ,092,539 13.6%
Others 320,270 314,228 -23.4% 1.9% 3 ,610,558 3 ,170,804 13.9%
Subtotal 2,555,818 2 ,545,120 -29.3% 0.4% 29,507,571 27,191,476 8.5%
Export sales
Semen Gresik 36,660 58,108 0.0% -36.9% 173,898 570,752 -69.5%
Holcim 152,767 146,300 0.0% 4.4% 1 ,136,414 1 ,253,417 -9.3%
Indocement 131,457 53,296 38.0% 146.7% 785,320 1 ,155,177 -32.0%
Others 3,600 - NA NA 18,450 5,400 241.7%
Subtotal 324,484 257,704 12.6% 25.9% 2 ,114,082 2 ,984,746 -29.2%
Total sales
Semen Gresik 1,162,010 1 ,221,478 -28.7% -4.9% 12,865,177 12,965,379 -0.8%
Holcim 481,197 511,327 -25.9% -5.9% 5 ,150,948 4 ,786,923 7.6%
Indocement 913,225 755,791 -24.1% 20.8% 9 ,976,520 9 ,247,716 7.9%
Others 323,870 314,228 -23.2% 3.1% 3 ,629,008 3 ,176,204 14.3%
Total 2,880,302 2 ,802,824 -26.2% 2.8% 31,621,653 30,176,222 4.8%
Source: ASI, CIMB Research
Figure 3: While growth decelerated, the year may still end with 10% yoy growth
(10)
0
10
20
30
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
2006 2007 2008 2009 2010
Source: ASI, CIMB Research
Java sales only 50% of the total. With most developments in Java stopped for the
holiday, consumption on the island fell to 50% of total domestic consumption in the
month vs. an average of 55% in the past 12 months. The bag consumption portion
surged in the month, basically as bulk cement is typically used for roads and other
infrastructure purposes, this time limited by about two weeks of inactive construction.
[ 3 ]
Valuation and recommendation
Maintain Neutral on cement sector. We recently rolled over our valuations for
Indonesian cement stocks to end-CY11, basing our target prices on 14-16x CY12
earnings. We continue to apply premiums to our companies mainly because the
cement sector should boast higher earnings growth and high ROCEs on the back high
utilisation. On the other hand, positives from potential revisions in land-acquisition
regulations, margin expansion and supply constraints seem to have been priced in,
and we believe marginal returns for investor at current valuations are diminishing.
Hence, the sector remains a Neutral, trading at an average EV/tonne of US$356 and
9.4x CY11 EV/EBITDA.
Figure 4: Sector comparisons
Target Core 3-yr EPS P/BV ROE Div
Bloomberg Price price Mkt cap P/E (x) CAGR (x) (%) yield (%)
ticker Recom. (Local) (Local) (US$ m) CY2011 CY2012 (%) CY2011 CY2011 CY2011
Indocement INTP IJ N 18,300 22,250 7,550 15.4 12.8 24.0 4.0 28.9 1.6
Semen Gresik SMGR IJ N 9,850 11,650 6,548 13.8 12.3 12.2 4.1 31.8 3.6
Holcim SMCB IJ N 2,425 2,700 2,083 14.3 12.1 31.1 3.3 26.3 0.0
Lafarge M Cement LMC MK U 7.95 5.90 2,183 15.7 15.0 3.1 2.0 13.0 5.3
Siam Cement SCC TB N 328.00 240.00 13,212 14.1 11.9 10.6 2.9 21.5 3.7
Siam City Cement SCCC TB U 230.00 220.00 1,776 15.0 14.1 8.4 3.0 20.4 5.7
Tasek TC MK N 6.50 8.50 260 8.7 8.4 28.7 0.8 10.1 1.8
Simple average 13.8 12.4 16.9 2.9 21.7 3.1
O = Outperform, N = Neutral, U = Underperform, TB = Trading Buy and TS = Trading Sell
Source: Company, CIMB Research
[ 4 ]
DISCLAIMER
This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other
jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
By accepting this report, the recipient hereof represents and warrants that he is entitled to receive such report in accordance with the restrictions set forth below and
agrees to be bound by the limitations contained herein (including the “Restrictions on Distributions” set out below). Any failure to comply with these limitations may
constitute a violation of law. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this report may be (i) copied,
photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part,
for any purpose without the prior written consent of CIMB.
CIMB, its affiliates and related companies, their directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies)
covered in this research report or any securities related thereto and may from time to time add to or dispose of, or may be materially interested in, any such securities.
