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Indonesia Cement Sector

Lebaran masked robust

September sales 
 
Reiterating Indocement as our top pick
Indocement’s remarkable sales performance reinforces our belief that the
company is a main beneficiary of the buoyant demand, delivering the strongest
earnings growth (+33% p.a. EBITDA growth in 2010-12F) owing to ample capacity
(especially with its de-bottlenecking program) and a superior business model.
Mortgage expansion, a low deposit rate and buoyant commodity prices are
important drivers for cement consumption, with further upside from infrastructure
realization.

Flat cement consumption in September amid Lebaran holiday
Domestic cement consumption was unchanged YoY (-29% MoM) at 2.6m tons in
September amid Lebaran festivities. Weaker cement demand in Java and Sulawesi
offset strong demand in Sumatra, Kalimantan and Eastern Indonesia (for details
please refer to Figure 2, page 2). Overall, cement sales reached 9.9m tons (+1%
QoQ; +2% YoY) in 3Q10 and 27.3m tons (+8% YTD) in 9M10, on track to meet
our full-year target of 42.2m tons.

Indocement continued to register the strongest sales growth
Indocement (INTP) recorded +11% YoY (-30% MoM) in September compared to
Semen Gresik (SMGR) down 3% YoY (-29% MoM) and Holcim Indonesia (SMCB)
down 10% YoY (-34% MoM). Overall, INTP registered the strongest growth in
3Q10 (9M10) at +7% YoY (+14% YTD), vs. SMGR at -1% YoY (+2% YTD) and
SMCB at -1% YoY (+12% YTD), in line to meet our full-year target.

Valuation and risks
We use DCF analysis to value stocks in the cement sector. Risks for the sector
include banks’ unwillingness to cut interest rates and extend loans for mortgages,
delays in infrastructure development, and rising energy prices (see page 4 for
details of valuation and risks).