Domestic cement volume increased by 7% MoM to 2.85m tonnes in April. The 7% increase was the strongest MoM increase since the 16% increase in May 2008. Volume was down 7% YoY, but the rate of decline improved compared with March's 11% YoY decline. Volume for 4M09 has declined by 6% YoY. We remain comfortable with our forecast of a 2% decline for 2009, as we had expected a weak first half due to a high base effect in 1H08, when growth was extremely strong at 21% YoY.
Java experienced a 10% MoM increase in April. Sales in Java accounted for 55% of the domestic market. The primary beneficiaries from a strong recovery in Java will be Indocement (70% sales in Java) and Holcim Indonesia (82% in Java). Sales ex Java increased by 3% MoM, however, Sumatra (23% of total) and Sulawesi (7% of total) declined by 6% and 11%, respectively.
No signs of price war . Cement prices were flat MoM and up 19% YoY, as producers focus on profitability and are refraining from a price war. By maintaining prices at the current level, we estimate that the average selling price will increase by 10% YoY in 2009. In our view, the main risk to pricing is not a price war but the investigation by the anti-monopoly body KPPU into alleged cartel practices in the cement industry.
We are overweight the Indonesian cement sector (top pick: Indocement), which is trading at around a 20% discount to replacement cost. We expect a strong 10% volume rebound in 2010, as we expect economic growth to accelerate. In addition, our regional economist, Rajeev Malik, mentions in his 15 May 2009 note, Indonesia – Standing tall, that he sees slight upside risk to his GDP growth forecast of 3.5% following 1Q09 GDP growth of 4.4%.
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