CLSA cement upgrades

Our analyst Hadi Susilo has been putting many hours to write reports on cement sectors. And Hadi upgrades his TP for all the 3 cement names and raise the recommendation for SMCB from UPF to BUY.

The sector looks pretty robust. Top pick is Indocement (INTP IJ) but if you want more leverage Holcim (SMCB IJ) is the name to look at.

Indocement (INTP IJ) : TP Rp6,400 (fr Rp5,650), maintain OPF
Semen Gersik (SMGR IJ) : TP Rp5,000 (fr Rp3,800), maintain OPF
Holcim (SMCB IJ) : TP Rp1,100(fr Rp910), upgrade from UPF to BUY

From EV/tonne perspective, SMCB looks the cheapest at US$90/t compared to SMGR (US$125/t) and INTP (US$104). From PE point of view, SMGR is the cheapest at 12.6x 09 CL PE. However, we would argue that a more appropriate comparison is EV/EBITDA. EV/t ignores the fact that the companies are running at different capacity utilization. PE is largely affected by forex swing, especially in the case of SMCB. If we want to be able to compare the cement stocks on an apple for apple basis (or cement bag to cement bag comparison), look at EV/Ebitda. INTP followed by SMCB looks most attractive (2010).

Additional comments from Nick Cashmore:
We have made substantial revisions to our kitchen-sink forecasts. Our forecasts for 2009 earnings have been revised 22% for Indocement, 15% for Semen gresik and five-fold for Holcim. That reflects the leverage for each stock.
We are assuming a recovery in demand by 2010 as interest rates fall and housing demand recovers. We are now expecting 7% volume growth and 3% price growth. A more bullish scenario would approach that of 2008 where volume grew by 15% and price 10%.
Over the last decade, cement demand has grown by a cagr 7%, we have assumed 6% going forward. Indonesia's per capita cement consumption is still the second lowest in Asia after India. Urbanisation, interest rates, infrastructure development and per capita income growth are all fundamental cement demand drivers.
Valuations are now approaching five-year average multiples based on 2010 forecasts, but offer considerable upside in a "melt-up" liquidity driven environment.