Further, CIMB, its affiliates and its related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as
market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them to or buy them from customers on a principal basis and
may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies) as well as solicit such
investment, advisory or other services from any entity mentioned in this report. The views expressed in this report accurately reflect the personal views of the analyst(s)
about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific
recommendations(s) or view(s) in this report. CIMB prohibits the analyst(s) who prepared this research report from receiving any compensation, incentive or bonus
based on specific investment banking transactions or for providing a specific recommendation for, or view of, a particular company. However, the analyst(s) may receive
compensation that is based on his/their coverage of company(ies) in the performance of his/their duties or the performance of his/their recommendations and the
research personnel involved in the preparation of this report may also participate in the solicitation of the businesses as described above. In reviewing this research
report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is,
subject to the duties of confidentiality, available on request.
The term “CIMB” shall denote where applicable the relevant entity distributing the report in that particular jurisdiction where mentioned specifically below shall be a CIMB
Group Sdn Bhd’s affiliates, subsidiaries and related companies.
(i) As of 13 October 2010, CIMB has a proprietary position in the following securities in this report:
(a) -.
(ii) As of 14 October 2010, the analyst, Lydia Toisuta who prepared this report, has an interest in the securities in the following company or companies covered or
recommended in this report:
(a) -.
The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. This report does not purport
to contain all the information that a prospective investor may require. CIMB or any of its affiliates does not make any guarantee, representation or warranty, express or
implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report and accordingly, neither CIMB
nor any of its affiliates nor its related persons shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or
consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates’ clients generally and
does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The
information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities,
related investments or other financial instruments thereof.
Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives,
financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before
participating in any transaction in respect of the securities of company(ies) covered in this research report. The securities of such company(ies) may not be eligible for
sale in all jurisdictions or to all categories of investors.
Australia: Despite anything in this report to the contrary, this research is provided in Australia by CIMB Research Pte. Ltd. (“CIMBR”) and CIMBR notifies each recipient
and each recipient acknowledges that CIMBR is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cwlth) in
respect of financial services provided to the recipient. CIMBR is regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from
Australian laws. This research is only available in Australia to persons who are “wholesale clients” (within the meaning of the Corporations Act 2001 (Cwlth)) and is
supplied solely for the use of such wholesale clients and shall not be distributed or passed on to any other person. This research has been prepared without taking into
account the objectives, financial situation or needs of the individual recipient.
France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to subscribe to, or
used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is not intended as a solicitation for
the purchase of any financial instrument.
Hong Kong: This report is issued and distributed in Hong Kong by CIMB Securities (HK) Limited (“CHK”) which is licensed in Hong Kong by the Securities and Futures
Commission for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) activities. Any investors wishing to purchase or
otherwise deal in the securities covered in this report should contact the Head of Sales at CIMB Securities (HK) Limited. The views and opinions in this research report
are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services
Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its opinion or the information in this
research report.
This publication is strictly confidential and is for private circulation only to clients of CHK. This publication is being supplied to you strictly on the basis that it will remain
confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly
or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CHK. Unless permitted to do so by the securities laws of Hong
Kong, no person may issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating
to the securities covered in this report, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to
do so under the securities laws of Hong Kong).
Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (“CIMBI”). The views and opinions in this research report are our own as of the date
hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient,
our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only to clients of CIMBI. This publication is being supplied to you strictly on the basis that it will remain
confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly
or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBI. Neither this report nor any copy hereof may be distributed
in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesia residents except in compliance with applicable Indonesian capital market laws
and regulations.
Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (“CIMB”). The views and opinions in this research report are our own as of the date
hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient,
our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update its opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only to clients of CIMB. This publication is being supplied to you strictly on the basis that it will remain
confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly
or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB.
[ 5 ]
New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the
purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978.
Singapore: This report is issued and distributed by CIMB Research Pte Ltd (“CIMBR”). Recipients of this report are to contact CIMBR in Singapore in respect of any
matters arising from, or in connection with, this report. The views and opinions in this research report are our own as of the date hereof and are subject to change. If the
Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient
therein are unaffected. CIMBR has no obligation to update its opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional
investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication
is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in
any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of
CIMBR.
As of 13 October 2010 CIMB Research Pte Ltd does not have a proprietary position in the recommended securities in this report.
Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution of this report is not
an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may not be forwarded to the public in
Sweden.
Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not
be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold
within the Republic of China through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Law of the
Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China.
Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as
of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a
recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain
confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly
or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBS.
United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or
governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE
Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a
limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other
purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any
other contract of whatsoever nature within the territory of the United Arab Emirates.
United Kingdom: This report is being distributed by CIMB Securities (UK) Limited only to, and is directed at selected persons on the basis that those persons are (a)
persons falling within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (the “Order”) who have professional experience in
investments of this type or (b) high net worth entities, and other persons to whom it may otherwise lawfully be communicated, falling within Article 49(1) of the Order, (all
such persons together being referred to as “relevant persons”). A high net worth entity includes a body corporate which has (or is a member of a group which has) a
called-up share capital or net assets of not less than (a) if it has (or is a subsidiary of an undertaking which has) more than 20 members, £500,000, (b) otherwise, £5
million, the trustee of a high value trust or an unincorporated association or partnership with assets of no less than £5 million. Directors, officers and employees of such
entities are also included provided their responsibilities regarding those entities involve engaging in investment activity. Persons who do not have professional
experience relating to investments should not rely on this document.
United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer and a related company
of CIMB Research Pte Ltd solely to persons who qualify as "Major U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934.
This communication is only for Institutional Investors and investment professionals whose ordinary business activities involve investing in shares, bonds and associated
securities and/or derivative securities and who have professional experience in such investments. Any person who is not an Institutional Investor must not rely on this
communication. However, the delivery of this research report to any person in the United States of America shall not be deemed a recommendation to effect any
transactions in the securities discussed herein or an endorsement of any opinion expressed herein. For further information or to place an order in any of the abovementioned
securities please contact a registered representative of CIMB Securities (USA) Inc.
Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional, institutional or
sophisticated investors as defined in the laws and regulations of such jurisdictions.
RECOMMENDATION FRAMEWORK #1*
STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS
OUTPERFORM: The stock's total return is expected to exceed a relevant
benchmark's total return by 5% or more over the next 12 months.
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is
expected to outperform the relevant primary market index over the next 12
months.
NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant
benchmark's total return.
NEUTRAL: The industry, as defined by the analyst's coverage universe, is
expected to perform in line with the relevant primary market index over the next
12 months.
UNDERPERFORM: The stock's total return is expected to be below a relevant
benchmark's total return by 5% or more over the next 12 months.
UNDERWEIGHT: The industry, as defined by the analyst's coverage universe,
is expected to underperform the relevant primary market index over the next 12
months.
TRADING BUY: The stock's total return is expected to exceed a relevant
benchmark's total return by 5% or more over the next 3 months.
TRADING BUY: The industry, as defined by the analyst's coverage universe, is
expected to outperform the relevant primary market index over the next 3
months.
TRADING SELL: The stock's total return is expected to be below a relevant
benchmark's total return by 5% or more over the next 3 months.
TRADING SELL: The industry, as defined by the analyst's coverage universe,
is expected to underperform the relevant primary market index over the next 3
months.
* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected returns to be
temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
CIMB Research Pte Ltd (Co. Reg. No. 198701620M)
[ 6 ]
RECOMMENDATION FRAMEWORK #2 **
STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS
OUTPERFORM: Expected positive total returns of 15% or more over the next
12 months.
OVERWEIGHT: The industry, as defined by the analyst's coverage universe,
has a high number of stocks that are expected to have total returns of +15% or
better over the next 12 months.
NEUTRAL: Expected total returns of between -15% and +15% over the next
12 months.
NEUTRAL: The industry, as defined by the analyst's coverage universe, has
either (i) an equal number of stocks that are expected to have total returns of
+15% (or better) or -15% (or worse), or (ii) stocks that are predominantly
expected to have total returns that will range from +15% to -15%; both over the
next 12 months.
UNDERPERFORM: Expected negative total returns of 15% or more over the
next 12 months.
UNDERWEIGHT: The industry, as defined by the analyst's coverage universe,
has a high number of stocks that are expected to have total returns of -15% or
worse over the next 12 months.
TRADING BUY: Expected positive total returns of 15% or more over the next 3
months.
TRADING BUY: The industry, as defined by the analyst's coverage universe,
has a high number of stocks that are expected to have total returns of +15% or
better over the next 3 months.
TRADING SELL: Expected negative total returns of 15% or more over the next
3 months.
TRADING SELL: The industry, as defined by the analyst's coverage universe,
has a high number of stocks that are expected to have total returns of -15% or
worse over the next 3 months.
** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the
prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.