We assume coverage of the Indonesian cement sector with OUTPERFORM ratings on Semen Gresik and Indocement and NEUTRAL rating on Holcim Indonesia. Indonesian cement stocks command higher return and earnings growth, although the stocks trade at a 15% discount to the average global P/E and EV/EBITDA multiples
The short-term data points tend to put pressure on share prices, although we believe it could provide a buying opportunity. We expect a recovery in cement consumption in May-June 2009 and lower energy costs start to affect earnings from 3Q09E onwards. We expect cement companies to be able to maintain their profitability as energy costs are likely to decline.
Among the Indonesian cement stocks, Indocement is our top pick. This is because, it is the most innovative and efficient cement company and its management has a good track record of weathering difficult economic conditions. The stock is trading at a 25% discount to Semen Gresik on EV/tonne (t) basis for 2009E.
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