Soft cement sales volume growth of 2.0% YoY, affected by…
The Indonesian Cement Association (ASI) reported soft Mar-16 domestic cement volumes of 4.8mn tons (+2.0% YoY, +7.1% MoM), bringing 3M16 domestic cement sales volume of 14.4mn tons (+4.3% YoY). Note that Mar-16 sales volume has been supported by addition of Semen Jawa and Bima starting in Feb-16. Strong growth on monthly basis mainly due to shorter period of Feb-16 cement sales and rainy season. Meanwhile on yearly basis soft cement sales growth was mainly due to challenging results from 1Q16 property pre-marketing sales, which affected Mar-16 cement bag sales volume of 3.7mn tons (+2.0% YoY, +7.6% MoM), translating 3M16 volume of 11.2mn tons (+3.3% YoY). In addition, we still believe infrastructure will contribute more in the following quarter, as of Mar-16 bulk cement sales was 1.1mn tons (+2.3% YoY, +5.4% MoM), resulting 3M16 bulk cement sales of 3.2mn tons (+7.9% YoY).
..Slower Java performance of -0.3% YoY
Mar-16 Java’s volume was relatively flat to 2.6mn tons (-0.3% YoY, +8.9% MoM), due to weak cement sales volume in Banten, Jakarta, and West Java of 246k tons (-10.9% YoY, +11.7% MoM), 407k tons (-13.8% YoY, +7.7% MoM), and 698k tons (-2.7% YoY, +9.6% MoM) respectively. On more positive notes, Outer Java performance outpaced Java cement sales reached 2.2mn tons (+5.0% YoY, +5.0% MoM), carried by strong sales volume in Sulawesi (Mar-16: 435k tons, +21.1% YoY, +4.2% MoM) and Nusa Tenggara (Mar-16: 290k tons, +28.5% YoY, +27.1% MoM). Hence, Outer Java proportion improved in 3M16 to 45.6% vis-à-vis 44.4% in 3M15.
Tightening competition resulting in soft market leader performance
Intense competition in Java resulted in soft SMGR Mar-16 domestic cement sales performance of 2.0mn tons (-3.0% YoY, +8.4% MoM), translating 3M16 sales volume of 5.9mn tons (-2.0% YoY). Hence, SMGR 3M16 market shares dropped to 41.1% from 43.7% a year earlier. On the other hand INTP experienced improving Mar-16 performance of 1.3mn tons (+3.4% YoY, +9.2% MoM), mainly due to enhancement in outer Java of 358k tons (+28.1% YoY, -3.7% MoM). In addition INTP strategy to gain its market shares emerge its 3M16 market shares to reach 27.3% vis-à-vis 28.0% in 3M15. Moreover SMCB posted market shares expansion to 14.2% in 3M16 (3M15: 13.4%), note that tough competition forced SMCB to expand to other areas, i.e. Kalimantan.
Positive infrastructure development provide some cushion
Government commitment to focus on infrastructure development has been shown in improvement of target infrastructure budget of Rp314 tn where in 2015 real infrastructure budget reached Rp224 tn. Note that, real budget in 2015 only achieved 77% from government target of Rp. 290tn in 2015. We believe better achievement in 2016 of around 85%, due to earlier project tender compare to last year and government policies to accelerate infrastructure progress. Furthermore, we expect better property sector in 2H16 to supported by enhancement in GDP growth and lower interest climates. In addition SMGR has around 40.7% market shares of bulk cement sales in 3M16, followed by INTP and SMCB should benefit from the government spending realization. Hence, we maintain our industry cement sales assumption of 66.4mn tons (+9.8% YoY) and believe tougher competition forcing companies to focus less on Java to retain their market shares and margin at the same time.
We maintain Neutral rating on the sector
We foresee the outlook remain challenging for cement sector mainly due to oversupply condition. Hence we maintain our Neutral rating on the sector with preference of market leader since they could survive in tough business landscape. We maintain our BUY rating for SMGR with TP of Rp12,000 and HOLD rating for INTP with TP of Rp21,000. Upside risks to our call including faster than expected infrastructure project, meanwhile downside risks is worse than expected competition to acquire market shares.
