UBS Cement companies to marginally benefit from

The government will spend around US$1.3bn in labour-intensive infrastructure projects. Back-of-the-envelope analysis would suggest that even if only 10% of the money goes to purchase cement, it is already equal to 5% of last year’s domestic cement revenue of US$2.7bn. We currently expect low teen revenue growth for 2009. However, the impact could be muted as the overall government spending is expected to decline YoY.

Indocement is our preferred pick in the sector. It has more sales concentrated in Java (where most of the infrastructure spending and tax cut will matter) compared to the more nation-wide distribution of Semen Gresik. Indocement is trading at a PE of 10x 2009E.