Semen Gresik
Scaled-down capex plans approved
Semen Gresik held an EGM on 30 January 2009 to seek shareholders’ approval to reduce investment in power plants from an initially proposed capacity upgrade of 405MW to now only 70MW. The shareholders gave their assent. As such, Semen Gresik’s revised plans are now to develop two new cement plants with 5.0mn tonnes of new capacity and one 70 MW power plant. The management has earmarked US$1.4bn of capex up to 2014. In our view, the decision to scale back on the capex is wise give the uncertainties created by the global economic slump. We have downgraded our earnings forecast on the back of higher coal prices since Semen Gresik will no longer be protected by long term coal contracts.
We maintain our BUY recommendation on the company but with a lower target price of Rp4,100 (which translates into an EV/tonne of US$130).
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